~~The table below presents the fair value of derivatives on a net-by-counterparty basis.~~

Securities Borrowed and Loaned Transactions

In a securities borrowed transaction, the firm borrows securities from a counterparty in exchange for cash. When the firm returns the securities, the counterparty returns the cash. Interest is generally paid periodically over the life of the transaction.

In a securities loaned transaction, the firm lends securities to a counterparty typically in exchange for cash or securities, or a letter of credit. When the counterparty returns the securities, the firm returns the cash or securities posted as collateral. Interest is generally paid periodically over the life of the transaction.

The firm receives securities borrowed, makes delivery of securities loaned, monitors the market value of these securities on a daily basis, and delivers or obtains additional collateral due to changes in the market value of the securities, as appropriate. For securities borrowed transactions, the firm typically requires collateral with a fair value approximately equal to the carrying value of the securities borrowed transaction.

Securities borrowed and loaned within Fixed Income, Currency and Commodities Client Execution are recorded at fair value under the fair value option. See Note 8 for further information about securities borrowed and loaned accounted for at fair value.

Securities borrowed and loaned within Securities Services are recorded based on the amount of cash collateral advanced or received plus accrued interest. As these arrangements generally can be terminated on demand, they exhibit little, if any, sensitivity to changes in interest rates. Therefore, the carrying value of such arrangements approximates fair value. While these arrangements are carried at amounts that approximate fair value, they are not accounted for at fair value under the fair value option or at fair value in accordance with other U.S. GAAP and therefore are not included in the firm’s fair value hierarchy in Notes 6, 7 and 8. Had these arrangements been included in the firm’s fair value hierarchy, they would have been classified in level 2 as of ~~September 2012.~~

~~As of September 2012~~March 2013 and December ~~2011,~~2012.


		Goldman Sachs March 2013 Form 10-Q		51

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Offsetting Arrangements

The tables below present the ~~firm had $8.21 billion~~gross and ~~$20.22 billion, respectively, of securities received under~~net resale and repurchase agreements and securities borrowed and loaned transactions, ~~that were segregated to satisfy certain regulatory requirements. These securities are~~and the related amount of netting with the same counterparty under enforceable netting agreements (“counterparty netting”) included in ~~“Cash~~the condensed consolidated statements of financial condition. Substantially all of the gross carrying values of these arrangements are subject to enforceable netting agreements. The tables below also present the amounts not offset in the

condensed consolidated statements of financial condition including counterparty netting that does not meet the criteria for netting under U.S. GAAP and the fair value of cash or securities ~~segregated for regulatory and other purposes.”~~collateral received or posted subject to enforceable credit support agreements. Where the firm has received or posted collateral under credit support agreements, but has not yet determined such agreements are enforceable, the related collateral has not been netted in the table below.


	As of March 2013
	Assets					Liabilities
in millions		Securities purchased under agreements to resell		Securities borrowed			Securities sold under agreements to repurchase		Securities loaned
Amounts included in the condensed consolidated statements of financial condition
Gross carrying value		$ 202,217		$ 182,905			$ 194,714		$ 30,894

Counterparty netting		(39,162	)	(10,225	)		(39,162	)	(10,225	)
Total		163,055	^1, 2	172,680	¹		155,552	²	20,669
Amounts that have not been offset in the condensed consolidated statements of financial condition
Counterparty netting		(15,014	)	(4,797	)		(15,014	)	(4,797	)

Collateral		(134,711	)	(143,812	)		(105,163	)	(14,077	)
Total		$ 13,330		$ 24,071			$ 35,375		$ 1,795

	As of December 2012
	Assets					Liabilities
in millions		Securities purchased under agreements to resell		Securities borrowed			Securities sold under agreements to repurchase		Securities loaned
Amounts included in the condensed consolidated statements of financial condition
Gross carrying value		$ 175,656		$ 151,162			$ 201,688		$ 23,509

Counterparty netting		(29,766	)	(9,744	)		(29,766	)	(9,744	)
Total		145,890	^1, 2	141,418	¹		171,922	²	13,765
Amounts that have not been offset in the condensed consolidated statements of financial condition
Counterparty netting		(27,512	)	(2,583	)		(27,512	)	(2,583	)

Collateral		(104,344	)	(117,552	)		(106,638	)	(10,990	)
Total		$ 14,034		$ 21,283			$ 37,772		$ 192

As of March 2013 and December 2012, the firm had $4.37 billion and $4.41 billion, respectively, of securities received under resale agreements and $639 million and $4.53 billion, respectively, of securities borrowed transactions that were segregated to satisfy certain regulatory requirements. These securities are included in “Cash and securities segregated for regulatory and other purposes.”

2.	As of March 2013 and December 2012, the firm classified $183 million and $148 million, respectively, of resale agreements and $196 million and $115 million, respectively, of repurchase agreements as held for sale. See Note 12 for further information.


52		Goldman Sachs March 2013 Form 10-Q

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Other Secured Financings

In addition to repurchase agreements and securities lending transactions, the firm funds certain assets through the use of other secured financings and pledges financial instruments and other assets as collateral in these transactions. These other secured financings consist of:

liabilities of consolidated VIEs;

transfers of assets accounted for as financings rather than sales (primarily collateralized central bank financings, pledged commodities, bank loans and mortgage whole loans); and

other structured financing arrangements.

Other secured financings include arrangements that are nonrecourse. As of ~~September 2012~~March 2013 and December ~~2011,~~2012, nonrecourse other secured financings were ~~$1.94~~$1.51 billion and ~~$3.14~~$1.76 billion, respectively.

The firm has elected to apply the fair value option to ~~the following~~substantially all other secured financings because the use of fair value eliminates non-economic volatility in earnings that would arise from using different measurement ~~attributes:~~

~~transfers of assets accounted for as financings rather than sales; and~~

~~certain other nonrecourse financings.~~

attributes. See Note 8 for further information about other secured financings that are accounted for at fair value.

Other secured financings that are not recorded at fair value are ~~generally short-term and~~ recorded based on the amount of cash received plus accrued interest, which generally approximates fair value. While these financings are carried at amounts that approximate fair value, they are not accounted for at fair value under the fair value option or at fair value in accordance with other U.S. GAAP and therefore are not included in the firm’s fair value hierarchy in Notes 6, 7 and 8. Had these financings been included in the firm’s fair value hierarchy, they would have primarily been classified in level 23 as of ~~September~~March 2013 and December 2012.


52		Goldman Sachs ~~September 2012~~March 2013 Form 10-Q		53

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

The table below presents information about other secured financings. In the table below:

short-term secured financings include financings maturing within one year of the financial statement date and financings that are redeemable within one year of the financial statement date at the option of the holder;

long-term secured financings that are repayable prior to maturity at the option of the firm are reflected at their contractual maturity dates; and

long-term secured financings that are redeemable prior to maturity at the option of the holders are reflected at the dates such options become exercisable.

As of September 2012    As of December 2011
$ in millions
U.S.
Dollar

Non-U.S.
Dollar
   Total
U.S.
Dollar

Non-U.S.
Dollar
   Total
Other secured financings (short-term):

At fair value
$13,392    $4,918    $18,310       $18,519    $  5,140    $23,659
At amortized cost
34    2,706    2,740       155    5,371    5,526
Interest rates¹
6.82 % 0.10 %    3.85 % 0.22 %
Other secured financings (long-term):

At fair value
5,462    1,407    6,869       4,305    2,055    6,360
At amortized cost
710    764    1,474       1,024    795    1,819
Interest rates¹
2.99 % 2.84 %    1.88 % 3.28 %
Total²
$19,598    $9,795    $29,393       $24,003    $13,361    $37,364
Amount of other secured financings collateralized by:

Financial instruments³
$18,990    $9,420    $28,410       $23,703    $12,169    $35,872
Other assets⁴
608    375    983       300    1,192    1,492


	As of March 2013						As of December 2012
$ in millions		U.S. Dollar		Non-U.S. Dollar		Total		U.S. Dollar		Non-U.S. Dollar		Total
Other secured financings (short-term):
At fair value		$15,109		$5,362		$20,471		$16,504		$6,181		$22,685

At amortized cost		26		—		26		34		326		360

Interest rates¹		*6.37*	%	—	%			6.18	%	0.10	%

Other secured financings (long-term):
At fair value		6,134		1,877		8,011		6,134		1,518		7,652

At amortized cost		247		713		960		577		736		1,313

Interest rates¹		*4.67*	%	*2.54*	%			3.38	%	2.55	%
Total²		$21,516		$7,952		$29,468		$23,249		$8,761		$32,010
Amount of other secured financings collateralized by:
Financial instruments³		$21,307		$7,517		$28,824		$22,323		$8,442		$30,765

Other assets⁴		209		435		644		926		319		1,245

1.	The weighted average interest rates exclude secured financings at fair value and include the effect of hedging activities. See Note 7 for further information about hedging activities.

Includes ~~$6.18~~$9.23 billion and ~~$9.36~~$8.68 billion related to transfers of financial assets accounted for as financings rather than sales as of ~~September 2012~~March 2013 and December ~~2011,~~2012, respectively. Such financings were collateralized by financial assets included in “Financial instruments owned, at fair value” of ~~$6.20~~$9.74 billion and ~~$9.51~~$8.92 billion as of ~~September 2012~~March 2013 and December ~~2011,~~2012, respectively.

Includes ~~$15.58~~$15.32 billion and ~~$14.82~~$17.24 billion of other secured financings collateralized by financial instruments owned, at fair value as of ~~September 2012~~March 2013 and December ~~2011,~~2012, respectively, and includes ~~$12.83~~$13.50 billion and ~~$21.06~~$13.53 billion of other secured financings collateralized by financial instruments received as collateral and repledged as of ~~September 2012~~March 2013 and December ~~2011,~~2012, respectively.

4.	Primarily real estate and cash.

The table below presents other secured financings by maturity.

in millions

As of
September 2012


Other secured financings (short-term)
   $21,050
Other secured financings (long-term):

2013
   771
2014
   4,046
2015
   1,274
2016
   571
2017
   197
2018-thereafter
   1,484
Total other secured financings (long-term)
   8,343
Total other secured financings
   $29,393


in millions			As of March 2013
Other secured financings (short-term)			$20,497

Other secured financings (long-term):
2014			4,766

2015			1,663

2016			954

2017			243

2018			652

2019-thereafter			693
Total other secured financings (long-term)			8,971
Total other secured financings			$29,468

The aggregate contractual principal amount of other secured financings (long-term) for which the fair value option was elected exceeded the related fair value by $188 million and $239 million, as of September 2012 and December 2011, respectively.


54		Goldman Sachs ~~September 2012~~March 2013 Form 10-Q		53

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Collateral Received and Pledged

The firm receives ~~financial instruments~~cash and securities (e.g., U.S. government and federal agency, other sovereign and corporate obligations, as well as equities and convertible debentures) as collateral, primarily in connection with resale agreements, securities borrowed, derivative transactions and customer margin loans. The firm obtains cash and securities as collateral on an upfront or contingent basis for derivative instruments and collateralized agreements to reduce its credit exposure to individual counterparties.

In many cases, the firm is permitted to deliver or repledge ~~these~~ financial instruments received as collateral when entering into repurchase agreements and securities lending agreements, primarily in connection with secured client financing activities. The firm is also permitted to deliver or repledge these financial instruments in connection with other secured financings, collateralizing derivative transactions and meeting firm or customer settlement requirements.

~~The table below presents financial instruments at fair value received as collateral that were available to be delivered or repledged and were delivered or repledged by the firm.~~

As of
in millions

September
2012



December
2011
Collateral available to be delivered
or repledged
$573,711       $622,926
Collateral that was delivered or repledged
431,090       454,604

The firm also pledges certain financial instruments owned, at fair value in connection with repurchase agreements, securities lending agreements and other secured financings, and other assets (primarily real estate and cash) in connection with other secured financings to counterparties who may or may not have the right to deliver or repledge them.

The table below presents financial instruments at fair value received as collateral that were available to be delivered or repledged and were delivered or repledged by the firm.


	As of
in millions		March 2013	December 2012
Collateral available to be delivered or repledged		$614,337	$540,949

Collateral that was delivered or repledged		459,267	397,652

The table below presents information about assets pledged by the firm.

As of
in millions

September
2012



December
2011
Financial instruments owned, at fair value pledged to counterparties that:

Had the right to deliver or repledge
$  66,753       $  53,989
Did not have the right to deliver
or repledge
118,630       110,949
Other assets pledged to counterparties that:

Did not have the right to deliver
or repledge
2,603       3,444


	As of
in millions		March 2013	December 2012
Financial instruments owned, at fair value pledged to counterparties that:
Had the right to deliver or repledge		$ 67,891	$ 67,177

Did not have the right to deliver or repledge		114,701	120,980

Other assets pledged to counterparties that:
Did not have the right to deliver or repledge		1,148	2,031


		Goldman Sachs March 2013 Form 10-Q		55

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Note 10. Securitization Activities

Note 10.

Securitization Activities

The firm securitizes residential and commercial mortgages, corporate bonds, loans and other types of financial assets by selling these assets to securitization vehicles (e.g., trusts, corporate entities and limited liability companies) and acts as underwriter of the beneficial interests that are sold to investors. The firm’s residential mortgage securitizations are substantially all in connection with government agency securitizations.

Beneficial interests issued by securitization entities are debt or equity securities that give the investors rights to receive all or portions of specified cash inflows to a securitization vehicle and include senior and subordinated shares of principal, interest and/or other cash inflows. The proceeds from the sale of beneficial interests are used to pay the transferor for the financial assets sold to the securitization vehicle or to purchase securities which serve as collateral.

The firm accounts for a securitization as a sale when it has relinquished control over the transferred assets. Prior to securitization, the firm accounts for assets pending transfer at fair value and therefore does not typically recognize significant gains or losses upon the transfer of assets. Net revenues from underwriting activities are recognized in connection with the sales of the underlying beneficial interests to investors.

For transfers of assets that are not accounted for as sales, the assets remain in “Financial instruments owned, at fair value” and the transfer is accounted for as a collateralized financing, with the related interest expense recognized over the life of the transaction. See Notes 9 and 23 for further information about collateralized financings and interest expense, respectively.

The firm generally receives cash in exchange for the transferred assets but may also have continuing involvement with transferred assets, including ownership of beneficial interests in securitized financial assets, primarily in the form of senior or subordinated securities. The firm may also purchase senior or subordinated securities issued by securitization vehicles (which are typically VIEs) in connection with secondary market-making activities.


54		~~Goldman Sachs September 2012 Form 10-Q~~

~~THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

The primary risks included in beneficial interests and other interests from the firm’s continuing involvement with securitization vehicles are the performance of the underlying collateral, the position of the firm’s investment in the capital structure of the securitization vehicle and the market yield for the security. These interests are accounted for at fair value and are included in “Financial instruments owned, at fair value” and are generally classified in level 2 of the fair value hierarchy. See Notes 5 through 8 for further information about fair value measurements.


56		Goldman Sachs March 2013 Form 10-Q

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

The table below presents the amount of financial assets securitized and the cash flows received on retained interests in securitization entities in which the firm had continuing involvement.

Three Months
Ended September Nine Months
Ended September
in millions 2012    2011    2012    2011
Residential mortgages
$8,530    $10,091    $27,797    $31,642
Commercial mortgages
625    —    2,248    —
Other financial assets
—    153    —    234
Total
$9,155    $10,244    $30,045    $31,876
Cash flows on retained interests
$   161    $     239    $     333    $     594


	Three Months Ended March
in millions		2013	2012
Residential mortgages		$7,387	$10,989

Commercial mortgages		2,352	—
Total		$9,739	$10,989
Cash flows on retained interests		$ 165	$ 147

The table below presents the firm’s continuing involvement in nonconsolidated securitization entities to which the firm sold assets, as well as the total outstanding principal amount of transferred assets in which the firm has continuing involvement. In this table:

the outstanding principal amount is presented for the purpose of providing information about the size of the securitization entities in which the firm has continuing involvement and is not representative of the firm’s risk of loss;

for retained or purchased interests, the firm’s risk of loss is limited to the fair value of these interests; and

purchased interests represent senior and subordinated interests, purchased in connection with secondary market-making activities, in securitization entities in which the firm also holds retained interests.

As of September 2012    As of December 2011
in millions

Outstanding
Principal
Amount



Fair Value of
Retained
Interests



Fair Value of
Purchased
Interests



Outstanding
Principal
Amount



Fair Value of
Retained
Interests


Fair Value of
Purchased Interests
U.S. government agency-issued collateralized mortgage obligations¹
$57,923       $3,809       $   —       $70,448       $5,038       $   —
Other residential mortgage-backed ²
3,769       105       —       4,459       101       3
Commercial mortgage-backed ³
3,186       18       46       3,398       606       331
CDOs, CLOs and other ⁴
9,259       37       266       9,972       32       211
Total⁵
$74,137       $3,969       $312       $88,277       $5,777       $545


	As of March 2013				As of December 2012
in millions		Outstanding Principal Amount	Fair Value of Retained Interests	Fair Value of Purchased Interests		Outstanding Principal Amount	Fair Value of Retained Interests	Fair Value of Purchased Interests
U.S. government agency-issued collateralized mortgage obligations¹		$58,541	$4,761	$ —		$57,685	$4,654	$ —

Other residential mortgage-backed ²		3,465	104	—		3,656	106	—

Other commercial mortgage-backed ³		2,874	214	82		1,253	1	56

CDOs, CLOs and other ⁴		8,592	72	331		8,866	51	331
Total⁵		$73,472	$5,151	$413		$71,460	$4,812	$387

1.	Outstanding principal amount and fair value of retained interests primarily relate to securitizations during 2013, 2012 and 2011 as of ~~September 2012,~~March 2013, and securitizations during ~~2011~~2012 and ~~2010~~2011 as of December ~~2011.~~2012.

2.	Outstanding principal amount and fair value of retained interests as of both ~~September 2012~~March 2013 and December ~~2011~~2012 primarily relate to prime and Alt-A securitizations during 2007 and 2006.

~~As of September 2012, the outstanding~~Outstanding principal amount as of both March 2013 and ~~the fair value of retained interests~~December 2012 primarily relate to securitizations during ~~2012. As of December 2011, the outstanding principal amount primarily relates to securitizations during 2010, 2007~~2012 and ~~2006 and the fair~~2007. Fair value of retained interests as of both March 2013 and December 2012 primarily ~~relates~~relate to securitizations during ~~2010.~~2012.

4.	Outstanding principal amount and fair value of retained interests as of both ~~September 2012~~March 2013 and December ~~2011~~2012 primarily relate to CDO and CLO securitizations during 2007 and 2006.

5.	Outstanding principal amount includes ~~$815~~$631 million and ~~$774~~$835 million as of ~~September 2012~~March 2013 and December ~~2011,~~2012, respectively, related to securitization entities in which the firm’s only continuing involvement is retained servicing which is not a variable interest.


		Goldman Sachs ~~September 2012~~March 2013 Form 10-Q		5557

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

In addition to the interests in the table above, the firm had other continuing involvement in the form of derivative transactions and guarantees with certain nonconsolidated VIEs. The carrying value of these derivatives and guarantees was a net ~~liability~~asset of $3$39 million and ~~$52~~$45 million as of ~~September 2012~~March 2013 and December ~~2011,~~2012, respectively. The notional amounts of these derivatives and guarantees are included in maximum exposure to loss in the nonconsolidated VIE tables in Note 11.

The table below presents the weighted average key economic assumptions used in measuring the fair value of retained interests and the sensitivity of this fair value to immediate adverse changes of 10% and 20% in those assumptions.

As of September 2012 As of December 2011
Type of Retained Interests Type of Retained Interests
$ in millions Mortgage-Backed         Other ¹ Mortgage-Backed       Other ¹
Fair value of retained interests
$3,932         $    37    $5,745       $    32
Weighted average life (years)
7.5         2.3    7.1 ��    4.7
Constant prepayment rate²
15.7 %      N.M.    14.1 %    N.M.
Impact of 10% adverse change²
$    (68 )      N.M.    $    (55 )    N.M.
Impact of 20% adverse change²
(128 )      N.M.    (108 )    N.M.
Discount rate³
4.6 %      N.M.    5.4 %    N.M.
Impact of 10% adverse change
$    (83 )      N.M.    $  (125 )    N.M.
Impact of 20% adverse change
(155 )      N.M.    (240 )    N.M.


	As of March 2013					As of December 2012
	Type of Retained Interests					Type of Retained Interests
$ in millions		Mortgage-Backed		Other	¹		Mortgage-Backed		Other	¹
Fair value of retained interests		$5,079		$ 72			$4,761		$ 51

Weighted average life (years)		8.3		1.9			8.2		2.0

Constant prepayment rate ²		8.6	%	N.M.			10.9	%	N.M.

Impact of 10% adverse change ²		$ (39	)	N.M.			$ (57	)	N.M.

Impact of 20% adverse change ²		(81	)	N.M.			(110	)	N.M.

Discount rate ³		3.8	%	N.M.			4.6	%	N.M.

Impact of 10% adverse change		$ (86	)	N.M.			$ (96	)	N.M.

Impact of 20% adverse change		(168	)	N.M.			(180	)	N.M.

Due to the nature and current fair value of certain of these retained interests, the weighted average assumptions for constant prepayment and discount rates and the related sensitivity to adverse changes are not meaningful as of ~~September 2012~~March 2013 and December ~~2011.~~2012. The firm’s maximum exposure to adverse changes in the value of these interests is the carrying value of ~~$37~~$72 million and ~~$32~~$51 million as of ~~September 2012~~March 2013 and December ~~2011,~~2012, respectively.

2.	Constant prepayment rate is included only for positions for which constant prepayment rate is a key assumption in the determination of fair value.

3.	The majority of mortgage-backed retained interests are U.S. government agency-issued collateralized mortgage obligations, for which there is no anticipated credit loss. For the remainder of retained interests, the expected credit loss assumptions are reflected in the discount rate.

The preceding table does not give effect to the offsetting benefit of other financial instruments that are held to mitigate risks inherent in these retained interests. Changes in fair value based on an adverse variation in assumptions generally cannot be extrapolated because the relationship of the change in assumptions to the change in fair value is

not usually linear. In addition, the impact of a change in a particular assumption in the preceding table is calculated independently of changes in any other assumption. In practice, simultaneous changes in assumptions might magnify or counteract the sensitivities disclosed above.


5658		Goldman Sachs ~~September 2012~~March 2013 Form 10-Q

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Note 11. Variable Interest Entities

Note 11.

Variable Interest Entities

VIEs generally finance the purchase of assets by issuing debt and equity securities that are either collateralized by or indexed to the assets held by the VIE. The debt and equity securities issued by a VIE may include tranches of varying levels of subordination. The firm’s involvement with VIEs includes securitization of financial assets, as described in Note 10, and investments in and loans to other types of VIEs, as described below. See Note 10 for additional information about securitization activities, including the definition of beneficial interests. See Note 3 for the firm’s consolidation policies, including the definition of a VIE.

The firm is principally involved with VIEs through the following business activities:

Mortgage-Backed VIEs and Corporate CDO and CLO VIEs. The firm sells residential and commercial mortgage loans and securities to mortgage-backed VIEs and corporate bonds and loans to corporate CDO and CLO VIEs and may retain beneficial interests in the assets sold to these VIEs. The firm purchases and sells beneficial interests issued by mortgage-backed and corporate CDO and CLO VIEs in connection with market-making activities. In addition, the firm may enter into derivatives with certain of these VIEs, primarily interest rate swaps, which are typically not variable interests. The firm generally enters into derivatives with other counterparties to mitigate its risk from derivatives with these VIEs.

Certain mortgage-backed and corporate CDO and CLO VIEs, usually referred to as synthetic CDOs or credit-linked note VIEs, synthetically create the exposure for the beneficial interests they issue by entering into credit derivatives, rather than purchasing the underlying assets. These credit derivatives may reference a single asset, an index, or a portfolio/basket of assets or indices. See Note 7 for further information about credit derivatives. These VIEs use the funds from the sale of beneficial interests and the premiums received from credit derivative counterparties to purchase securities which serve to collateralize the beneficial interest holders and/or the credit derivative counterparty. These VIEs may enter into other derivatives, primarily interest rate swaps, which are typically not variable interests. The firm may be a counterparty to derivatives with these VIEs and generally enters into derivatives with other counterparties to mitigate its risk.

Real Estate, Credit-Related and Other Investing VIEs. The firm purchases equity and debt securities issued by and makes loans to VIEs that hold real estate, performing and nonperforming debt, distressed loans and equity securities. The firm typically does not sell assets to, or enter into derivatives with, these VIEs.

Other Asset-Backed VIEs. The firm structures VIEs that issue notes to clients and purchases and sells beneficial interests issued by other asset-backed VIEs in connection with market-making activities. In addition, the firm may enter into derivatives with certain other asset-backed VIEs, primarily total return swaps on the collateral assets held by these VIEs under which the firm pays the VIE the return due to the note holders and receives the return on the collateral assets owned by the VIE. The firm generally can be removed as the total return swap counterparty. The firm generally enters into derivatives with other counterparties to mitigate its risk from derivatives with these VIEs. The firm typically does not sell assets to the other asset-backed VIEs it structures.

Power-Related VIEs. The firm purchases debt and equity securities issued by, and may provide guarantees to, VIEs that hold power-related assets. The firm typically does not sell assets to, or enter into derivatives with, these VIEs.

Investment Funds. The firm purchases equity securities issued by and may provide guarantees to certain of the investment funds it manages. The firm typically does not sell assets to, or enter into derivatives with, these VIEs.

Principal-Protected Note VIEs. The firm structures VIEs that issue principal-protected notes to clients. These VIEs own portfolios of assets, principally with exposure to hedge funds. Substantially all of the principal protection on the notes issued by these VIEs is provided by the asset portfolio rebalancing that is required under the terms of the notes. The firm enters into total return swaps with these VIEs under which the firm pays the VIE the return due to the principal-protected note holders and receives the return on the assets owned by the VIE. The firm may enter into derivatives with other counterparties to mitigate the risk it has from the derivatives it enters into with these VIEs. The firm also obtains funding through these VIEs.


		Goldman Sachs ~~September 2012~~March 2013 Form 10-Q		5759

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

VIE Consolidation Analysis

A variable interest in a VIE is an investment (e.g., debt or equity securities) or other interest (e.g., derivatives or loans and lending commitments) in a VIE that will absorb portions of the VIE’s expected losses and/or receive portions of the VIE’s expected residual returns.

The firm’s variable interests in VIEs include senior and subordinated debt in residential and commercial mortgage-backed and other asset-backed securitization entities, CDOs and CLOs; loans and lending commitments; limited and general partnership interests; preferred and common equity; derivatives that may include foreign currency, equity and/or credit risk; guarantees; and certain of the fees the firm receives from investment funds. Certain interest rate, foreign currency and credit derivatives the firm enters into with VIEs are not variable interests because they create rather than absorb risk.

The enterprise with a controlling financial interest in a VIE is known as the primary beneficiary and consolidates the VIE. The firm determines whether it is the primary beneficiary of a VIE by performing an analysis that principally considers:

which variable interest holder has the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance;

which variable interest holder has the obligation to absorb losses or the right to receive benefits from the VIE that could potentially be significant to the VIE;

the VIE’s purpose and design, including the risks the VIE was designed to create and pass through to its variable interest holders;

the VIE’s capital structure;

the terms between the VIE and its variable interest holders and other parties involved with the VIE; and

related-party relationships.

The firm reassesses its initial evaluation of whether an entity is a VIE when certain reconsideration events occur. The firm reassesses its determination of whether it is the primary beneficiary of a VIE on an ongoing basis based on current facts and circumstances.

Nonconsolidated VIEs

The firm’s exposure to the obligations of VIEs is generally limited to its interests in these entities. In certain instances, the firm provides guarantees, including derivative guarantees, to VIEs or holders of variable interests in VIEs.

The tables below present information about nonconsolidated VIEs in which the firm holds variable interests. Nonconsolidated VIEs are aggregated based on principal business activity. The nature of the firm’s variable interests can take different forms, as described in the rows under maximum exposure to loss. In the tables below:

The maximum exposure to loss excludes the benefit of offsetting financial instruments that are held to mitigate the risks associated with these variable interests.

For retained and purchased interests and loans and investments, the maximum exposure to loss is the carrying value of these interests.

For commitments and guarantees, and derivatives, the maximum exposure to loss is the notional amount, which does not represent anticipated losses and also has not been reduced by unrealized losses already recorded. As a result, the maximum exposure to loss exceeds liabilities recorded for commitments and guarantees, and derivatives provided to VIEs.

The carrying values of the firm’s variable interests in nonconsolidated VIEs are included in the condensed consolidated statement of financial condition as follows:

Substantially all assets held by the firm related to mortgage-backed, corporate CDO and CLO, real estate, credit-related and other investing, and other asset-backed VIEs and investment funds are included in “Financial instruments owned, at fair value.” Substantially all liabilities held by the firm related to corporate CDO and CLO, real estate, credit-related and other investing, and other asset-backed VIEs are included in “Financial instruments sold, but not yet purchased, at fair value.”

Assets held by the firm related to power-related VIEs are primarily included in “Financial instruments owned, at fair value” and “Other assets.”


5860		Goldman Sachs ~~September 2012~~March 2013 Form 10-Q

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Assets and liabilities held by the firm related to real estate, credit-related and other investing VIEs are primarily included in “Financial instruments owned, at fair value” and “Financial instruments sold, but not yet purchased, at fair value” and “Other liabilities and accrued expenses,” respectively.

~~Assets and liabilities held by the firm related to power-related VIEs are primarily included in “Other assets” and “Other liabilities and accrued expenses,” respectively.~~


	Nonconsolidated VIEs									Nonconsolidated VIEs
	As of September 2012									As of March 2013
in millions		Mortgage- backed		Corporate CDOs and CLOs	Real estate, credit- related and other investing	Other asset- backed	Power- related	Investment funds	Total		Mortgage- backed		Corporate CDOs and CLOs	Real estate, credit-related and other investing	Other asset- backed	Power- related	Investment funds	Total
Assets in VIE		$85,380	²	$22,363	$9,522	$3,626	$537	$2,263	$123,691		$86,199	²	$21,037	$6,900	$3,373	$110	$1,840	$119,459

Carrying Value of the Firm’s Variable Interests
Assets		5,533		1,206	1,736	249	287	5	9,016		7,027		1,107	1,695	280	49	4	10,162

Liabilities		—		34	—	30	—	—	64		—		9	1	37	—	—	47

Maximum Exposure to Loss in Nonconsolidated VIEs
Retained interests		3,932		37	—	—	—	—	3,969		5,079		71	—	1	—	—	5,151

Purchased interests		1,317		680	—	230	—	—	2,227		1,596		576	—	263	—	—	2,435

Commitments and guarantees ¹		—		1	398	—	2	1	402		—		1	414	—	111	1	527

Derivatives ¹		1,994		6,382	—	1,081	—	—	9,457		1,487		5,666	—	854	—	—	8,007

Loans and investments		42		—	1,736	—	287	5	2,070		38		—	1,695	—	49	4	1,786
Total		$ 7,285	²	$ 7,100	$2,134	$1,311	$289	$ 6	$ 18,125		$ 8,200	²	$ 6,314	$2,109	$1,118	$160	$ 5	$ 17,906

	Nonconsolidated VIEs									Nonconsolidated VIEs
	As of December 2011									As of December 2012
in millions		Mortgage- backed		Corporate CDOs and CLOs	Real estate, credit- related and other investing	Other asset- backed	Power- related	Investment funds	Total		Mortgage- backed		Corporate CDOs and CLOs	Real estate, credit-related and other investing	Other asset- backed	Power- related	Investment funds	Total
Assets in VIE		$94,047	²	$20,340	$8,974	$4,593	$519	$2,208	$130,681		$79,171	²	$23,842	$9,244	$3,510	$147	$1,898	$117,812

Carrying Value of the Firm’s Variable Interests
Assets		7,004		911	1,495	352	289	5	10,056		6,269		1,193	1,801	220	32	4	9,519

Liabilities		—		63	3	24	2	—	92		—		12	—	30	—	—	42

Maximum Exposure to Loss in Nonconsolidated VIEs
Retained interests		5,745		32	—	—	—	—	5,777		4,761		51	—	—	—	—	4,812

Purchased interests		962		368	—	333	—	—	1,663		1,162		659	—	204	—	—	2,025

Commitments and guarantees ¹		—		1	373	—	46	—	420		—		1	438	—	—	1	440

Derivatives ¹		2,469		7,529	—	1,221	—	—	11,219		1,574		6,761	—	952	—	—	9,287

Loans and investments		82		—	1,495	—	288	5	1,870		39		—	1,801	—	32	4	1,876
Total		$ 9,258	²	$ 7,930	$1,868	$1,554	$334	$ 5	$ 20,949		$ 7,536	²	$ 7,472	$2,239	$1,156	$ 32	$ 5	$ 18,440

1.	The aggregate amounts include ~~$3.59~~$3.08 billion and ~~$4.17~~$3.25 billion as of ~~September 2012~~March 2013 and December ~~2011,~~2012, respectively, related to guarantees and derivative transactions with VIEs to which the firm transferred assets.

2.	Assets in VIE and maximum exposure to loss include ~~$7.11~~$4.48 billion and ~~$2.42~~$1.80 billion, respectively, as of ~~September 2012,~~March 2013, and ~~$6.15~~$3.57 billion and ~~$2.62~~$1.72 billion, respectively, as of December ~~2011,~~2012, related to CDOs backed by mortgage obligations.


		Goldman Sachs ~~September 2012~~March 2013 Form 10-Q		5961

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Consolidated VIEs

The tables below present the carrying amount and classification of assets and liabilities in consolidated VIEs, excluding the benefit of offsetting financial instruments that are held to mitigate the risks associated with the firm’s variable interests. Consolidated VIEs are aggregated based on principal business activity and their assets and liabilities are presented net of intercompany eliminations. The majority of the assets in principal-protected notes VIEs are intercompany and are eliminated in consolidation.

Substantially all the assets in consolidated VIEs can only be used to settle obligations of the VIE.

The tables below exclude VIEs in which the firm holds a majority voting interest if (i) the VIE meets the definition of a business and (ii) the VIE’s assets can be used for purposes other than the settlement of its obligations.

The liabilities of real estate, credit-related and other investing VIEs and CDOs, mortgage-backed and other asset-backed VIEs do not have recourse to the general credit of the firm.

Consolidated VIEs
As of September 2012
in millions

Real estate,
credit-related
and other
investing




CDOs,
mortgage-backed
and other
asset-backed






Principal-
protected
notes



   Total
Assets

Cash and cash equivalents
$   286       $  —       $     —       $   286
Cash and securities segregated for regulatory and other purposes
111       —       93       204
Receivables from brokers, dealers and clearing organizations
3       —       —       3
Financial instruments owned, at fair value
2,582       569       170       3,321
Other assets
1,331       —       —       1,331
Total
$4,313       $569       $   263       $5,145
Liabilities

Other secured financings
$   665       $566       $   289       $1,520
Financial instruments sold, but not yet purchased, at fair value
—       —       4       4
Unsecured short-term borrowings, including the current portion of unsecured
long-term borrowings
—       —       1,963       1,963
Unsecured long-term borrowings
4       —       220       224
Other liabilities and accrued expenses
1,965       —       —       1,965
Total
$2,634       $566       $2,476       $5,676


	Consolidated VIEs
	As of March 2013
in millions		Real estate, credit-related and other investing	CDOs, mortgage- backed and other asset- backed	Principal- protected notes	Total
Assets
Cash and cash equivalents		$ 336	$245	$ 1	$ 582

Cash and securities segregated for regulatory and other purposes		62	—	92	154

Receivables from brokers, dealers and clearing organizations		49	—	—	49

Financial instruments owned, at fair value		2,188	494	348	3,030

Other assets		903	—	—	903
Total		$3,538	$739	$ 441	$4,718
Liabilities
Other secured financings		$ 484	$578	$ 301	$1,363

Financial instruments sold, but not yet purchased, at fair value		—	87	—	87

Unsecured short-term borrowings, including the current portion of unsecured long-term borrowings		—	—	1,466	1,466

Unsecured long-term borrowings		4	—	310	314

Other liabilities and accrued expenses		1,096	—	—	1,096
Total		$1,584	$665	$2,077	$4,326


6062		Goldman Sachs ~~September 2012~~March 2013 Form 10-Q

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)


	Consolidated VIEs					Consolidated VIEs
	As of December 2011					As of December 2012
in millions		Real estate, credit-related and other investing	CDOs, mortgage-backed and other asset-backed	Principal- protected notes	Total		Real estate, credit-related and other investing	CDOs, mortgage-backed and other asset-backed	Principal- protected notes	Total
Assets
Cash and cash equivalents		$ 660	$ 51	$ 1	$ 712		$ 236	$107	$ —	$ 343

Cash and securities segregated for regulatory and other purposes		139	—	—	139		134	—	92	226

Receivables from brokers, dealers and clearing organizations		4	—	—	4		5	—	—	5
Receivables from customers and counterparties		—	16	—	16

Financial instruments owned, at fair value		2,369	352	112	2,833		2,958	763	124	3,845

Other assets		1,552	437	—	1,989		1,080	—	—	1,080
Total		$4,724	$856	$ 113	$5,693		$4,413	$870	$ 216	$5,499
Liabilities
Other secured financings		$1,418	$298	$3,208	$4,924		$ 594	$699	$ 301	$1,594
Payables to customers and counterparties		—	9	—	9

Financial instruments sold, but not yet purchased, at fair value		—	—	2	2		—	107	—	107

Unsecured short-term borrowings, including the current portion of unsecured long-term borrowings		185	—	1,941	2,126		—	—	1,584	1,584

Unsecured long-term borrowings		4	—	269	273		4	—	334	338

Other liabilities and accrued expenses		2,046	40	—	2,086		1,478	—	—	1,478
Total		$3,653	$347	$5,420	$9,420		$2,076	$806	$2,219	$5,101


		Goldman Sachs ~~September 2012~~March 2013 Form 10-Q		6163

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Note 12. Other Assets

Note 12.

Other Assets

Other assets are generally less liquid, non-financial assets. The table below presents other assets by type.

As of
in millions

September
2012



December
2011
Property, leasehold improvements and equipment ¹
$  8,470       $  8,697
Goodwill and identifiable intangible assets²
5,296       5,468
Income tax-related assets ³
5,426       5,017
Equity-method investments ⁴
518       664
Miscellaneous receivables and other ⁵
4,014       3,306
Total
$23,724       $23,152


	As of
in millions		March 2013	December 2012
Property, leasehold improvements and equipment ¹		$ 7,960	$ 8,217

Goodwill and identifiable intangible assets²		4,683	5,099

Income tax-related assets ³		5,345	5,620

Equity-method investments ⁴		455	453

Miscellaneous receivables and other⁵		20,045	20,234
Total		$38,488	$39,623

1.	Net of accumulated depreciation and amortization of ~~$9.02~~$8.66 billion and ~~$8.46~~$9.05 billion as of ~~September 2012~~March 2013 and December ~~2011,~~2012, respectively.

2.	Includes $152 million and $149 million of intangible assets classified as held for sale as of March 2013 and December 2012, respectively. See Note 13 for further information about goodwill and identifiable intangible assets.

3.	See Note 24 for further information about income taxes.

Excludes investments accounted for at fair value under the fair value option where the firm would otherwise apply the equity method of accounting of ~~$4.71~~$5.08 billion and ~~$4.17~~$5.54 billion as of ~~September 2012~~March 2013 and December ~~2011,~~2012, respectively, which are included in “Financial instruments owned, at fair value.” The firm has generally elected the fair value option for such investments acquired after the fair value option became available.

5.	Includes ~~$460 million~~$16.65 billion and $16.77 billion of assets related to the firm’s reinsurance business which were classified as held for sale as of ~~September 2012.~~March 2013 and December 2012, respectively.

Assets Held for Sale

In the fourth quarter of 2012, the firm classified its reinsurance business within its Institutional Client Services segment as held for sale. Assets related to this business of $16.80 billion and $16.92 billion, as of March 2013 and December 2012, respectively, consisting primarily of available-for-sale securities and separate account assets at fair value, are included in “Other assets.” Liabilities related to this business of $14.52 billion and $14.62 billion, as of March 2013 and December 2012, respectively, are included in “Other liabilities and accrued expenses.” See Note 8 for further information about insurance-related assets and liabilities held for sale at fair value.

The firm completed the sale of a majority stake in its reinsurance business in April 2013 and, as a result, the firm will no longer consolidate this business.

Property, Leasehold Improvements and Equipment

Property, leasehold improvements and equipment included ~~$6.21~~$6.07 billion and ~~$6.48~~$6.20 billion as of ~~September 2012~~March 2013 and December ~~2011,~~2012, respectively, related to property, leasehold improvements and equipment that the firm uses in

connection with its operations. The remainder is held by investment entities, including VIEs, consolidated by the firm.

Substantially all property and equipment are depreciated on a straight-line basis over the useful life of the asset. Leasehold improvements are amortized on a straight-line basis over the useful life of the improvement or the term of the lease, whichever is shorter. Certain costs of software developed or obtained for internal use are capitalized and amortized on a straight-line basis over the useful life of the software.

Property, leasehold improvements and equipment are tested for impairment whenever events or changes in circumstances suggest that an asset’s or asset group’s carrying value may not be fully recoverable. The firm’s policy for impairment testing of property, leasehold improvements and equipment is the same as is used for identifiable intangible assets with finite lives. See Note 13 for further information.

Impairments

AsThe firm tests property, leasehold improvements and equipment, intangible assets and other assets for impairment in accordance with ASC 360. To the extent the carrying value of an asset exceeds the projected undiscounted cash flows over the estimated remaining useful life of the asset, the firm determines the asset is impaired and records an impairment loss. In addition, the firm will recognize an impairment loss prior to the sale of an asset if the carrying value of the asset exceeds its estimated fair value.

During the first quarter of 2012, as a result of a decline in the market conditions in which certain of the firm’s consolidated investments operate, during the first nine months of 2012 the firm tested certain property, leasehold improvements and equipment and commodity-related intangible assets and other assets for impairment in accordance with ASC 360. The carrying value of these assets exceeded the projected undiscounted cash flows over the estimated remaining useful lives of these assets; as such,operated, the firm determined ~~the~~certain assets were impaired and recorded an impairment ~~losses. In addition, the firm classified certain assets as held for sale during the first nine months~~loss of ~~2012 and recognized impairment losses related to these assets. Collectively, the impairment losses were $252~~$116 million ~~during the nine months ended September 2012~~ ($~~169~~90 million related to property, leasehold improvements and equipment, ~~and $83~~$20 million related to ~~other~~commodity-related intangible assets and ~~commodity-related intangible~~$6 million related to other assets), substantially all of which ~~were~~was included in “Depreciation and amortization.” These impairment losses were included in the firm’s Investing & Lending segment and represented the excess of the carrying values of these assets over their estimated fair values, which are ~~primarily~~ level 3 measurements, using a combination of discounted cash flow analyses and relative value analyses, including the estimated cash flows expected to be received from the disposition of certain of these assets.

In the first quarter of 2011, the firm classified certain assets as held for sale, primarily related to Litton Loan Servicing LP (Litton) and recognized impairment losses of approximately $220 million, principally in the firm’s Institutional Client Services segment. These impairment losses, which were included in “Depreciation and amortization,” represented the excess of (i) the carrying value of these assets over (ii) their estimated fair value less estimated cost to sell. These assets were sold in the third quarter of 2011. The firm received total consideration that approximated the firm’s adjusted carrying value for Litton. See Note 18 for further information about the sale of Litton.


6264		Goldman Sachs ~~September 2012~~March 2013 Form 10-Q

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Note 13. Goodwill and Identifiable Intangible Assets

Note 13.

Goodwill and Identifiable Intangible Assets

The tables below present the carrying values of goodwill and identifiable intangible assets, which are included in “Other assets.”

Goodwill

As of
in millions
September
2012

December
2011
Investment Banking:

Financial Advisory
$     98    $   104
Underwriting
183    186
Institutional Client Services:

Fixed Income, Currency and
Commodities Client Execution
269    284
Equities Client Execution
2,389    2,390
Securities Services
104    117
Investing & Lending
131    147
Investment Management
589    574
Total
$3,763    $3,802

Identifiable Intangible Assets

As of
in millions
  September
2012

December
2011
Investment Banking:

Financial Advisory
$       1    $       4
Underwriting
—    1
Institutional Client Services:

Fixed Income, Currency and
Commodities Client Execution
435    488
Equities Client Execution
655    677
Investing & Lending
308    369
Investment Management
134    127
Total
$1,533    $1,666


	Goodwill
	As of
in millions		March 2013	December 2012
Investment Banking:
Financial Advisory		$ 98	$ 98

Underwriting		183	183

Institutional Client Services:
Fixed Income, Currency and Commodities Client Execution		269	269

Equities Client Execution		2,402	2,402

Securities Services		105	105

Investing & Lending		59	59

Investment Management		586	586
Total		$3,702	$3,702

	Identifiable Intangible Assets
	As of
in millions		March 2013	December 2012
Investment Banking:
Financial Advisory		$ —	$ 1

Institutional Client Services:
Fixed Income, Currency and Commodities Client Execution ¹		45	421

Equities Client Execution		556	565

Investing & Lending		260	281

Investment Management		120	129
Total		$ 981	$1,397

1.	The decrease from December 2012 to March 2013 is related to the sale of the firm’s television broadcast royalties in the first quarter of 2013.

Goodwill

Goodwill is the cost of acquired companies in excess of the fair value of net assets, including identifiable intangible assets, at the acquisition date.

Goodwill is assessed annually in the fourth quarter for impairment or more frequently if events occur or circumstances change that indicate an impairment may exist. Qualitative factors are assessed to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If results of the qualitative assessment are not conclusive, a quantitative goodwill impairment test is performed.

The quantitative goodwill impairment test consists of two steps.

The first step compares the estimated fair value of each reporting unit with its estimated net book value (including goodwill and identified intangible assets). If the reporting unit’s fair value exceeds its estimated net book value, goodwill is not impaired.

If the estimated fair value of a reporting unit is less than its estimated net book value, the second step of the goodwill impairment test is performed to measure the amount of impairment loss, if any. An impairment loss is equal to the excess of the carrying amount of goodwill over its fair value.

Goodwill was tested for impairment, using a quantitative test, during the fourth quarter of 2012 and goodwill was not impaired.

To estimate the fair value of each reporting unit, both relative value and residual income valuation techniques are used because the firm believes market participants would use these techniques to value the firm’s reporting units.

Relative value techniques apply average observable price-to-earnings multiples of comparable competitors to certain reporting units’ net earnings. For other reporting units, fair value is estimated using price-to-book multiples based on residual income techniques, which consider a reporting unit’s return on equity in excess of the firm’s cost of equity capital. The net book value of each reporting unit reflects an allocation of total shareholders’ equity and represents the estimated amount of shareholders’ equity required to support the activities of the reporting unit under guidelines issued by the Basel Committee on Banking Supervision (Basel Committee) in December 2010.


		Goldman Sachs ~~September 2012~~March 2013 Form 10-Q		6365

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Identifiable Intangible Assets

The table below presents the gross carrying amount, accumulated amortization and net carrying amount of

identifiable intangible assets and their weighted average remaining lives.

   As of
$ in millions
September
2012
   Weighted Average
Remaining Lives
(years)
December
2011

Customer lists
   Gross carrying amount $ 1,147          $ 1,119
   Accumulated amortization (650 )       (593 )
   Net carrying amount 497       8    526

Commodities-related intangibles ¹
   Gross carrying amount 491          595
   Accumulated amortization (204 )       (237 )
   Net carrying amount 287       9    358

Television broadcast royalties
   Gross carrying amount 560          560
   Accumulated amortization (170 )       (123 )
   Net carrying amount 390       6    437

Insurance-related intangibles ²
   Gross carrying amount 339          292
   Accumulated amortization (197 )       (146 )
   Net carrying amount 142       6    146

Other ³
   Gross carrying amount 992          950
   Accumulated amortization (775 )       (751 )
   Net carrying amount 217       11    199

Total
   Gross carrying amount 3,529          3,516
   Accumulated amortization (1,996 )       (1,850 )
   Net carrying amount $ 1,533       8    $ 1,666


		As of
$ in millions			March 2013		Weighted Average Remaining Lives (years)	December 2012
Customer lists	Gross carrying amount		$ 1,099			$ 1,099

	Accumulated amortization		(659	)		(643	)
	Net carrying amount		440		8	456

Commodities-related intangibles ¹	Gross carrying amount		508			513

	Accumulated amortization		(242	)		(226	)
	Net carrying amount		266		10	287

Television broadcast royalties ²	Gross carrying amount		—			560

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

Insurance-related intangibles ³	Gross carrying amount		380			380

	Accumulated amortization		(228	)		(231	)
	Net carrying amount		152		N/A ³	149

Other ⁴	Gross carrying amount		941			950

	Accumulated amortization		(818	)		(819	)
	Net carrying amount		123		12	131

Total	Gross carrying amount		2,928			3,502

	Accumulated amortization		(1,947	)		(2,105	)
	Net carrying amount		$ 981		9	$ 1,397

1.	Primarily includes commodity-related customer contracts and relationships, permits and access rights.

2.	~~Represents value~~These assets were sold in the first quarter of ~~business acquired related to the firm’s insurance businesses.~~2013 and total proceeds received approximated carrying value.

3.	Related to the firm’s reinsurance business, which is classified as held for sale. See Note 12 for further information.

4.	Primarily includes the firm’s ~~New York Stock Exchange (NYSE) Designated Market Maker (DMM) rights and~~ exchange-traded fund lead market maker rights.

Substantially all of the firm’s identifiable intangible assets are considered to have finite lives and are amortized (i) over their estimated lives, (ii) based on economic usage for certain commodity-related intangibles or (iii) in proportion

to estimated gross profits or premium revenues. Amortization expense for identifiable intangible assets is included in “Depreciation and amortization.”


6466		Goldman Sachs ~~September 2012~~March 2013 Form 10-Q

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

The tables below present amortization expense for identifiable intangible assets for the three ~~and nine~~ months ended ~~September~~March 2013 and March 2012, ~~and September 2011,~~ and the estimated future amortization expense through ~~2017~~2018 for identifiable intangible assets as of ~~September 2012.~~March 2013.

Three Months
Ended September    Nine Months
Ended September
in millions      2012       2011       2012       2011
Amortization expense
$60       $84       $206       $207

in millions
As of
September 2012
Estimated future amortization expense:

Remainder of 2012
   $  72
2013
   247
2014
   215
2015
   181
2016
   177
2017
   173


	Three Months Ended March
in millions		2013	2012
Amortization expense		$42	$70


in millions			As of March 2013
Estimated future amortization expense:
Remainder of 2013			$121

2014			128

2015			95

2016			93

2017			91

2018			82

Identifiable intangible assets are tested for recoverability whenever events or changes in circumstances indicate that an asset’s or asset group’s carrying value may not be recoverable.

If a recoverability test is necessary, the carrying value of an asset or asset group is compared to the total of the undiscounted cash flows expected to be received over the remaining useful life and from the disposition of the asset or asset group.

If the total of the undiscounted cash flows exceeds the carrying value, the asset or asset group is not impaired.

If the total of the undiscounted cash flows is less than the carrying value, the asset or asset group is not fully recoverable and an impairment loss is recognized as the difference between the carrying amount of the asset or asset group and its estimated fair value.

See Note 12 for information about impairments of the firm’s identifiable intangible assets.

Note 14. Deposits

Note 14.

Deposits

The table below presents deposits held in U.S. and non-U.S. ~~offices.~~offices, substantially all of which were interest-bearing. Substantially all U.S. deposits were held at Goldman Sachs Bank USA (GS Bank USA) as of March 2013 and ~~were interest-bearing and substantially~~December 2012. Substantially all non-U.S. deposits were held at Goldman Sachs International Bank (GSIB) as of March 2013 and held at Goldman Sachs Bank (Europe) plc (GS Bank Europe) and GSIB as of December 2012. On

January 18, 2013, GS Bank Europe surrendered its banking license to the Central Bank of Ireland after transferring its deposits to GSIB and subsequently changed its name to Goldman Sachs ~~International Bank (GSIB) and were interest-bearing.~~Ireland Finance plc.

As of
in millions

September
2012



December
2011


U.S. offices
$53,643    $38,477
Non-U.S. offices
7,883    7,632
Total
$61,526 ¹ $46,109 ¹


	As of
in millions		March 2013		December 2012
U.S. offices		$63,424		$62,377

Non-U.S. offices		9,261		7,747
Total		$72,685	¹	$70,124	¹

The table below presents maturities of time deposits held in U.S. and non-U.S. offices.

As of September 2012
in millions U.S.    Non-U.S.    Total
Remainder of 2012
$     875    $1,649    $  2,524
2013
5,069    602    5,671
2014
3,363    —    3,363
2015
2,784    —    2,784
2016
1,435    —    1,435
2017
2,002    —    2,002
2018 - thereafter
4,483    —    4,483
Total
$20,011 ² $2,251 ³ $22,262 ¹


	As of March 2013
in millions		U.S.		Non-U.S.		Total
Remainder of 2013		$ 4,760		$4,025		$ 8,785

2014		4,023		130		4,153

2015		4,054		—		4,054

2016		1,919		—		1,919

2017		2,502		—		2,502

2018		1,421		—		1,421

2019 - thereafter		4,096		—		4,096
Total		$22,775	²	$4,155	³	$26,930	¹

1.	Includes ~~$5.67~~$7.07 billion and ~~$4.53~~$5.10 billion as of ~~September 2012~~March 2013 and December ~~2011,~~2012, respectively, of time deposits accounted for at fair value under the fair value option. See Note 8 for further information about deposits accounted for at fair value.

2.	Includes ~~$48~~$40 million greater than $100,000, of which $6$24 million matures within three months, $6 million matures within three to six months, ~~$29~~$6 million matures within six to twelve months, and $7$4 million matures after twelve months.

3.	Substantially all were greater than $100,000.

As of ~~September~~March 2013 and December 2012, savings and demand deposits, which represent deposits with no stated maturity, were ~~$39.26~~$45.76 billion and $46.51 billion, respectively, which were recorded based on the amount of cash received plus accrued interest, which approximates fair value. In addition, the firm designates certain derivatives as fair value hedges on substantially all of its time deposits for which it has not elected the fair value option. Accordingly, ~~$16.59~~$19.86 billion and $18.52 billion as of March 2013 and December 2012, respectively, of time deposits were effectively converted from fixed-rate obligations to floating-rate obligations and were recorded at amounts that generally approximate fair value. While these savings and demand deposits and time deposits are carried at amounts that approximate fair value, they are not accounted for at fair value under the fair value option or at fair value in accordance with other U.S. GAAP and therefore are not included in the firm’s fair value hierarchy in Notes 6, 7 and 8. Had these deposits been included in the firm’s fair value hierarchy, they would have been classified in level 2.


		Goldman Sachs ~~September 2012~~March 2013 Form 10-Q		6567

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Note 15. Short-Term Borrowings

Note 15.

Short-Term Borrowings

Short-term borrowings were comprised of the following:

As of
in millions

September
2012



December
2011
Other secured financings (short-term)
$21,050       $29,185
Unsecured short-term borrowings
47,271       49,038
Total
$68,321       $78,223


	As of
in millions		March 2013	December 2012
Other secured financings (short-term)		$20,497	$23,045

Unsecured short-term borrowings		40,980	44,304
Total		$61,477	$67,349

See Note 9 for further information about other secured financings.

Unsecured short-term borrowings include the portion of unsecured long-term borrowings maturing within one year of the financial statement date and unsecured long-term borrowings that are redeemable within one year of the financial statement date at the option of the holder.

The firm accounts for promissory notes, commercial paper and certain hybrid financial instruments at fair value under the fair value option. See Note 8 for further information about unsecured short-term borrowings that are accounted for at fair value. ~~Short-term~~The carrying value of unsecured short-term borrowings that are not recorded at fair value ~~are recorded based on the amount of cash received plus accrued interest, and such amounts approximate~~generally approximates fair value due to the short-term nature of the obligations. While these unsecured short-term borrowings are carried at amounts that approximate fair value, they are not accounted for at fair value under the fair value option or at fair value in accordance with other U.S. GAAP and therefore are not included in the firm’s fair value hierarchy in Notes 6, 7 and 8. Had these borrowings been included in the firm’s fair value hierarchy, substantially all would have been classified in level 2 as of ~~September~~March 2013 and December 2012.

The table below presents unsecured short-term borrowings.

As of
$ in millions

September
2012



December
2011


Current portion of unsecured
long-term borrowings ¹
$28,575    $28,836
Hybrid financial instruments
12,278    11,526
Promissory notes
151    1,328
Commercial paper
359    1,491
Other short-term borrowings
5,908    5,857
Total
$47,271    $49,038

Weighted average interest rate ²
1.63 % 1.89 %


	As of
$ in millions		March 2013		December 2012
Current portion of unsecured long-term borrowings		$23,053		$25,344

Hybrid financial instruments		12,531		12,295

Promissory notes		356		260

Commercial paper		999		884

Other short-term borrowings		4,041		5,521
Total		$40,980		$44,304
Weighted average interest rate ¹		1.56	%	1.57	%

As of September 2012, no borrowings guaranteed by the Federal Deposit Insurance Corporation (FDIC) under the Temporary Liquidity Guarantee Program (TLGP) were outstanding and the program had expired for new issuances. Includes $8.53 billion as of December 2011, guaranteed by the FDIC under the TLGP.

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


6668		Goldman Sachs ~~September 2012~~March 2013 Form 10-Q

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Note 16. Long-Term Borrowings

Note 16.

Long-Term Borrowings

Long-term borrowings were comprised of the following:

As of
in millions

September
2012



December
2011
Other secured financings (long-term)
$    8,343       $    8,179
Unsecured long-term borrowings
167,878       173,545
Total
$176,221       $181,724


	As of
in millions		March 2013	December 2012
Other secured financings (long-term)		$ 8,971	$ 8,965

Unsecured long-term borrowings		167,008	167,305
Total		$175,979	$176,270

See Note 9 for further information about other secured financings. The table below presents unsecured long-term

borrowings extending through 2061 and consisting principally of senior borrowings.

As of September 2012    As of December 2011
in millions

U.S.
Dollar




Non-U.S.
Dollar


   Total

U.S.
Dollar




Non-U.S.
Dollar


   Total
Fixed-rate obligations ¹
$  89,700       $35,911       $125,611       $  84,058       $38,569       $122,627
Floating-rate obligations ²
21,281       20,986       42,267       23,436       27,482       50,918
Total
$110,981       $56,897       $167,878       $107,494       $66,051       $173,545


	As of March 2013				As of December 2012
in millions		U.S. Dollar	Non-U.S. Dollar	Total		U.S. Dollar	Non-U.S. Dollar	Total
Fixed-rate obligations ¹		$ 91,305	$34,911	$126,216		$ 88,561	$36,869	$125,430

Floating-rate obligations ²		21,110	19,682	40,792		20,794	21,081	41,875
Total		$112,415	$54,593	$167,008		$109,355	$57,950	$167,305

Interest rates on U.S. dollar-denominated debt ranged from 0.20% to 10.04% (with a weighted average rate of ~~5.54%~~5.02%) and ~~0.10%~~0.20% to 10.04% (with a weighted average rate of ~~5.62%~~5.48%) as of ~~September 2012~~March 2013 and December ~~2011,~~2012, respectively. Interest rates on non-U.S. dollar-denominated debt ranged from 0.10% to 14.85% (with a weighted average rate of ~~4.71%~~4.47%) and ~~0.85%~~0.10% to 14.85% (with a weighted average rate of ~~4.75%~~4.66%) as of ~~September 2012~~March 2013 and December ~~2011,~~2012, respectively.

2.	Floating interest rates generally are based on LIBOR or the federal funds target rate. Equity-linked and indexed instruments are included in floating-rate obligations.


		Goldman Sachs ~~September 2012~~March 2013 Form 10-Q		6769

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

The table below presents unsecured long-term borrowings by maturity date. In the table below:

unsecured long-term borrowings maturing within one year of the financial statement date and unsecured long-term borrowings that are redeemable within one year of the financial statement date at the option of the holders are included as unsecured short-term borrowings;

unsecured long-term borrowings that are repayable prior to maturity at the option of the firm are reflected at their contractual maturity dates; and

unsecured long-term borrowings that are redeemable prior to maturity at the option of the holders are reflected at the dates such options become exercisable.

in millions
As of
September 2012
2013
$ 3,941
2014
21,653
2015
19,825
2016
21,929
2017
20,289
2018 - thereafter
80,241
Total ¹
$167,878


in millions			As of March 2013
2014			$ 15,154

2015			21,967

2016			21,594

2017			20,675

2018			17,443

2019 - thereafter			70,175
Total ¹			$167,008

Includes ~~$11.20~~$9.84 billion related to interest rate hedges on certain unsecured long-term borrowings, by year of maturity as follows: ~~$102 million in 2013, $655~~$487 million in 2014, ~~$594~~$443 million in 2015, ~~$1.23~~$1.01 billion in 2016, ~~$1.38~~$1.30 billion in 2017, ~~and $7.24~~$1.36 billion in 2018 and $5.24 billion in 2019 and thereafter.

The fair value of unsecured long-term borrowings (principal and non-principal-protected) for which the fair value option was elected exceeded the related aggregate contractual principal amount by $159 million as of September 2012, whereas the aggregate contractual principal amount exceeded the related fair value by $693 million as of December 2011.

The firm designates certain derivatives as fair value hedges to effectively convert a substantial portion of its fixed-rate unsecured long-term borrowings which are not accounted for at fair value into floating-rate obligations. Accordingly, excluding the cumulative impact of changes in the firm’s credit spreads, the carrying value of unsecured long-term borrowings approximated fair value as of ~~September 2012~~March 2013 and December ~~2011. While these~~2012. See Note 7 for further information about hedging activities. For unsecured long-term borrowings ~~are carried at amounts that approximate~~for which the firm did not elect the fair value ~~they~~option, the cumulative impact due to changes in the firm’s own credit spreads would be an increase of less than 2% in the carrying value of total unsecured long-term borrowings as of both March 2013 and December 2012. As these borrowings are not accounted for at fair value under the fair value option or at fair value in accordance with other U.S. GAAP, ~~and therefore are~~their fair value is not included in the firm’s fair value hierarchy in Notes 6, 7 and 8. Had these borrowings been included in the firm’s fair value hierarchy, substantially all would have been classified in level 2 as of September 2012. For unsecured long-term borrowings for which the firm did not elect the fair value option, the cumulative impact due to changes in the firm’s own credit spreads would be an increase of less than 1% and a reduction of less than 4% in the carrying value of total unsecured long-term borrowings as of September 2012March 2013 and December ~~2011, respectively. See Note 7 for further information about hedging activities.~~2012.

The table below presents unsecured long-term borrowings, after giving effect to hedging activities that converted a substantial portion of fixed-rate obligations to floating-rate obligations.

As of
in millions

September
2012



December
2011
Fixed-rate obligations

At fair value
$         65       $         76
At amortized cost ¹
25,981       28,773
Floating-rate obligations

At fair value
12,813       17,086
At amortized cost ¹
129,019       127,610
Total
$167,878       $173,545


	As of
in millions		March 2013	December 2012
Fixed-rate obligations
At fair value		$ 153	$ 122

At amortized cost ¹		20,225	24,547

Floating-rate obligations
At fair value		12,095	12,471

At amortized cost ¹		134,535	130,165
Total		$167,008	$167,305

The weighted average interest rates on the aggregate amounts were ~~2.48% (5.12%~~2.36% (5.25% related to fixed-rate obligations and 1.96% related to floating-rate obligations) and 2.47% (5.26% related to fixed-rate obligations and 1.98% related to floating-rate obligations) ~~and 2.59% (5.18% related to fixed-rate obligations and 2.03% related to floating-rate obligations)~~ as of ~~September 2012~~March 2013 and December ~~2011,~~2012, respectively. These rates exclude financial instruments accounted for at fair value under the fair value option.


6870		Goldman Sachs ~~September 2012~~March 2013 Form 10-Q

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Subordinated Borrowings

Unsecured long-term borrowings include subordinated debt and junior subordinated debt. Junior subordinated debt is junior in right of payment to other subordinated borrowings, which are junior to senior borrowings. As of

~~As of September 2012~~both March 2013 and December ~~2011,~~2012, subordinated debt had maturities ranging from 2015 to ~~2038 and 2017 to 2038, respectively.~~2038. The table below presents subordinated borrowings.

As of September 2012    As of December 2011
$ in millions

Par
Amount




Carrying
Amount


   Rate ¹

Par
Amount




Carrying
Amount


   Rate ¹
Subordinated debt
$14,501       $17,512       4.20 %    $14,310       $17,362       4.39 %
Junior subordinated debt
2,835       4,284       2.81 %    5,085       6,533       2.43 %
Total subordinated borrowings
$17,336       $21,796       3.97 %    $19,395       $23,895       3.87 %


	As of March 2013					As of December 2012
$ in millions		Par Amount	Carrying Amount	Rate	¹		Par Amount	Carrying Amount	Rate	¹
Subordinated debt		$14,270	$17,106	4.19	%		$14,409	$17,358	4.24	%

Junior subordinated debt		2,835	4,135	3.01	%		2,835	4,228	3.16	%
Total subordinated borrowings		$17,105	$21,241	3.99	%		$17,244	$21,586	4.06	%

1.	Weighted average interest rate after giving effect to fair value hedges used to convert these fixed-rate obligations into floating-rate obligations. See Note 7 for further information about hedging activities. See below for information about interest rates on junior subordinated debt.

Junior Subordinated Debt

Junior Subordinated Debt ~~Issued to APEX~~Held by 2012 Trusts. In ~~2007, Group Inc.~~2012, the Vesey Street Investment Trust I (Vesey Street Trust) and the Murray Street Investment Trust I (Murray Street Trust) (together, the 2012 Trusts) issued ~~a total~~an aggregate of $2.25 billion of ~~remarketable~~senior guaranteed trust securities to third parties. The proceeds of that offering were used to fund purchases of $1.75 billion of junior subordinated debt tosecurities issued by Group Inc. that pay interest semi-annually at a fixed annual rate of 4.647% and mature on March 9, 2017, and $500 million of junior subordinated debt securities issued by Group Inc. that pay interest semi-annually at a fixed annual rate of 4.404% and mature on September 1, 2016.

The 2012 Trusts purchased the junior subordinated debt from Goldman Sachs Capital II and Goldman Sachs Capital III (APEX Trusts)~~, Delaware statutory trusts.~~. The APEX Trusts issued $2.25 billion of guaranteed perpetual Normal Automatic Preferred Enhanced Capital Securities (APEX) to third parties and a de minimis amount of common securities to Group Inc. Group Inc. also entered into contracts with the APEX Trusts to sell $2.25 billion of Group Inc. perpetual non-cumulative preferred stock (the stock purchase contracts). See Note 19 for more information about the preferred stock that Group Inc. has issued in connection with the stock purchase contracts.

~~The firm accounted for the stock purchase contracts as equity instruments and, accordingly, recorded the cost of the stock purchase contracts as a reduction to additional paid-in capital.~~

During the first quarter of 2012, pursuant to a remarketing provided for by the initial terms of the junior subordinated debt, Goldman Sachs Capital II sold all of its $1.75 billion of junior subordinated debt to Murray Street Investment Trust I (Murray Street Trust), a new trust sponsored by the firm. On June 1, 2012, pursuant to the stock purchase contracts, Goldman Sachs Capital II used the proceeds ~~of this sale~~from such sales to purchase shares of Group Inc.’s Perpetual Non-Cumulative Preferred Stock, Series E (Series E Preferred Stock).

During the third quarter of 2012, pursuant to a remarketing provided for by the initial terms of the junior subordinated debt, Goldman Sachs Capital III sold all of its $500 million of junior subordinated debt to Vesey Street Investment Trust I (Vesey Street Trust), a new trust sponsored by the firm. On September 4, 2012, pursuant to the stock purchase contracts, Goldman Sachs Capital III used the proceeds of this sale to purchase shares of Group Inc.’s and Perpetual Non-Cumulative Preferred Stock, Series F (Series F Preferred Stock). See Note 19 for more information about the Series E and Series F Preferred stock.

In connection with the remarketing of the junior subordinated debt to the Murray Street Trust and Vesey Street Trust (together, the 2012 Trusts), pursuant to the terms of the junior subordinated debt, the interest rate and other terms were modified. Following such sales, the firm pays interest semi-annually on the $1.75 billion of junior subordinated debt held by the Murray Street Trust at a fixed annual rate of 4.647% and the debt matures on March 9, 2017 and on the $500 million of junior subordinated debt held by the Vesey Street Trust at a fixed annual rate of 4.404% and the debt matures on September 1, 2016. To fund the purchase of the junior subordinated debt, the 2012 Trusts issued an aggregate of $2.25 billion of senior guaranteed trust securities. The 2012 Trusts are required to pay distributions on their senior guaranteed trust securities in the same amounts and on the same dates that they are scheduled to receive interest on the junior subordinated debt they hold, and are required to redeem their respective senior guaranteed trust securities upon the maturity or earlier redemption of the junior subordinated debt they hold. Group Inc. fully and unconditionally guarantees the payment of these distribution and redemption amounts when due on a senior basis and, as such, the $2.25 billion of junior subordinated debt held by the 2012 Trusts for the benefit of investors is no longer classified as junior subordinated debt.


		~~Goldman Sachs September 2012 Form 10-Q~~		69

~~THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

The firm has the right to defer payments on the junior subordinated debt, subject to limitations. During any such ~~extension~~deferral period, the firm will not be permitted to, among other things, pay dividends on or make certain repurchases of its common or preferred stock. IfHowever, as Group Inc. fully and unconditionally guarantees the ~~firm were to defer~~ payment of ~~interest~~the distribution and redemption amounts when due on a senior basis on the ~~junior subordinated debt and~~senior guaranteed trust securities issued by the 2012 Trusts, ~~were therefore~~if the 2012 Trusts are unable to make scheduled distributions to the holders of the senior guaranteed trust securities, under the guarantee, Group Inc. would be obligated to make those ~~payments to~~payments. As such, the ~~holders~~$2.25 billion of junior subordinated debt held by the ~~senior guaranteed trust securities.~~2012 Trusts for the benefit of investors is not classified as junior subordinated debt.

The APEX Trusts and the 2012 Trusts are Delaware statutory trusts sponsored by the firm and wholly-owned finance subsidiaries of the firm for regulatory and legal purposes but are not consolidated for accounting purposes.

~~In connection with the APEX issuance, the~~The firm has covenanted in favor of ~~certain of its debtholders, who were initially and are currently~~ the holders of Group Inc.’s 6.345% Junior Subordinated Debentures due February 15, 2034, that, subject to certain exceptions, the firm ~~would~~will not redeem or purchase the capital securities issued by the APEX Trusts or shares of Group ~~Inc.’s~~Inc’s Series E ~~Preferred Stock~~ or Series F Preferred Stock prior to ~~the date~~specified dates in 2022 for a price that ~~is ten years after the applicable stock purchase date, unless the applicable redemption or purchase price does not exceed~~exceeds a maximum amount determined by reference to the ~~aggregate amount of~~ net cash proceeds that the firm has received from the sale of qualifying securities.


		Goldman Sachs March 2013 Form 10-Q		71

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Junior Subordinated Debt Issued in Connection with Trust Preferred Securities. Group Inc. issued $2.84 billion of junior subordinated debentures in 2004 to Goldman Sachs Capital I (Trust), a Delaware statutory trust. The Trust issued $2.75 billion of guaranteed preferred beneficial interests to third parties and $85 million of common beneficial interests to Group Inc. and used the proceeds from the issuances to purchase the junior subordinated debentures from Group Inc. The Trust is a wholly-owned finance subsidiary of the firm for regulatory and legal purposes but is not consolidated for accounting purposes.

The firm pays interest semi-annually on the debentures at an annual rate of 6.345% and the debentures mature on February 15, 2034. The coupon rate and the payment dates applicable to the beneficial interests are the same as the interest rate and payment dates for the debentures. The firm has the right, from time to time, to defer payment of interest on the debentures, and therefore cause payment on the Trust’s preferred beneficial interests to be deferred, in each case up to ten consecutive semi-annual periods. During any such extension period, the firm will not be permitted to, among other things, pay dividends on or make certain repurchases of its common stock. The Trust is not permitted to pay any distributions on the common beneficial interests held by Group Inc. unless all dividends payable on the preferred beneficial interests have been paid in full.


70		~~Goldman Sachs September 2012 Form 10-Q~~

~~THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

Note 17. Other Liabilities and Accrued Expenses

Note 17.

Other Liabilities and Accrued Expenses

The table below presents other liabilities and accrued expenses by type.

As of
in millions

September
2012



December
2011
Compensation and benefits
$  7,930       $  5,701
Insurance-related liabilities
22,656       18,614
Noncontrolling interests ¹
1,339       1,450
Income tax-related liabilities ²
2,103       533
Employee interests in consolidated funds
284       305
Subordinated liabilities issued by consolidated VIEs
1,046       1,090
Accrued expenses and other
4,638       4,108
Total
$39,996       $31,801


	As of
in millions		March 2013	December 2012
Compensation and benefits		$ 4,898	$ 8,292

Insurance-related liabilities ¹		10,178	10,274

Noncontrolling interests ²		432	508

Income tax-related liabilities ³		3,086	2,724

Employee interests in consolidated funds		245	246

Subordinated liabilities issued by consolidated VIEs		993	1,360

Accrued expenses and other ⁴		18,721	18,991
Total		$38,553	$42,395

1.	Represents liabilities for future benefits and unpaid claims carried at fair value under the fair value option as of March 2013 and December 2012, respectively.

2.	Includes ~~$1.18 billion~~$367 million and ~~$1.17 billion~~$419 million related to consolidated investment funds as of ~~September 2012~~March 2013 and December ~~2011,~~2012, respectively.

2.3.	See Note 24 for further information about income taxes.

~~The table below presents insurance-related liabilities by type.~~

As of
in millions

September
2012



December
2011
Separate account liabilities
$  3,287       $  3,296
Liabilities for future benefits and
unpaid claims
13,312       14,213
Contract holder account balances
5,793       835
Reserves for guaranteed minimum death and income benefits
264       270
Total¹
$22,656       $18,614

1.4.	~~Increase primarily due~~Includes $14.52 billion and $14.62 billion of liabilities related to the firm’s reinsurance ~~transactions during 2012.~~business which were classified as held for sale as of March 2013 and December 2012, respectively. See Note 12 for further information.

Separate account liabilities are supported by separate account assets, representing segregated contract holder funds under variable annuity and life insurance contracts. Separate account assets are included in “Cash and securities segregated for regulatory and other purposes.”

Liabilities for future benefits and unpaid claims include liabilities arising from reinsurance provided by the firm to other insurers. The firm had a receivable of $1.46 billion and $1.30 billion as of September 2012 and December 2011, respectively, related to such reinsurance contracts, which is reported in “Receivables from customers and counterparties.” In addition, the firm has ceded risks to reinsurers related to certain of its liabilities for future benefits and unpaid claims and had a receivable of $234 million and $648 million as of September 2012 and December 2011, respectively, related to such reinsurance contracts, which is reported in “Receivables from customers and counterparties.” Contracts to cede risks to reinsurers do not relieve the firm of its obligations to contract holders. Liabilities for future benefits and unpaid claims include $9.26 billion and $8.75 billion carried at fair value under the fair value option as of September 2012 and December 2011, respectively.

~~Contract holder account balances primarily include fixed annuities under reinsurance contracts.~~

Reserves for guaranteed minimum death and income benefits represent a liability for the expected value of guaranteed benefits in excess of projected annuity account balances. These reserves are based on total payments expected to be made less total fees expected to be assessed over the life of the contract.


72		Goldman Sachs ~~September 2012~~March 2013 Form 10-Q		71

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Note 18. Commitments, Contingencies and Guarantees

Note 18.

Commitments, Contingencies and Guarantees

Commitments

The table below presents the firm’s commitments.

Commitment Amount by Period
of Expiration as of September 2012    Total Commitments
as of
in millions

Remainder
2012




2013-
2014




2015-
2016



2017-
Thereafter


September
2012



December
2011
Commitments to extend credit¹

Commercial lending:²

Investment-grade
$  1,637       $11,834       $28,477       $12,460       $  54,408       $  51,281
Non-investment-grade
659       4,656       8,191       6,052       19,558       14,217
Warehouse financing
150       604       —       —       754       247
Total commitments to extend credit
2,446       17,094       36,668       18,512       74,720       65,745
Contingent and forward starting resale and securities
borrowing agreements³
56,275       324       —       —       56,599       54,522
Forward starting repurchase and secured lending agreements³
12,727       —       —       —       12,727       17,964
Letters of credit⁴
397       468       5       5       875       1,353
Investment commitments
921       4,364       143       2,433       7,861       9,118
Other
3,654       234       49       71       4,008       5,342
Total commitments
$76,420       $22,484       $36,865       $21,021       $156,790       $154,044


	Commitment Amount by Period of Expiration as of March 2013					Total Commitments as of
in millions		Remainder of 2013	2014- 2015	2016- 2017	2018- Thereafter		March 2013	December 2012
Commitments to extend credit ¹
Commercial lending:
Investment-grade		$ 6,301	$11,203	$30,997	$ 5,702		$ 54,203	$ 53,736

Non-investment-grade		1,603	5,086	8,976	3,450		19,115	21,102

Warehouse financing		259	524	—	—		783	784
Total commitments to extend credit		8,163	16,813	39,973	9,152		74,101	75,622

Contingent and forward starting resale and securities borrowing agreements ²		72,068	—	—	—		72,068	47,599

Forward starting repurchase and secured lending agreements ²		13,268	—	—	—		13,268	6,144

Letters of credit ³		533	179	—	15		727	789

Investment commitments		1,627	1,908	239	3,608		7,382	7,339

Other		3,483	80	27	69		3,659	4,624
Total commitments		$99,142	$18,980	$40,239	$12,844		$171,205	$142,117

1.	Commitments to extend credit are presented net of amounts syndicated to third parties.

2.	~~Includes commitments associated with the former William Street credit extension program.~~

3.	These agreements generally settle within three business days.

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

Commitments to Extend Credit

The firm’s commitments to extend credit are agreements to lend with fixed termination dates and depend on the satisfaction of all contractual conditions to borrowing. The total commitment amount does not necessarily reflect actual future cash flows because the firm may syndicate all or substantial portions of these commitments and commitments can expire unused or be reduced or cancelled at the counterparty’s request.

The firm generally accounts for commitments to extend credit at fair value. Losses, if any, are generally recorded, net of any fees in “Other principal transactions.”

~~Certain lending commitments, entered into during 2012, were held for investment and therefore were accounted for on an accrual basis.~~ As of ~~September~~March 2013 and December 2012, approximately ~~$13.45~~$18.55 billion and $16.09 billion, respectively, of the firm’s lending commitments were held for ~~investment. As of September 2012, the~~investment and were accounted for on an accrual basis. The carrying value and the estimated fair value of such lending commitments were liabilities of ~~$58~~$78 million and ~~$406~~$624 million, ~~respectively.~~respectively, as of March 2013, and $63 million and $523 million, respectively, as of December 2012. As these lending

commitments are not

accounted for at fair value under the fair value option or at fair value in accordance with other U.S. GAAP, their fair value is not included in the firm’s fair value hierarchy in Notes 6, 7 and 8. Had these commitments been included in the firm’s fair value hierarchy, they would have primarily been classified in level 3 as of ~~September~~March 2013 and December 2012.

Commercial Lending. The firm’s commercial lending commitments are extended to investment-grade and non-investment-grade corporate borrowers. Commitments to investment-grade corporate borrowers are principally used for operating liquidity and general corporate purposes. The firm also extends lending commitments in connection with contingent acquisition financing and other types of corporate lending as well as commercial real estate financing. Commitments that are extended for contingent acquisition financing are often intended to be short-term in nature, as borrowers often seek to replace them with other funding sources.


72		Goldman Sachs ~~September 2012~~March 2013 Form 10-Q		73

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Sumitomo Mitsui Financial Group, Inc. (SMFG) provides the firm with credit loss protection on certain approved loan commitments (primarily investment-grade commercial lending commitments). The notional amount of such loan commitments was ~~$33.19~~$30.95 billion and ~~$31.94~~$32.41 billion as of ~~September 2012~~March 2013 and December ~~2011,~~2012, respectively. The credit loss protection on loan commitments provided by SMFG is generally limited to 95% of the first loss the firm realizes on such commitments, up to a maximum of approximately $950 million. In addition, subject to the satisfaction of certain conditions, upon the firm’s request, SMFG will provide protection for 70% of additional losses on such commitments, up to a maximum of $1.13 billion, of which $300 million of protection had been provided as of both ~~September 2012~~March 2013 and December ~~2011.~~2012. The firm also uses other financial instruments to mitigate credit risks related to certain commitments not covered by SMFG. These instruments primarily include credit default swaps that reference the same or similar underlying instrument or entity or credit default swaps that reference a market index.

Warehouse Financing. The firm provides financing to clients who warehouse financial assets. These arrangements are secured by the warehoused assets, primarily consisting of commercial mortgage loans.

Contingent and Forward Starting Resale and Securities Borrowing Agreements/Forward Starting Repurchase and Secured Lending Agreements

The firm enters into resale and securities borrowing agreements and repurchase and secured lending agreements that settle at a future date. The firm also enters into commitments to provide contingent financing to its clients and counterparties through resale agreements. The firm’s funding of these commitments depends on the satisfaction of all contractual conditions to the resale agreement and these commitments can expire unused.

Investment Commitments

The firm’s investment commitments consist of commitments to invest in private equity, real estate and other assets directly and through funds that the firm raises and manages. These commitments include ~~$1.01~~$1.04 billion and ~~$1.62 billion~~$872 million as of ~~September 2012~~March 2013 and December ~~2011,~~2012, respectively, related to real estate private investments and ~~$6.85~~$6.34 billion and ~~$7.50~~$6.47 billion as of ~~September 2012~~March 2013 and December ~~2011,~~2012, respectively, related to corporate and other private investments. Of these amounts, ~~$6.58~~$5.96 billion and ~~$8.38~~$6.21 billion as of ~~September 2012~~March 2013 and December ~~2011,~~2012, respectively, relate to commitments to invest in funds managed by the firm, which will be funded at market value on the date of investment.

Leases

The firm has contractual obligations under long-term noncancelable lease agreements, principally for office space, expiring on various dates through 2069. Certain agreements are subject to periodic escalation provisions for increases in real estate taxes and other charges. The table below presents future minimum rental payments, net of minimum sublease rentals.

in millions
As of
September 2012

Remainder of 2012
   $   110
2013
   432
2014
   400
2015
   358
2016
   331
2017
   319
2018 - thereafter
   1,296
Total
   $3,246


in millions			As of March 2013
Remainder of 2013			$ 304

2014			393

2015			337

2016			288

2017			270

2018			219

2019 - thereafter			1,144
Total			$2,955

Operating leases include office space held in excess of current requirements. Rent expense relating to space held for growth is included in “Occupancy.” The firm records a liability, based on the fair value of the remaining lease rentals reduced by any potential or existing sublease rentals, for leases where the firm has ceased using the space and management has concluded that the firm will not derive any future economic benefits. Costs to terminate a lease before the end of its term are recognized and measured at fair value on termination.


74		Goldman Sachs ~~September 2012~~March 2013 Form 10-Q		73

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Contingencies

Legal Proceedings. See Note 27 for information about legal proceedings, including certain mortgage-related matters.

Certain Mortgage-Related Contingencies. There are multiple areas of focus by regulators, governmental agencies and others within the mortgage market that may impact originators, issuers, servicers and investors. There remains significant uncertainty surrounding the nature and extent of any potential exposure for participants in this market.

Representations and Warranties. The firm has not been a significant originator of residential mortgage loans. The firm did purchase loans originated by others and generally received loan-level representations of the type described below from the originators. During the period 2005 through 2008, the firm sold approximately $10 billion of loans to government-sponsored enterprises and approximately $11 billion of loans to other third parties. In addition, the firm transferred loans to trusts and other mortgage securitization vehicles. As of ~~September 2012~~March 2013 and December ~~2011,~~2012, the outstanding balance of the loans transferred to trusts and other mortgage securitization vehicles during the period 2005 through 2008 was approximately ~~$36~~$33 billion and ~~$42~~$35 billion, respectively. This amount reflects paydowns and cumulative losses of approximately ~~$89~~$92 billion ($1921 billion of which are cumulative losses) as of ~~September 2012~~March 2013 and approximately ~~$83~~$90 billion ($1720 billion of which are cumulative losses) as of December ~~2011.~~2012. A small number of these Goldman Sachs-issued securitizations with an outstanding principal balance of ~~$560~~$520 million and total paydowns and cumulative losses of ~~$1.49~~$1.54 billion ($~~499~~516 million of which are cumulative losses) as of ~~September 2012,~~March 2013, and an outstanding principal balance of ~~$635~~$540 million and total paydowns and cumulative losses of ~~$1.42~~$1.52 billion ($~~465~~508 million of which are cumulative losses) as of December ~~2011,~~2012, were structured with credit protection obtained from monoline insurers. In connection with both sales of loans and securitizations, the firm provided loan level representations of the type described below and/or assigned the loan level representations from the party from whom the firm purchased the loans.

The loan level representations made in connection with the sale or securitization of mortgage loans varied among transactions but were generally detailed representations applicable to each loan in the portfolio and addressed matters relating to the property, the borrower and the note. These representations generally included, but were not limited to, the following: (i) certain attributes of the borrower’s financial status; (ii) loan-to-value ratios, owner occupancy status and certain other characteristics of the property; (iii) the lien position; (iv) the fact that the loan was originated in compliance with law; and (v) completeness of the loan documentation.

The firm has received repurchase claims for residential mortgage loans based on alleged breaches of representations, from government-sponsored enterprises, other third parties, trusts and other mortgage securitization vehicles, which have not been significant. During the three months ended March 2013 and March 2012, the firm repurchased loans with an unpaid principal balance of less than $10 million. The loss related to the repurchase of these loans was not material for both the three months ended March 2013 and March 2012.

The firm has received repurchase claims for residential mortgage loans based on alleged breaches of representations, from government-sponsored enterprises, other third parties, trusts and other mortgage securitization vehicles, which have not been significant. During both the three and nine months ended September 2012 and September 2011, the firm repurchased loans with an unpaid principal balance of less than $10 million. The loss related to the repurchase of these loans was not material for both the three and nine months ended September 2012 and September 2011.

Ultimately, the firm’s exposure to claims for repurchase of residential mortgage loans based on alleged breaches of representations will depend on a number of factors including the following: (i) the extent to which these claims are actually made; (ii) the extent to which there are underlying breaches of representations that give rise to valid claims for repurchase; (iii) in the case of loans originated by others, the extent to which the firm could be held liable and, if it is, the firm’s ability to pursue and collect on any claims against the parties who made representations to the firm; (iv) macro-economic factors, including developments in the residential real estate market; and (v) legal and regulatory developments.

Based upon the large number of defaults in residential mortgages, including those sold or securitized by the firm, there is a potential for increasing claims for repurchases. However, the firm is not in a position to make a meaningful estimate of that exposure at this time.


74		Goldman Sachs ~~September 2012~~March 2013 Form 10-Q		75

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Foreclosure and Other Mortgage Loan Servicing Practices and Procedures. The firm had received a number of requests for information from regulators and other agencies, including state attorneys general and banking regulators, as part of an industry-wide focus on the practices of lenders and servicers in connection with foreclosure proceedings and other aspects of mortgage loan servicing practices and procedures. The requests sought information about the foreclosure and servicing protocols and activities of Litton, a residential mortgage servicing subsidiary sold by the firm to Ocwen Financial Corporation (Ocwen) in the third quarter of 2011. The firm is cooperating with the requests and these inquiries may result in the imposition of fines or other regulatory action. In the third quarter of 2010, prior to the firm’s sale of Litton, Litton had temporarily suspended evictions and foreclosure and real estate owned sales in a number of states, including those with judicial foreclosure procedures. Litton resumed these activities beginning in the fourth quarter of 2010.

In connection with the sale of Litton, the firm provided customary representations and warranties, and indemnities for breaches of these representations and warranties, to Ocwen. These indemnities are subject to various limitations, and are capped at approximately $50 million. The firm has not yet received any claims relating to these indemnities. The firm also agreed to provide specific indemnities to Ocwen related to claims made by third parties with respect to servicing activities during the period that Litton was owned by the firm and which are in excess of the related reserves accrued for such matters by Litton at the time of the sale. These indemnities are capped at approximately $125 million. The firm has recorded a reserve for the portion of these potential losses that it believes is probable and can be reasonably estimated. As of September 2012, the firm had not received material claims with respect to these indemnities and had not made material payments in connection with these claims.

In connection with the sale of Litton, the firm provided customary representations and warranties, and indemnities for breaches of these representations and warranties, to Ocwen. These indemnities are subject to various limitations, and are capped at approximately $50 million. The firm has not yet received any claims under these indemnities. The firm also agreed to provide specific indemnities to Ocwen related to claims made by third parties with respect to servicing activities during the period that Litton was owned by the firm and which are in excess of the related reserves accrued for such matters by Litton at the time of the sale. These indemnities are capped at approximately $125 million. The firm has recorded a reserve for the portion of these potential losses that it believes is probable and can be reasonably estimated. As of March 2013, claims under these indemnities, and payments made in connection with these claims, were not material to the firm.

The firm further agreed to provide indemnities to Ocwen not subject to a cap, which primarily relate to potential liabilities constituting fines or civil monetary penalties which could be imposed in settlements with certain terms with U.S. states attorneys general or in consent orders with certain terms with the Federal Reserve, the Office of Thrift Supervision, the Office of the Comptroller of the Currency, the FDIC or the New York State Department of Financial Services, in each case relating to Litton’s foreclosure and servicing practices while it was owned by the firm. Under the Litton sale agreement the firm also retained liabilities associated with claims related to Litton’s failure to maintain lender-placed mortgage insurance, obligations to repurchase certain loans from

foreclosure and servicing practices while it was owned by the firm. The firm has entered into a settlement with the Board of Governors of the Federal Reserve System (Federal Reserve Board) relating to foreclosure and servicing matters as described below.

government-sponsored enterprises, subpoenas from one of Litton’s regulators, and fines or civil penalties imposed by the Federal Reserve or the New York State Department of Financial Services in connection with certain compliance matters. Management is unable to develop an estimate of the maximum potential amount of future payments under these indemnities because the firm has received no claims under these indemnities other than an immaterial amount with respect to government-sponsored enterprises. However, management does not believe, based on currently available information, that any payments under these indemnities will have a material adverse effect on the firm’s financial condition.

Under the Litton sale agreement the firm also retained liabilities associated with claims related to Litton’s failure to maintain lender-placed mortgage insurance, obligations to repurchase certain loans from government-sponsored enterprises, subpoenas from one of Litton’s regulators, and fines or civil penalties imposed by the Federal Reserve or the New York State Department of Financial Services in connection with certain compliance matters. Management is unable to develop an estimate of the maximum potential amount of future payments under these indemnities because the firm has received no claims under these indemnities other than an immaterial amount with respect to government-sponsored enterprises. However, management does not believe, based on currently available information, that any payments under these indemnities will have a material adverse effect on the firm’s financial condition.

On September 1, 2011, Group Inc. and GS Bank USA entered into a Consent Order (the Order) with the Board of Governors of the Federal Reserve System (Federal Reserve Board) relating to the servicing of residential mortgage loans. The terms of the Order are substantially similar and, in many respects, identical to the orders entered into with the Federal Reserve Board by other large U.S. financial institutions. The Order sets forth various allegations of improper conduct in servicing by Litton, requires that Group Inc. and GS Bank USA cease and desist such conduct, and requires that Group Inc. and GS Bank USA, and their boards of directors, take various affirmative steps. The Order requires (i) Group Inc. and GS Bank USA to engage a third-party consultant to conduct a review of certain foreclosure actions or proceedings that occurred or were pending between January 1, 2009 and December 31, 2010; (ii) the adoption of policies and procedures related to management of third parties used to outsource residential mortgage servicing, loss mitigation or foreclosure; (iii) a “validation report” from an independent third-party consultant regarding compliance with the Order for the first year; and (iv) submission of quarterly progress reports as to compliance with the Order by the boards of directors (or committees thereof) of Group Inc. and GS Bank USA.

In addition, on September 1, 2011, GS Bank USA entered into an Agreement on Mortgage Servicing Practices with the New York State Department of Financial Services, Litton and Ocwen relating to the servicing of residential mortgage loans, and, in a related agreement with the New York State Department of Financial Services, Group Inc. agreed to forgive 25% of the unpaid principal balance on certain delinquent first lien residential mortgage loans owned by Group Inc. or a subsidiary, totaling approximately $13 million in principal forgiveness.
On September 1, 2011, Group Inc. and GS Bank USA entered into a Consent Order (the Order) with the Federal Reserve Board relating to the servicing of residential mortgage loans. The terms of the Order were substantially similar and, in many respects, identical to the orders entered into with the Federal Reserve Board by other large U.S. financial institutions. The Order set forth various allegations of improper conduct in servicing by Litton, requires that Group Inc. and GS Bank USA cease and desist such conduct, and required that Group Inc. and GS Bank USA, and their boards of directors, take various affirmative steps. The Order required (i) Group Inc. and GS Bank USA to engage a third-party consultant to conduct a review of certain foreclosure actions or proceedings that occurred or were pending between January 1, 2009 and December 31, 2010; (ii) the adoption of policies and procedures related to management of third parties used to outsource residential mortgage servicing, loss mitigation or foreclosure; (iii) a “validation report” from an independent third-party consultant regarding compliance with the Order for the first year; and (iv) submission of quarterly progress reports as to compliance with the Order by the boards of directors (or committees thereof) of Group Inc. and GS Bank USA.


76		Goldman Sachs ~~September 2012~~March 2013 Form 10-Q		75

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

~~Guaranteed Minimum Death and Income Benefits.~~ In connection with its insurance business, the firm is contingently liable to provide guaranteed minimum death and income benefits to certain contract holders and has established a reserve related to $5.45 billion and $5.52 billion of contract holder account balances as of September 2012 and December 2011, respectively, for such benefits. The weighted average attained age of these contract holders was 69 years for both September 2012 and December 2011.

The net amount at risk, representing guaranteed minimum death and income benefits in excess of contract holder account balances, was $1.25 billion and $1.51 billion as of September 2012 and December 2011, respectively. See Note 17 for further information about the reserves recorded in “Other liabilities and accrued expenses” related to guaranteed minimum death and income benefits.
On January 16, 2013, Group Inc. and GS Bank USA entered into a settlement in principle with the Federal Reserve Board relating to the servicing of residential mortgage loans and foreclosure processing. This settlement in principle amends the Order which is described above, provides for the termination of the independent foreclosure review under the Order and calls for Group Inc. and GS Bank USA collectively to: (i) make cash payments into a settlement fund for distribution to eligible borrowers; and (ii) provide other assistance for foreclosure prevention and loss mitigation over the next two years. The other provisions of the Order will remain in effect. On February 28, 2013, Group Inc. and GS Bank USA entered into final documentation with the Federal Reserve Board relating to the settlement.

Guarantees

The firm enters into various derivatives that meet the definition of a guarantee under U.S. GAAP, including written equity and commodity put options, written currency contracts and interest rate caps, floors and swaptions. Disclosures about derivatives are not required if they may be cash settled and the firm has no basis to conclude it is probable that the counterparties held the underlying instruments at inception of the contract. The firm has concluded that these conditions have been met for certain large, internationally active commercial and investment bank counterparties, central clearing counterparties and certain other counterparties. Accordingly, the firm has not included such contracts in the table below.

The firm, in its capacity as an agency lender, indemnifies most of its securities lending customers against losses incurred in the event that borrowers do not return securities and the collateral held is insufficient to cover the market value of the securities borrowed.

In the ordinary course of business, the firm provides other financial guarantees of the obligations of third parties (e.g., standby letters of credit and other guarantees to enable clients to complete transactions and fund-related guarantees). These guarantees represent obligations to make payments to beneficiaries if the guaranteed party fails to fulfill its obligation under a contractual arrangement with that beneficiary.

The table below presents certain information about derivatives that meet the definition of a guarantee and certain other guarantees. The maximum payout in the table below is based on the notional amount of the contract and therefore does not represent anticipated losses. See Note 7 for further information about credit derivatives that meet the definition of a guarantee which are not included below.

Because derivatives are accounted for at fair value, the carrying value is considered the best indication of payment/performance risk for individual contracts. However, the carrying values below exclude the effect of a legal right of setoff that may exist under an enforceable netting agreement and the effect of netting of cash collateral posted under enforceable credit support agreements.

As of September 2012
Maximum Payout/Notional Amount by Period of Expiration
in millions

Carrying
Value of
Net Liability




Remainder
of 2012

2013-
2014

2015-
2016

2017-
Thereafter
      Total
Derivatives ¹
$10,380    $222,571       $389,958       $86,756       $69,552       $768,837
Securities lending indemnifications ²
—    29,932       —       —       —       29,932
Other financial guarantees³
163    204       857       1,018       1,246       3,325


	As of March 2013
			Maximum Payout/Notional Amount by Period of Expiration
in millions		Carrying Value of Net Liability		Remainder of 2013	2014- 2015	2016- 2017	2018- Thereafter	Total
Derivatives ¹		$8,083		$318,426	$275,467	$53,158	$58,370	$705,421

Securities lending indemnifications ²		—		30,360	—	—	—	30,360

Other financial guarantees³		142		751	455	1,268	1,028	3,502

These derivatives are risk managed together with derivatives that do not meet the definition of a guarantee, and therefore these amounts do not reflect the firm’s overall risk related to its derivative activities. As of December ~~2011,~~2012, the carrying value of the net liability and the notional amount related to derivative guarantees ~~was $11.88 billion.~~were $8.58 billion and $663.15 billion, respectively.

Collateral held by the lenders in connection with securities lending indemnifications was ~~$30.82~~$31.24 billion as of ~~September 2012.~~March 2013. Because the contractual nature of these arrangements requires the firm to obtain collateral with a market value that exceeds the value of the securities lent to the borrower, there is minimal performance risk associated with these guarantees. As of December 2012, the maximum payout and collateral held related to securities lending indemnifications were $27.12 billion and $27.89 billion, respectively.

Other financial guarantees excludes certain commitments to issue standby letters of credit that are included in “Commitments to extend credit.” See table in “Commitments” above for a summary of the firm’s commitments. As of December ~~2011,~~2012, the carrying value of the net liability and the maximum payout related to other financial guarantees ~~was $205 million.~~were $152 million and $3.48 billion, respectively.


76		Goldman Sachs ~~September 2012~~March 2013 Form 10-Q		77

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Guarantees of Securities Issued by Trusts. The firm has established trusts, including Goldman Sachs Capital I, the APEX Trusts, the 2012 Trusts, and other entities for the limited purpose of issuing securities to third parties, lending the proceeds to the firm and entering into contractual arrangements with the firm and third parties related to this purpose. The firm does not consolidate these entities. See Note 16 for further information about the transactions involving Goldman Sachs Capital I, the APEX Trusts, and the 2012 Trusts.

The firm effectively provides for the full and unconditional guarantee of the securities issued by these entities. Timely payment by the firm of amounts due to these entities under the guarantee, borrowing, preferred stock and related contractual arrangements will be sufficient to cover payments due on the securities issued by these entities.

Management believes that it is unlikely that any circumstances will occur, such as nonperformance on the part of paying agents or other service providers, that would make it necessary for the firm to make payments related to these entities other than those required under the terms of the guarantee, borrowing, preferred stock and related contractual arrangements and in connection with certain expenses incurred by these entities.

Indemnities and Guarantees of Service Providers. In the ordinary course of business, the firm indemnifies and guarantees certain service providers, such as clearing and custody agents, trustees and administrators, against specified potential losses in connection with their acting as an agent of, or providing services to, the firm or its affiliates.

The firm may also be liable to some clients for losses caused by acts or omissions of third-party service providers, including sub-custodians and third-party brokers. In addition, the firm is a member of payment, clearing and settlement networks as well as securities exchanges around the world that may require the firm to meet the obligations of such networks and exchanges in the event of member defaults.

In connection with its prime brokerage and clearing businesses, the firm agrees to clear and settle on behalf of its clients the transactions entered into by them with other brokerage firms. The firm’s obligations in respect of such transactions are secured by the assets in the client’s account as well as any proceeds received from the transactions cleared and settled by the firm on behalf of the client. In connection with joint venture investments, the firm may issue loan guarantees under which it may be liable in the event of fraud, misappropriation, environmental liabilities and certain other matters involving the borrower.

The firm is unable to develop an estimate of the maximum payout under these guarantees and indemnifications. However, management believes that it is unlikely the firm will have to make any material payments under these arrangements, and no material liabilities related to these guarantees and indemnifications have been recognized in the condensed consolidated statements of financial condition as of ~~September 2012 and~~March 2013 or December ~~2011.~~2012.

Other Representations, Warranties and Indemnifications. The firm provides representations and warranties to counterparties in connection with a variety of commercial transactions and occasionally indemnifies them against potential losses caused by the breach of those representations and warranties. The firm may also provide indemnifications protecting against changes in or adverse application of certain U.S. tax laws in connection with ordinary-course transactions such as securities issuances, borrowings or derivatives.

In addition, the firm may provide indemnifications to some counterparties to protect them in the event additional taxes are owed or payments are withheld, due either to a change in or an adverse application of certain non-U.S. tax laws.

These indemnifications generally are standard contractual terms and are entered into in the ordinary course of business. Generally, there are no stated or notional amounts included in these indemnifications, and the contingencies triggering the obligation to indemnify are not expected to occur. The firm is unable to develop an estimate of the maximum payout under these guarantees and indemnifications. However, management believes that it is unlikely the firm will have to make any material payments under these arrangements, and no material liabilities related to these arrangements have been recognized in the condensed consolidated statements of financial condition as of ~~September 2012 and~~March 2013 or December ~~2011.~~2012.


78		Goldman Sachs ~~September 2012~~March 2013 Form 10-Q		77

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Guarantees of Subsidiaries. Group Inc. fully and unconditionally guarantees the securities issued by GS Finance Corp., a wholly-owned finance subsidiary of the firm.

Group Inc. has guaranteed the payment obligations of Goldman, Sachs & Co. (GS&Co.), GS Bank USA ~~GS Bank Europe~~ and Goldman Sachs Execution & Clearing, L.P. (GSEC), subject to certain exceptions.

In November 2008, the firm contributed subsidiaries into GS Bank USA, and Group Inc. agreed to guarantee the reimbursement of certain losses, including credit-related losses, relating to assets held by the contributed entities. In connection with this guarantee, Group Inc. also agreed to pledge to GS Bank USA certain collateral, including interests in subsidiaries and other illiquid assets.

In addition, Group Inc. guarantees many of the obligations of its other consolidated subsidiaries on a transaction-by-transaction basis, as negotiated with counterparties. Group Inc. is unable to develop an estimate of the maximum payout under its subsidiary guarantees; however, because these guaranteed obligations are also obligations of consolidated subsidiaries, ~~included in the table above,~~ Group Inc.’s liabilities as guarantor are not separately disclosed.

Note 19. Shareholders' Equity

Note 19.

Shareholders’ Equity

Common Equity

On ~~October~~April 15, ~~2012, the Board of Directors of~~2013, Group Inc. ~~(Board) increased the firm’s quarterly~~declared a dividend toof $0.50 per common share ~~from $0.46 per common share. The dividend will~~to be paid on ~~December 28, 2012~~June 27, 2013 to common shareholders of record on ~~November~~May 30, ~~2012.~~2013.

The firm’s share repurchase program is intended to help maintain the appropriate level of common ~~equity and to substantially offset increases in share count over time resulting from employee share-based compensation.~~equity. The repurchase program is effected primarily through regular open-market purchases, the amounts and timing of which are determined primarily by the firm’s current and projected capital positions (i.e., comparisons of the firm’s desired level and composition of capital to its actual level and composition of capital) ~~and the issuance of shares resulting from employee share-based compensation,~~, but which may also be influenced by general market conditions and the prevailing price and trading volumes of the firm’s common stock. Any repurchase of the firm’s common stock requires approval by the Federal Reserve Board.

During the three ~~and nine~~ months ended ~~September 2012,~~March 2013, the firm repurchased ~~11.8 million and 29.4~~10.1 million shares of its common stock at an average cost per share of ~~$106.17 and $106.07,~~$150.53, for a total cost of ~~$1.25~~$1.52 billion, ~~and $3.11 billion, respectively,~~ under the share repurchase program. In addition, pursuant to the terms of certain share-based compensation plans, employees may remit shares to the firm or the firm may cancel RSUs to satisfy minimum statutory employee tax withholding requirements. Under these plans, during the ~~nine~~three months ended ~~September 2012,~~March 2013, employees remitted ~~33,477~~70,754 shares with a total value of $3$10 million and the firm cancelled ~~8.9~~3.2 million of RSUs with a total value of ~~$947~~$458 million.

On March 25, 2013, the firm amended its warrant agreement with Berkshire Hathaway Inc. and certain of its subsidiaries (collectively, Berkshire Hathaway) to require net share settlement and to specify the exercise date as October 1, 2013. Under the amended agreement, the firm will deliver to Berkshire Hathaway the number of shares of common stock equal in value to the difference between the average closing price of the firm’s common stock over the 10 trading days preceding October 1, 2013 and the exercise price of $115.00 multiplied by the number of shares of common stock (43.5 million) covered by the warrant.


78		Goldman Sachs ~~September 2012~~March 2013 Form 10-Q		79

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Preferred Equity

The table below presents perpetual preferred stock issued and outstanding as of ~~September 2012.~~March 2013.

Series    Shares
Authorized    Shares
Issued    Shares
Outstanding    Dividend Rate    Redemption
Value
(in millions)
A
   50,000       30,000       29,999
3 month LIBOR + 0.75%,
with floor of 3.75% per annum
   $   750
B
   50,000       32,000       32,000       6.20% per annum    800
C
   25,000       8,000       8,000
3 month LIBOR + 0.75%,
with floor of 4.00% per annum
   200
D
   60,000       54,000       53,999
3 month LIBOR + 0.67%,
with floor of 4.00% per annum
   1,350
E
   17,500       17,500       17,500
3 month LIBOR + 0.77%,
with floor of 4.00% per annum
   1,750
F
   5,000       5,000       5,000
3 month LIBOR + 0.77%,
with floor of 4.00% per annum
   500
   207,500       146,500       146,498          $5,350


Series	Shares Authorized		Shares Issued		Shares Outstanding		Dividend Rate	Redemption Value (in millions)
A		50,000		30,000		29,999	3 month LIBOR + 0.75%, with floor of 3.75% per annum		$ 750

B		50,000		32,000		32,000	6.20% per annum		800

C		25,000		8,000		8,000	3 month LIBOR + 0.75%, with floor of 4.00% per annum		200

D		60,000		54,000		53,999	3 month LIBOR + 0.67%, with floor of 4.00% per annum		1,350

E		17,500		17,500		17,500	3 month LIBOR + 0.77%, with floor of 4.00% per annum		1,750

F		5,000		5,000		5,000	3 month LIBOR + 0.77%, with floor of 4.00% per annum		500

I		34,500		34,000		34,000	5.95% per annum		850
		242,000		180,500		180,498			$6,200

Each share of non-cumulative Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock issued and outstanding has a par value of $0.01, has a liquidation preference of $25,000, is represented by 1,000 depositary shares and is redeemable at the firm’s option, ~~subject to the approval of the Federal Reserve Board,~~ at a redemption price equal to $25,000 plus declared and unpaid dividends.

Each share of non-cumulative Series E and Series F Preferred Stock issued and outstanding has a par value of $0.01, has a liquidation preference of $100,000 and is redeemable at the option of the firm at any time subject to certain covenant restrictions governing the firm’s ability to redeem or purchase the preferred stock without issuing common stock or other instruments with equity-like characteristics, at a redemption price equal to $100,000 plus declared and unpaid dividends. See Note 16 for further information about the replacement capital covenants applicable to the Series E and Series F Preferred Stock.

Each share of non-cumulative Series I Preferred Stock issued and outstanding has a par value of $0.01, has a liquidation preference of $25,000, is represented by 1,000 depositary shares and is redeemable at the firm’s option beginning November 10, 2017 at a redemption price equal to $25,000 plus accrued and unpaid dividends.

Any redemption of preferred stock by the firm requires the approval of the Federal Reserve Board. All series of preferred stock are pari passu and have a preference over the firm’s common stock on liquidation. Dividends on each series of preferred stock, if declared, are payable quarterly in arrears. The firm’s ability to declare or pay dividends on, or purchase, redeem or otherwise acquire, its common stock is subject to certain restrictions in the event that the firm fails to pay or set aside full dividends on the preferred stock for the latest completed dividend period.

~~In 2007, the Board authorized 17,500 shares of Series E Preferred Stock, and 5,000 shares of Series F Preferred Stock, in connection with the APEX Trusts.~~ On ~~June 1, 2012,~~April 25, 2013, Group Inc. issued ~~17,500 shares of Series E Preferred Stock to Goldman Sachs Capital II pursuant to the stock purchase contracts held by Goldman Sachs~~

Capital II. On September 4, 2012, Group Inc. issued 5,000 shares of Series F Preferred Stock to Goldman Sachs Capital III pursuant to the stock purchase contracts held by Goldman Sachs Capital III. Each share of Series E and Series F Preferred Stock issued and outstanding has a par value of $0.01, has a liquidation preference of $100,000 and is redeemable at the option of the firm at any time subject to approval from the Federal Reserve Board and to certain covenant restrictions governing the firm’s ability to redeem or purchase the preferred stock without issuing common stock or other instruments with equity-like characteristics. See Note 16 for further information about the APEX Trusts.

~~On October 24, 2012, Group Inc. issued 34,000~~40,000 shares of perpetual ~~5.95%~~5.50% Fixed-to-Floating Rate Non-Cumulative Preferred Stock, Series I,J, par value $0.01 per share (Series IJ Preferred Stock), out of a total of ~~34,500~~46,000 shares of Series IJ Preferred Stock authorized for issuance. Each share of Series IJ Preferred Stock issued and outstanding has a liquidation preference of $25,000, is represented by 1,000 depositary shares and is redeemable at the firm’s option beginning ~~November~~May 10, ~~2017, subject to the approval of the Federal Reserve Board,~~2023, at a redemption price equal to $25,000 plus accrued and unpaid dividends. Dividends on Series J Preferred Stock, if declared, will be payable quarterly at a fixed rate per annum of 5.50% from the issuance date to, but excluding, May 10, 2023, and thereafter at a rate per annum equal to three-month LIBOR plus 3.64%.


80		Goldman Sachs ~~September 2012~~March 2013 Form 10-Q		79

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

In March 2011, the firm provided notice to Berkshire Hathaway Inc. and certain of its subsidiaries (collectively, Berkshire Hathaway) that it would redeem in full the 50,000 shares of the firm’s 10% Cumulative Perpetual Preferred Stock, Series G (Series G Preferred Stock) held by Berkshire Hathaway for the stated redemption price of $5.50 billion ($110,000 per share), plus accrued and unpaid dividends. In connection with this notice, the firm recognized a preferred dividend of $1.64 billion (calculated as the difference between the carrying value and the redemption value of the preferred stock), which was recorded as a reduction to earnings applicable to common

shareholders for the first quarter of 2011. The redemption also resulted in the acceleration of $24 million of preferred dividends related to the period from April 1, 2011 to the redemption date, which was included in the firm’s results during the three months ended March 2011. The Series G Preferred Stock was redeemed on April 18, 2011. Berkshire Hathaway continues to hold a five-year warrant, issued in October 2008, to purchase up to 43.5 million shares of common stock at an exercise price of $115.00 per share.

The table below presents preferred dividends declared on preferred stock.

   Three Months Ended September Nine Months Ended September
   2012    2011 2012    2011
   per share       in millions       per share       in millions    per share       in millions       per share       in millions
Series A
   $   239.58       $  7       $239.58       $  7    $   718.74       $  21       $   710.93       $  21
Series B
   387.50       13       387.50       12    1,162.50       37       1,162.50       37
Series C
   255.56       2       255.56       2    766.68       6       758.34       6
Series D
   255.56       14       255.56       14    766.68       42       758.34       41
Series E
   1,055.56       18       —       —    1,055.56       18       —       —
Series G
   —       —       —       —    —       —       2,500.00       125 ¹
Total
      $54          $35       $124          $230

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


	Three Months Ended March
	2013			2012
		per share	in millions		per share	in millions
Series A		$234.38	$ 7		$239.58	$ 7

Series B		387.50	12		387.50	12

Series C		250.00	2		255.56	2

Series D		250.00	14		255.56	14

Series E		977.78	17		—	—

Series F		977.78	5		—	—

Series I		437.99	15		—	—
Total			$72			$35

Accumulated Other Comprehensive Income/(Loss)

The tables below present accumulated other comprehensive income/(loss) by type.

As of September 2012
in millions

Currency
translation
adjustment,
net of tax




Pension and
postretirement
liability adjustments,
net of tax






Net unrealized
gains/(losses) on
available-for-sale
securities, net of tax




Accumulated other
comprehensive
income/(loss),
net of tax




Balance, beginning of year
$(225 )    $(374 )    $  83    $(516 )
Other comprehensive income/(loss)
(63 )    13       184    134
Balance, end of period
$(288 )    $(361 )    $267 ¹ $(382 )
As of December 2011
in millions

Currency
translation
adjustment,
net of tax




Pension and
postretirement
liability adjustments,
net of tax






Net unrealized
gains/(losses) on
available-for-sale
securities, net of tax





Accumulated other
comprehensive
income/(loss),
net of tax




Balance, beginning of year
$(170 )    $(229 )    $113    $(286 )
Other comprehensive loss
(55 )    (145 )    (30 ) (230 )
Balance, end of year
$(225 )    $(374 )    $  83 ¹ $(516 )


	As of March 2013
in millions		Currency translation adjustment, net of tax		Pension and postretirement liability adjustments, net of tax		Net unrealized gains/(losses) on available-for-sale securities, net of tax		Accumulated other comprehensive income/(loss), net of tax
Balance, beginning of year		$(314	)	$(206	)	$327		$(193	)

Other comprehensive income/(loss)		(26	)	(4	)	15		(15	)
Balance, end of period		$(340	)	$(210	)	$342	¹	$(208	)

	As of December 2012
in millions		Currency translation adjustment, net of tax		Pension and postretirement liability adjustments, net of tax		Net unrealized gains/(losses) on available-for-sale securities, net of tax		Accumulated other comprehensive income/(loss), net of tax
Balance, beginning of year		$(225	)	$(374	)	$ 83		$(516	)

Other comprehensive income/(loss)		(89	)	168		244		323
Balance, end of year		$(314	)	$(206	)	$327	¹	$(193	)

1.	Substantially all consists of net unrealized gains on securities held by the firm’s insurance subsidiaries as of both ~~September 2012~~March 2013 and December ~~2011.~~2012.


80		Goldman Sachs ~~September 2012~~March 2013 Form 10-Q		81

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Note 20. Regulation and Capital Adequacy

Note 20.

Regulation and Capital Adequacy

The Federal Reserve Board is the primary regulator of Group Inc., a bank holding company under the Bank Holding Company Act of 1956 (BHC Act) and a financial holding company under amendments to the BHC Act effected by the U.S. ~~Bank Holding Company~~Gramm-Leach-Bliley Act of ~~1956.~~1999. As a bank holding company, the firm is subject to consolidated regulatory capital requirements that are computed in accordance with the Federal Reserve Board’s risk-based capital ~~requirements~~regulations (which are based on the ‘Basel 1’ Capital Accord of the Basel Committee). reflecting the Federal Reserve Board’s revised market risk regulatory capital requirements which became effective on January 1, 2013. These capital requirements are expressed as capital ratios that compare measures of capital to risk-weighted assets (RWAs). The firm’s U.S. bank depository institution subsidiaries, including GS Bank USA, are subject to similar capital requirements.

Under the Federal Reserve Board’s capital adequacy requirements and the regulatory framework for prompt corrective action that is applicable to GS Bank USA, the firm and its U.S. bank depository institution subsidiaries must meet specific capital requirements that involve quantitative measures of assets, liabilities and certain off-balance-sheet items as calculated under regulatory reporting practices. The firm and its U.S. bank depository institution subsidiaries’ capital amounts, as well as GS Bank USA’s prompt corrective action classification, are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.

Many of the firm’s subsidiaries, including GS&Co. and the firm’s other broker-dealer subsidiaries, are subject to separate regulation and capital requirements as described below.

Group Inc.

Federal Reserve Board regulations require bank holding companies to maintain a minimum Tier 1 capital ratio of 4% and a minimum total capital ratio of 8%. The required minimum Tier 1 capital ratio and total capital ratio in order to be considered a “well-capitalized” bank holding company under the Federal Reserve Board guidelines are 6% and 10%, respectively. Bank holding companies may be expected to maintain ratios well above the minimum levels, depending on their particular condition, risk profile and growth plans. The minimum Tier 1 leverage ratio is 3% for bank holding companies that have received the highest supervisory rating under Federal Reserve Board guidelines

or that have implemented the Federal Reserve Board’s risk-based capital measure for market risk. Other bank holding companies must have a minimum Tier 1 leverage ratio of 4%.

The table below presents information regarding Group Inc.’s regulatory capital ~~ratios.~~ratios under Basel 1, as implemented by the Federal Reserve Board. The information as of March 2013 reflects the revised market risk regulatory capital requirements, which became effective on January 1, 2013. The information as of December 2012 is prior to the implementation of these revised market risk regulatory capital requirements.

As of
$ in millions

September
2012




December
2011


Tier 1 capital
$  65,230       $  63,262
Tier 2 capital
$  13,425       $  13,881
Total capital
$  78,655       $  77,143
Risk-weighted assets
$435,331       $457,027
Tier 1 capital ratio
15.0 %    13.8 %
Total capital ratio
18.1 %    16.9 %
Tier 1 leverage ratio
7.2 %    7.0 %


	As of
$ in millions		March 2013		December 2012
Tier 1 capital		$ 69,371		$ 66,977

Tier 2 capital		$ 13,445		$ 13,429

Total capital		$ 82,816		$ 80,406

Risk-weighted assets		$480,080		$399,928

Tier 1 capital ratio		14.4	%	16.7	%

Total capital ratio		17.3	%	20.1	%

Tier 1 leverage ratio		7.5	%	7.3	%

Changes to the market risk regulatory capital requirements referenced above introduced a new methodology for determining RWAs for market risk and are designed to implement the new market risk framework of the Basel Committee, as well as the prohibition on the use of external credit ratings, as required by the Dodd-Frank Act. These revised market risk regulatory capital requirements are a significant part of the regulatory capital changes that will ultimately be reflected in the firm’s capital ratios under the guidelines issued by the Basel Committee in December 2010 (Basel 3).

RWAs under the Federal Reserve Board’s risk-based capital requirements are calculated based on ~~the amount~~measures of ~~market~~credit risk and ~~credit~~market risk. ~~RWAs for market risk are determined by reference to the firm’s Value-at-Risk (VaR) model, supplemented by other measures to capture risks not reflected in the firm’s VaR model.~~ Credit risk for on-balance sheet assets is based on the balance sheet value. For off-balance sheet exposures, including OTC derivatives and commitments, a credit equivalent amount is calculated based on the notional amount of each trade. All such assets and ~~amounts~~exposures are then assigned a risk weight depending on, among other things, whether the counterparty is a sovereign, bank or a qualifying securities firm or other entity (or if collateral is held, depending on the nature of the collateral).


82		Goldman Sachs March 2013 Form 10-Q

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Under Basel 1, prior to the implementation of the revised market risk regulatory capital requirements outlined above, RWAs for market risk were determined by reference to the firm’s Value-at-Risk (VaR) model, supplemented by the standardized measurement method used to determine RWAs for specific risk for certain positions. Under the Federal Reserve Board’s revised market risk regulatory capital requirements, which became effective on January 1, 2013, the methodology for calculating the RWAs for market risk was changed. RWAs for market risk are now determined using VaR, stressed VaR, incremental risk, comprehensive risk and a standardized measurement method for specific risk.

Tier 1 leverage ratio is defined as Tier 1 capital ~~under Basel 1~~ divided by average adjusted total assets (which includes adjustments for disallowed goodwill and intangible assets, and the carrying value of equity investments in non-financial companies that are subject to deductions from Tier 1 capital).


		~~Goldman Sachs September 2012 Form 10-Q~~		81

~~THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

Regulatory Reform

The firm is currently working to implement the requirements set out in the Federal Reserve Board’s ~~Risk-Based~~“Risk-Based Capital Standards: Advanced Capital Adequacy Framework — Basel 2,2” (Basel 2), as applicable to Group Inc. as a bank holding company ~~(Basel 2), which~~and as an advanced approach banking organization. These requirements are based on the advanced approaches under the Revised Framework for the International Convergence of Capital Measurement and Capital Standards issued by the Basel Committee. ~~U.S. banking regulators have incorporated the~~ Basel 2, among other things, revises the regulatory capital framework ~~into the existing risk-based~~for credit risk and equity investments, and introduces a new operational risk capital ~~requirements by requiring that internationally active banking organizations, such as Group Inc., adopt~~requirement. The firm will implement Basel 2 once approved to do so by ~~regulators.~~regulators following the completion of a parallel run period. Based on the parallel run calculations, the firm currently meets the minimum capital requirements calculated in accordance with Basel 2, including the revised market risk regulatory capital requirements. The firm’s capital adequacy ratio will also be impacted by the further changes outlined below under ~~the~~ Basel ~~2.5 framework,~~3 and provisions of the Dodd-Frank Act.

The “Collins Amendment” of the Dodd-Frank Act requires advanced approach banking organizations to continue, upon adoption of Basel 2, to calculate risk-based capital ratios under both Basel 2 and Basel 1 (in each case reflecting the Federal Reserve Board’s revised market risk regulatory

capital requirements). For each of the Tier 1 and Total capital ratios, the lower of the Basel ~~3 framework.~~1 and Basel 2 ratios calculated will be used to determine whether such advanced approach banking organizations meet their minimum risk-based capital requirements. Furthermore, the June 2012 proposals described below include provisions which, if enacted as proposed, would modify these minimum risk-based capital requirements.

In June 2012, the U.S. federal bank regulatory agencies (the Agencies) issued revised rules which modify their market risk regulatory capital requirements for banking organizations that have significant trading activities. These modifications are designed to address the adjustments to the market risk regulatory capital framework that were announced by the Basel Committee in June 2010 (Basel 2.5), as well as the prohibition on the use of external credit ratings, as required by the Dodd-Frank Act. These changes will be implemented in January 2013 and will result in increased regulatory capital requirements for market risk.

~~In addition, in June 2012, the Agencies~~(Agencies) proposed further modifications to their capital adequacy regulations to address aspects of both the Dodd-Frank Act and ~~the guidelines issued by the~~ Basel ~~Committee in December 2010 (Basel 3).~~3. If enacted as proposed, the most significant changes that would impact the firm include (i) revisions to the definition of Tier 1 capital, including new deductions from Tier 1 capital, (ii) higher minimum capital and leverage ratios, (iii) ~~the introduction of~~ a new minimum ratio of Tier 1 common equity to RWAs, (iv) new capital conservation and counter-cyclical capital buffers, (v) an additional leverage ratio ~~which~~that includes measures of off-balance sheet exposures, ~~and~~ (vi) revisions to the methodology for calculating RWAs, particularly for credit risk capital requirements ~~on derivatives. Among~~for derivatives and (vii) a new “standardized approach” to the ~~consequences~~calculation of RWAs that would replace the Federal Reserve Board’s current Basel 1 risk-based capital framework in 2015, including for purposes of calculating the requisite capital floor under the Collins Amendment. In November 2012, the Agencies announced that the proposed effective date of January 1, 2013 for these ~~proposals~~modifications would be deferred, but have not indicated a revised effective date. These proposals incorporate the ~~phase out~~phase-out of Tier 1 capital treatment for the firm’s junior subordinated debt issued to ~~trusts over a three-year period~~trusts; such capital would instead be eligible as Tier 2 capital under the proposals. Under the Collins Amendment, this phase-out was scheduled to begin on January 1, 2013. Due to the aforementioned deferral of the effective date of the proposed capital rules, the required application of this phase-out remains uncertain at this time. However, beginning on January 1, ~~2013.~~

~~In accordance with~~2013, the ~~“Collins Amendment”~~firm has begun the phase-out of the ~~Dodd-Frank Act, the Agencies have proposed risk-based~~firm’s Tier 1 capital ~~floors~~treatment of its junior subordinated debt issued to trusts. The firm has assumed a phase-out period allowing for only 75% of the capital ~~ratios. Furthermore,~~instrument to be included in additional Tier 1 capital in calendar year 2013 reflecting the ~~June 2012 proposals include provisions which, if enacted~~Federal Reserve Board’s proposed capital rules. Phased-out amounts that are no longer eligible as ~~proposed, would modify these risk-based~~Tier 1 capital ~~floors.~~treatment are eligible for Tier 2 capital treatment.


82		Goldman Sachs ~~September 2012~~March 2013 Form 10-Q		83

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

~~The~~In November 2011, the Basel Committee ~~has~~ published its final provisions for assessing the global systemic importance of banking institutions and the range of additional Tier 1 common equity that should be maintained by banking institutions deemed to be globally systemically important. The additional capital for these institutions would initially range from 1% to 2.5% of Tier 1 common equity and could be as much as 3.5% for a ~~bank~~banking institution that increases its systemic footprint (e.g., by increasing total assets). In November 2012, the Financial Stability Board (established at the direction of the leaders of the Group of 20) indicated that the firm, based on its 2011 financial data, would be required to hold an additional 1.5% of Tier 1 common equity as a globally systemically important ~~bank~~banking institution under the Basel Committee’s methodology. ~~Therefore, depending upon any future revisions to this provisional~~The final determination of the amount of additional Tier 1 common equity ~~requirement~~that the firm will be required to hold will be based on the firm’s 2013 financial data and the manner and timing of the U.S. banking regulators’ implementation of the Basel Committee’s ~~methodology, the firm expects that the minimum Tier 1 common ratio requirement applicable to the firm will include this additional capital assessment.~~methodology. The ~~firm expects~~Basel Committee indicated that globally systemically important banking institutions will be required to meet the capital surcharges on a phased-in basis from 2016 through 2019.

~~The~~In October 2012, the Basel Committee ~~also~~ published its final provisions for calculating incremental capital requirements for domestic systemically important ~~banks.~~banking institutions. The provisions are complementary to the framework outlined above for global systemically important ~~banks,~~banking institutions, but are more principles-based in order to provide an appropriate degree of national discretion. ~~These~~The impact of these provisions ~~may impact~~on the regulatory capital requirements of GS Bank USA ~~but~~and the ~~exact impact~~firm’s other subsidiaries, including Goldman Sachs International (GSI), will depend on how they are implemented by the ~~U.S.~~ banking ~~regulators.~~and non-banking regulators in the United States and other jurisdictions.

~~In May 2012, the~~The Basel Committee has released aother consultation ~~paper proposing a “Fundamental Review of the Trading Book.” The paper proposes a series of comprehensive~~papers that may result in further changes to the regulatory capital requirements, ~~for market risk which, if enacted by~~including a “Fundamental review of the ~~U.S. banking regulators, would likely replace~~trading book” and “Revisions to the Basel ~~2.5 requirements that, as outlined above, become effective in January 2013.~~Securitization Framework.” In addition, the Basel Committee has issued other proposals on regulatory changes including a “Supervisory framework for measuring and controlling large exposures.” The full impact of these developments on the firm will not be known with certainty until after any resulting rules are finalized.

The Dodd-Frank Act contains provisions that require the registration of all swap dealers, major swap participants, security-based swap dealers ~~and/or~~and major security-based swap participants. ~~Entities~~The firm has registered certain subsidiaries as “swap dealers” under the U.S. Commodity Futures Trading Commission (CFTC) rules, including GS&Co., GS Bank USA, GSI and J. Aron & Company. These entities and other entities that ~~register~~would require registration under ~~these provisions~~the CFTC or SEC rules will be subject to regulatory capital requirements, which have not yet been finalized by the CFTC and SEC. Nevertheless, the firm expects that this will result in modifications to the regulatory capital requirements of some of its entities, and will result in some of its other entities becoming subject to regulatory capital requirements for the first time.

The interaction among the Dodd-Frank Act, other reform initiatives contemplated by the Agencies, the Basel Committee’s proposed and announced changes and other proposed or announced changes from other governmental entities and regulators (including the European Union (EU) and the U.K.’s Financial Services Authority (FSA)) adds further uncertainty to the firm’s future capital and liquidity requirements and those of the firm’s subsidiaries. The EU has recently finalized legislation which implements Basel 3 and it is expected to be in force for the European Union on January 1, 2014. As of April 1, 2013, GSI is regulated by the Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA) which replaced the FSA.


84		Goldman Sachs ~~September 2012~~March 2013 Form 10-Q		83

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Bank Subsidiaries

GS Bank USA, an FDIC-insured, New York State-chartered bank and a member of the Federal Reserve System, is supervised and regulated by the Federal Reserve Board, the FDIC, the New York State Department of Financial Services and the ~~Bureau of~~ Consumer Financial Protection Bureau, and is subject to minimum capital requirements (described below) that are calculated in a manner similar to those applicable to bank holding companies. GS Bank USA computes its capital ratios in accordance with the regulatory capital ~~guidelines~~requirements currently applicable to state member banks, which are based on Basel 1 reflecting the revised market risk regulatory capital requirements as implemented by the Federal Reserve Board, for purposes of assessing the adequacy of its capital. Under the regulatory framework for prompt corrective action that is applicable to GS Bank USA, in order to be considered a “well-capitalized” depository institution, GS Bank USA must maintain a Tier 1 capital ratio of at least 6%, a total capital ratio of at least 10% and a Tier 1 leverage ratio of at least 5%. GS Bank USA has agreed with the Federal Reserve Board to maintain minimum capital ratios in excess of these “well-capitalized” levels. Accordingly, for a period of time, GS Bank USA is expected to maintain a Tier 1 capital ratio of at least 8%, a total capital ratio of at least 11% and a Tier 1 leverage ratio of at least 6%. As noted in the table below, GS Bank USA was in compliance with these minimum capital requirements as of ~~September 2012~~March 2013 and December ~~2011.~~2012.

The table below presents information regarding GS Bank USA’s regulatory capital ratios under Basel 1, as implemented by the Federal Reserve Board. The information as of March 2013 reflects the revised market risk regulatory capital requirements, which became effective on January 1, 2013. These changes resulted in increased regulatory capital requirements for market risk. The information as of December 2012 is prior to the implementation of these revised market risk regulatory capital requirements.

As of
$ in millions

September
2012




December
2011


Tier 1 capital
$  20,333       $  19,251
Tier 2 capital
$         33       $           6
Total capital
$  20,366       $  19,257
Risk-weighted assets
$112,922       $112,824
Tier 1 capital ratio
18.0 %    17.1 %
Total capital ratio
18.0 %    17.1 %
Tier 1 leverage ratio
17.8 %    18.5 %


	As of
$ in millions		March 2013		December 2012
Tier 1 capital¹		$ 19,089		$ 20,704

Tier 2 capital		$ 56		$ 39

Total capital		$ 19,145		$ 20,743

Risk-weighted assets		$120,010		$109,669

Tier 1 capital ratio		15.9	%	18.9	%

Total capital ratio		16.0	%	18.9	%

Tier 1 leverage ratio		16.1	%	17.6	%

1.	The decrease from December 2012 to March 2013 is related to GS Bank USA’s $2.00 billion dividend to Group Inc. in the first quarter of 2013.

GS Bank USA is also currently working to implement the Basel 2 framework, as implemented by the Federal Reserve Board. ~~Similar to the firm’s requirement as a bank holding company,~~ GS Bank USA ~~is required to adopt~~will implement Basel 2 once approved to do so by ~~regulators.~~regulators following the completion of a parallel run period. Based on the parallel run calculations, GS Bank USA ~~will also be impacted by~~currently meets the ~~modified~~minimum capital requirements calculated in accordance with Basel 2, including the revised market risk regulatory ~~capital framework outlined above, which will be implemented in January 2013.~~ requirements.

In addition, the capital requirements for GS Bank USA are expected to be impacted by the June 2012 proposed modifications to the Agencies’ capital adequacy regulations outlined ~~above.~~above, including the requirements of a floor to the advanced risk-based capital ratios. If enacted as proposed, these proposals would also change the regulatory framework for prompt corrective action that is applicable to GS Bank ~~USA. The firm also expects that~~USA by, among other things, introducing a common equity Tier 1 ratio requirement, increasing the minimum Tier 1 capital ratio requirement and introducing a supplementary leverage ratio as a component of the prompt corrective action analysis. GS Bank USA will also be impacted by aspects of the Dodd-Frank Act, including new stress tests.

The deposits of GS Bank USA are insured by the FDIC to the extent provided by law. The Federal Reserve Board requires depository institutions to maintain cash reserves with a Federal Reserve Bank. The amount deposited by the firm’s depository institution held at the Federal Reserve Bank was approximately ~~$49.72~~$49.64 billion and ~~$40.06~~$58.67 billion as of ~~September 2012~~March 2013 and December ~~2011,~~2012, respectively, which exceeded required reserve amounts by ~~$49.42~~$49.54 billion and ~~$39.51~~$58.59 billion as of ~~September 2012~~March 2013 and December ~~2011,~~2012, respectively.

Transactions between GS Bank USA and its subsidiaries and Group Inc. and its subsidiaries and affiliates (other than, generally, subsidiaries of GS Bank USA) are regulated by the Federal Reserve Board. These regulations generally limit the types and amounts of transactions (including ~~loans to and borrowings~~credit extensions from GS Bank USA) that may take place and generally require those transactions to be on ~~an arm’s-length basis.~~market terms or better to GS Bank USA.

The firm’s principal non-U.S. bank subsidiary, GSIB, is a wholly-owned credit institution, which was regulated by the FSA through March 2013, and ~~GS Bank Europe, a wholly-owned credit institution, regulated by the Central Bank of Ireland, are both~~is subject to minimum capital requirements. As of ~~September 2012~~April 1, 2013, GSIB is regulated by the PRA and the FCA, which replaced the FSA. As of March 2013 and December ~~2011,~~2012, GSIB ~~and GS Bank Europe were~~was in compliance with all regulatory capital requirements.


84		Goldman Sachs ~~September 2012~~March 2013 Form 10-Q		85

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Broker-Dealer Subsidiaries

The firm’s U.S. regulated broker-dealer subsidiaries include GS&Co. and GSEC. GS&Co. and GSEC are registered U.S. broker-dealers and futures commission merchants, and are subject to regulatory capital requirements, including those imposed by the SEC, the ~~U.S. Commodity Futures Trading Commission (CFTC),~~CFTC, Chicago Mercantile Exchange, the Financial Industry Regulatory Authority, Inc. (FINRA) and the National Futures Association. Rule 15c3-1 of the SEC and Rule 1.17 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. and GSEC have elected to compute their minimum capital requirements in accordance with the “Alternative Net Capital Requirement” as permitted by Rule 15c3-1.

As of ~~September 2012~~March 2013 and December ~~2011,~~2012, GS&Co. had regulatory net capital, as defined by Rule 15c3-1, of ~~$13.24~~$14.80 billion and ~~$11.24~~$14.12 billion, respectively, which exceeded the amount required by ~~$11.41~~$12.85 billion and ~~$9.34~~$12.42 billion, respectively. As of ~~September 2012~~March 2013 and December ~~2011,~~2012, GSEC had regulatory net capital, as defined by Rule 15c3-1, of ~~$2.21~~$2.05 billion and ~~$2.10~~$2.02 billion, respectively, which exceeded the amount required by ~~$2.08~~$1.94 billion and ~~$2.00~~$1.92 billion, respectively.

In addition to its alternative minimum net capital requirements, GS&Co. is also required to hold tentative net capital in excess of $1 billion and net capital in excess of $500 million in accordance with the market and credit risk standards of Appendix E of Rule 15c3-1. GS&Co. is also required to notify the SEC in the event that its tentative net capital is less than $5 billion. As of ~~September 2012~~March 2013 and December ~~2011,~~2012, GS&Co. had tentative net capital and net capital in excess of both the minimum and the notification requirements.

Insurance Subsidiaries

The firm has U.S. insurance subsidiaries that are subject to state insurance regulation and oversight in the states in which they are domiciled and in the other states in which they are licensed. In addition, certain of the firm’s insurance subsidiaries outside of the U.S. were regulated by the FSA through March 2013. As of April 1, 2013, such entities are regulated by the ~~FSA~~PRA and the FCA, which replaced the FSA. Additionally, certain other non-U.S. insurance subsidiaries are regulated by the Bermuda Monetary Authority. The firm’s insurance subsidiaries were in compliance with all regulatory capital requirements as of ~~September 2012~~March 2013 and December ~~2011.~~2012.

Other Non-U.S. Regulated Subsidiaries

The firm’s principal non-U.S. regulated subsidiaries include ~~Goldman Sachs International (GSI)~~GSI and Goldman Sachs Japan Co., Ltd. (GSJCL). GSI, the firm’s regulated U.K. broker-dealer, iswas subject to the capital requirements imposed by the FSA through March 2013. As of April 1, 2013, GSI is regulated by the PRA and the FCA, which replaced the FSA. GSJCL, the firm’s regulated Japanese broker-dealer, is subject to the capital requirements imposed by Japan’s Financial Services Agency. As of ~~September 2012~~March 2013 and December ~~2011,~~2012, GSI and GSJCL were in compliance with their local capital adequacy requirements. Certain other non-U.S. subsidiaries of the firm are also subject to capital adequacy requirements promulgated by authorities of the countries in which they operate. As of ~~September 2012~~March 2013 and December ~~2011,~~2012, these subsidiaries were in compliance with their local capital adequacy requirements.

Restrictions on Payments

The regulatory requirements referred to above restrict Group Inc.’s ability to withdraw capital from its regulated subsidiaries. As of ~~September 2012~~March 2013 and December ~~2011,~~2012, Group Inc. was required to maintain approximately ~~$30.89~~$30.48 billion and ~~$25.53~~$31.01 billion, respectively, of minimum equity capital in these regulated subsidiaries. This minimum equity capital requirement includes certain restrictions imposed by federal and state laws as to the payment of dividends to Group Inc. by its regulated subsidiaries. In addition to limitations on the payment of dividends imposed by federal and state laws, the Federal Reserve Board, the FDIC and the New York State Department of Financial Services have authority to prohibit or to limit the payment of dividends by the banking organizations they supervise (including GS Bank USA) if, in the relevant regulator’s opinion, payment of a dividend would constitute an unsafe or unsound practice in the light of the financial condition of the banking organization.


86		Goldman Sachs ~~September 2012~~March 2013 Form 10-Q		85

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Note 21. Earnings Per Common Share

Note 21.

Earnings Per Common Share

Basic ~~earnings/(loss)~~earnings per common share (EPS) is calculated by dividing net ~~earnings/(loss)~~earnings applicable to common shareholders by the weighted average number of common shares outstanding. Common shares outstanding includes common stock and RSUs for which no future service is required as a condition to the delivery of the underlying common stock. Diluted EPS includes the determinants of

basic EPS and, in addition, reflects the dilutive effect of the common stock deliverable for stock warrants and options and for RSUs for which future service is required as a condition to the delivery of the underlying common stock.

The table below presents the computations of basic and diluted EPS.

Three Months
Ended September Nine Months
Ended September
in millions, except per share amounts 2012       2011    2012       2011
Numerator for basic and diluted EPS — net earnings/(loss) applicable to common shareholders
$ 1,458       $ (428 ) $ 4,459       $1,532
Denominator for basic EPS — weighted average number of common shares
491.2       518.2    501.1       530.1
Effect of dilutive securities:

RSUs
12.0       —    10.8       14.0
Stock options and warrants
7.7       —    8.2       22.5
Dilutive potential common shares
19.7       —    19.0       36.5
Denominator for diluted EPS — weighted average number of common shares and dilutive potential common shares
510.9       518.2    520.1       566.6
Basic EPS
$ 2.95       $ (0.84 ) $ 8.85       $2.84
Diluted EPS
2.85       (0.84 ) 8.57       2.70


	Three Months Ended March
in millions, except per share amounts		2013	2012
Numerator for basic and diluted EPS — net earnings applicable to common shareholders		$2,188	$2,074
Denominator for basic EPS — weighted average number of common shares		482.1	510.8

Effect of dilutive securities:
RSUs		6.1	9.2

Stock options and warrants		21.6	9.2
Dilutive potential common shares		27.7	18.4
Denominator for diluted EPS — weighted average number of common shares and dilutive potential common shares		509.8	529.2
Basic EPS		$ 4.53	$ 4.05

Diluted EPS		4.29	3.92

In the table above, unvested share-based payment awards that have non-forfeitable rights to dividends or dividend equivalents are treated as a separate class of securities in calculating EPS. The impact of applying this methodology

was a reduction in basic EPS of ~~$0.02~~$0.01 for both the three months ended ~~September 2012~~March 2013 and ~~an increase in basic and diluted loss per common share of $0.01 for the three months ended~~

~~September 2011, and a reduction in basic EPS of $0.05 for both the nine months ended September 2012 and September 2011.~~March 2012.

The diluted EPS computations in the table above do not include the following:

Three Months
Ended September    Nine Months
Ended September
in millions 2012    2011       2012       2011
Number of antidilutive RSUs and common shares underlying antidilutive stock options and warrants
52.4    123.4       52.4       6.4


	Three Months Ended March
in millions		2013	2012
Number of antidilutive RSUs and common shares underlying antidilutive stock options and warrants		6.1	52.5


86		Goldman Sachs ~~September 2012~~March 2013 Form 10-Q		87

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Note 22. Transactions with Affiliated Funds

Note 22.

Transactions with Affiliated Funds

The firm has formed numerous nonconsolidated investment funds with third-party investors. As the firm generally acts as the investment manager for these funds, it is entitled to receive management fees and, in certain cases, advisory fees or incentive fees from these funds. Additionally, the firm invests alongside the third-party investors in certain funds.

The tables below present fees earned from affiliated funds, fees receivable from affiliated funds and the aggregate carrying value of the firm’s interests in affiliated funds.

Three Months
Ended September    Nine Months
Ended September
in millions 2012       2011       2012       2011
Fees earned from affiliated funds
$   602       $   663       $1,947       $2,104


				Three Months Ended March
in millions					2013	2012
Fees earned from affiliated funds					$ 700	$ 594

	As of			As of
in millions		September 2012	December 2011		March 2013	December 2012
Fees receivable from funds		$ 622	$ 721		$ 569	$ 704

Aggregate carrying value of interests in funds		15,095	14,960		14,114	14,725

As of ~~September 2012~~March 2013 and December ~~2011,~~2012, the firm had outstanding loans and guarantees to certain of its funds of ~~$637~~$89 million and ~~$289~~$582 million, respectively, which are collateralized by certain fund assets. These amounts relate primarily to certain real estate funds for which the firm voluntarily provided financial support to alleviate liquidity constraints during the financial crisis and, more recently, to enable them to fund investment opportunities. As of ~~September 2012~~March 2013 and December ~~2011,~~2012, the firm had no outstanding commitments to extend credit to these funds.

The Volcker Rule, as currently drafted, would restrict the firm from providing additional voluntary financial support to these funds after July 2014 (subject to extension by the Federal Reserve Board). As a general matter, in the ordinary course of business, the firm does not expect to provide additional voluntary financial support to these funds; however, in the event that such support is provided, the amount of any such support is not expected to be material. In addition, in the ordinary course of business, the firm may also engage in other activities with these funds including, among others, securities lending, trade execution, market making, custody, and acquisition and bridge financing. See Note 18 for the firm’s investment commitments related to these funds.


88		Goldman Sachs ~~September 2012~~March 2013 Form 10-Q		87

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Note 23. Interest Income and Interest Expense

Note 23.

Interest Income and Interest Expense

Interest income is recorded on an accrual basis based on contractual interest rates. The table below presents the

sources of interest income and interest expense.

Three Months
Ended September    Nine Months
Ended September
in millions 2012       2011       2012       2011
Interest income

Deposits with banks
$ 38       $ 32       $ 111       $88
Securities borrowed, securities purchased under agreements to resell and federal funds sold ¹
(74 )    170       (49 )    572
Financial instruments owned, at fair value
2,324       2,755       7,334       8,218
Other interest ²
341       397       1,121       1,264
Total interest income
2,629       3,354       8,517       10,142
Interest expense

Deposits
106       65       292       205
Securities loaned and securities sold under agreements to repurchase
188       266       615       703
Financial instruments sold, but not yet purchased, at fair value
594       585       1,783       1,844
Short-term borrowings ³
133       150       453       401
Long-term borrowings ³
941       829       2,841       2,471
Other interest ⁴
(169 )    103       (374 )    391
Total interest expense
1,793       1,998       5,610       6,015
Net interest income
$ 836       $ 1,356       $ 2,907       $4,127


	Three Months Ended March
in millions		2013		2012
Interest income
Deposits with banks		$ 48		$ 38

Securities borrowed, securities purchased under agreements to resell and federal funds sold ¹		(24	)	(14	)

Financial instruments owned, at fair value		2,238		2,442

Other interest ²		346		367
Total interest income		2,608		2,833
Interest expense
Deposits		93		91

Securities loaned and securities sold under agreements to repurchase		164		211

Financial instruments sold, but not yet purchased, at fair value		511		525

Short-term borrowings ³		106		168

Long-term borrowings ³		910		1,009

Other interest ⁴		(101	)	(152	)
Total interest expense		1,683		1,852
Net interest income		$ 925		$ 981

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

2.	Includes interest income on customer debit balances and other interest-earning assets.

3.	Includes interest on unsecured borrowings and other secured financings.

4.	Includes rebates received on other interest-bearing liabilities and interest expense on customer credit ~~balances and other interest-bearing liabilities.~~balances.

Note 24. Income Taxes

Note 24.

Income Taxes

Provision for Income Taxes

Income taxes are provided for using the asset and liability method under which deferred tax assets and liabilities are recognized for temporary differences between the financial reporting and tax bases of assets and liabilities. The firm reports interest expense related to income tax matters in “Provision for taxes” and income tax penalties in “Other expenses.”

Deferred Income Taxes

Deferred income taxes reflect the net tax effects of temporary differences between the financial reporting and tax bases of assets and liabilities. These temporary differences result in taxable or deductible amounts in future years and are measured using the tax rates and laws that will be in effect when such differences are expected to

reverse. Valuation allowances are established to reduce deferred tax assets to the amount that more likely than not will be realized. Tax assets and liabilities are presented as a component of “Other assets” and “Other liabilities and accrued expenses,” respectively.


88		~~Goldman Sachs September 2012 Form 10-Q~~

~~THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

Unrecognized Tax Benefits

The firm recognizes 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. A position that meets this standard is measured at the largest amount of benefit that will more likely than not be realized on settlement. A liability is established for differences between positions taken in a tax return and amounts recognized in the financial statements.


		Goldman Sachs March 2013 Form 10-Q		89

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Regulatory Tax Examinations

The firm is subject to examination by the U.S. Internal Revenue Service (IRS) and other taxing authorities in jurisdictions where the firm has significant business operations, such as the United Kingdom, Japan, Hong Kong, Korea and various states, such as New York. The tax years under examination vary by jurisdiction. The firm believes that during ~~2012,~~2013, certain audits have a reasonable possibility of being completed. The firm does not expect completion of these audits to have a material impact on the firm’s financial condition but it may be material to operating results for a particular period, depending, in part, on the operating results for that period.

The table below presents the earliest tax years that remain subject to examination by major jurisdiction.


Jurisdiction			As of ~~September 2012~~March 2013
U.S. Federal ¹			2005

New York State and City ²			2004

United Kingdom			2007

Japan ³			2008

Hong Kong			2005

Korea			2008

IRS examination of fiscal 2008 through calendar 2010 began ~~during~~in 2011. IRS examination of fiscal 2005, 2006 and 2007 began ~~during~~in 2008. IRS examination of fiscal 2003 and 2004 has been completed, but the liabilities for those years are not yet final. The firm anticipates that the audits of fiscal 2005 through calendar 2010 should be completed in 2013. The audit of 2011 began in 2013 and the audit of 2012 is expected to begin in 2013.

2.	New York State and City examination of fiscal 2004, 2005 and 2006 began in 2008. The examination of fiscal 2007 through 2010 began in 2013.

3.	Japan National Tax Agency examination of fiscal 2005 through 2009 began ~~during the first quarter of~~in 2010. The examinations have been completed, but the liabilities for 2008 and 2009 are not yet final.

All years subsequent to the above remain open to examination by the taxing authorities. The firm believes that the liability for unrecognized tax benefits it has established is adequate in relation to the potential for additional assessments.

In January 2013, the firm was accepted into the Compliance Assurance Process program by the IRS. This program will allow the firm to work with the IRS to identify and resolve potential U.S. federal tax issues before the filing of tax returns. The 2013 tax year will be the first year examined under the program.

Note 25. Business Segments

Note 25.

Business Segments

The firm reports its activities in the following four business segments: Investment Banking, Institutional Client Services, Investing & Lending and Investment Management.

Basis of Presentation

In reporting segments, certain of the firm’s business lines have been aggregated where they have similar economic characteristics and are similar in each of the following areas: (i) the nature of the services they provide, (ii) their methods of distribution, (iii) the types of clients they serve and (iv) the regulatory environments in which they operate.

The cost drivers of the firm taken as a whole — compensation, headcount and levels of business activity — are broadly similar in each of the firm’s business segments. Compensation and benefits expenses in the firm’s segments reflect, among other factors, the overall performance of the firm as well as the performance of individual businesses. Consequently, pre-tax margins in one segment of the firm’s business may be significantly affected by the performance of the firm’s other business segments.

The firm allocates assets (including allocations of excess liquidity and cash, secured client financing and other assets), revenues and expenses among the four reportable business segments. Due to the integrated nature of these segments, estimates and judgments are made in allocating certain assets, revenues and expenses. The allocation process is based on the manner in which management currently views the performance of the segments. Transactions between segments are based on specific criteria or approximate third-party rates. Total operating expenses include corporate items that have not been allocated to individual business segments. ~~The allocation process is based on the manner in which management views the business of the firm.~~


90		Goldman Sachs ~~September 2012~~March 2013 Form 10-Q		89

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

The segment information presented in the table below is prepared according to the following methodologies:

Revenues and expenses directly associated with each segment are included in determining pre-tax earnings.

Net revenues in the firm’s segments include allocations of interest income and interest expense to specific securities, commodities and other positions in relation to the cash generated by, or funding requirements of, such underlying positions. Net interest is included in segment

net revenues as it is consistent with the way in which management assesses segment performance.

Overhead expenses not directly allocable to specific segments are allocated ratably based on direct segment expenses.

Management believes that the following information provides a reasonable representation of each segment’s

contribution to consolidated pre-tax ~~earnings/(loss)~~earnings and total assets.

     For the Three Months Ended
or as of September For the Nine Months Ended
or as of September
in millions      2012       2011    2012       2011
Investment Banking

Net revenues
$    1,164       $       781    $    3,521       $    3,498

Operating expenses
825       541    2,560       2,445

Pre-tax earnings
$       339       $       240    $       961       $    1,053

Segment assets
$    1,765       $    2,136    $    1,765       $    2,136

Institutional Client Services

Net revenues ¹
$    4,184       $    4,062    $  13,782       $  14,224

Operating expenses
3,186       2,631    10,016       10,255

Pre-tax earnings
$       998       $    1,431    $    3,766       $    3,969

Segment assets
$842,950       $845,055    $842,950       $845,055

Investing & Lending

Net revenues
$    1,804       $   (2,479 ) $    3,918       $    1,270

Operating expenses
1,002       86    2,216       1,864

Pre-tax earnings/(loss)
$       802       $   (2,565 ) $    1,702       $     (594)

Segment assets
$  92,541       $  87,712    $  92,541       $  87,712

Investment Management

Net revenues
$    1,199       $    1,223    $    3,706       $    3,770

Operating expenses
977       989    3,037       3,112

Pre-tax earnings
$       222       $       234    $       669       $       658

Segment assets
$  11,951       $  14,006    $  11,951       $  14,006

Total

Net revenues
$    8,351       $    3,587    $  24,927       $  22,762

Operating expenses
6,053       4,317    18,033       17,840

Pre-tax earnings/(loss)
$    2,298       $      (730 ) $    6,894       $    4,922

Total assets
$949,207       $948,909    $949,207       $948,909


		For the Three Months Ended or as of March
in millions			2013	2012
Investment Banking	Net revenues		$ 1,568	$ 1,154

	Operating expenses		1,064	871
	Pre-tax earnings		$ 504	$ 283
	Segment assets		$ 1,873	$ 1,944
Institutional Client Services	Net revenues ¹		$ 5,139	$ 5,709

	Operating expenses		3,566	3,938
	Pre-tax earnings		$ 1,573	$ 1,771
	Segment assets		$848,375	$842,587
Investing & Lending	Net revenues		$ 2,068	$ 1,911

	Operating expenses		996	958
	Pre-tax earnings		$ 1,072	$ 953
	Segment assets		$ 97,303	$ 94,457
Investment Management	Net revenues		$ 1,315	$ 1,175

	Operating expenses		1,090	989
	Pre-tax earnings		$ 225	$ 186
	Segment assets		$ 11,672	$ 11,944
Total	Net revenues		$ 10,090	$ 9,949

	Operating expenses		6,717	6,768
	Pre-tax earnings		$ 3,373	$ 3,181
	Total assets		$959,223	$950,932

Includes ~~$30~~$40 million and ~~$31~~$29 million for the three months ended ~~September~~March 2013 and March 2012, ~~and September 2011,~~ respectively, ~~and $81 million for both the nine months ended September 2012 and September 2011,~~ of realized gains on available-for-sale securities held in the firm’s ~~insurance~~reinsurance subsidiaries.

Total operating expenses in the table above include the following expenses that have not been allocated to the firm’s segments:

~~net provisions for a number~~charitable contributions of ~~litigation and regulatory proceedings of $62 million and $59~~$12 million for the three months ended ~~September 2012~~March 2012; and ~~September 2011, respectively, and $188 million and $128 million for the nine months ended September 2012 and September 2011, respectively;~~

~~charitable contributions of $12 million and $25 million for the nine months ended September 2012 and September 2011, respectively; and~~

real estate-related exit costs of $1 million ~~and $11 million~~ for the three months ended ~~September 2012 and September 2011, respectively, and $4 million and $11 million for the nine months ended September 2012 and September 2011, respectively.~~March 2013. Real estate-related exit costs are included in “Depreciation and amortization” ~~and “Occupancy”~~ in the condensed consolidated statements of earnings.

Operating expenses related to net provisions for litigation and regulatory proceedings, previously not allocated to the firm’s segments, have now been allocated. This allocation is consistent with the manner in which management currently views the performance of the firm’s segments. Reclassifications have been made to previously reported segment amounts to conform to the current presentation.


90		Goldman Sachs ~~September 2012~~March 2013 Form 10-Q		91

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

The tables below present the amounts of net interest income or interest expense included in net revenues, and the amounts of depreciation and amortization expense included in pre-tax earnings.

Three Months
Ended September Nine Months
Ended September
in millions 2012    2011    2012    2011
Investment Banking
$ (4 ) $ —    $ (13 ) $      —
Institutional Client Services
813    1,243    2,799    3,375
Investing & Lending
2    60    9    595
Investment Management
25    53    112    157
Total net interest
$ 836    $ 1,356    $ 2,907    $4,127
Three Months
Ended September Nine Months
Ended September
in millions 2012    2011    2012    2011
Investment Banking
$ 36    $ 44    $ 117    $   133
Institutional Client Services
188    230    559    753
Investing & Lending
119    56    406    318
Investment Management
52    59    155    151
Total depreciation and amortization
$ 396 ¹ $ 389    $ 1,238 ¹ $1,355


	Three Months Ended March
in millions		2013		2012
Investment Banking		$ —		$ (6	)

Institutional Client Services		909		971

Investing & Lending		(13	)	(27	)

Investment Management		29		43
Total net interest income		$925		$981

	Three Months Ended March
in millions		2013		2012
Investment Banking		$ 33		$ 42

Institutional Client Services		152		166

Investing & Lending		75		183

Investment Management		41		42
Total depreciation and amortization ¹		$302		$433

1.	Includes real estate-related exit costs of $1 million for ~~both~~ the three ~~and nine~~ months ended ~~September 2012~~March 2013 that have not been allocated to the firm’s segments.

Geographic Information

Due to the highly integrated nature of international financial markets, the firm manages its businesses based on the profitability of the enterprise as a whole. The methodology for allocating profitability to geographic regions is dependent on estimates and management judgment because a significant portion of the firm’s activities require cross-border coordination in order to facilitate the needs of the firm’s clients.

Geographic results are generally allocated as follows:

Investment Banking: location of the client and investment banking team.

Institutional Client Services: Fixed Income, Currency and Commodities Client Execution, and Equities (excluding Securities Services): location of the market-making desk; Securities Services: location of the primary market for the underlying security.

Investing & Lending: Investing: location of the investment; Lending: location of the client.

Investment Management: location of the sales team.


92		Goldman Sachs ~~September 2012~~March 2013 Form 10-Q		91

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

The table below presents the total net revenues and pre-tax ~~earnings/(loss)~~earnings of the firm by geographic region allocated based on the methodology referred to above, as well as the

percentage of total net revenues and pre-tax ~~earnings/(loss)~~earnings (excluding Corporate) for each geographic region.

Three Months Ended September Nine Months Ended September
$ in millions       2012          2011          2012          2011
Net revenues

Americas ¹
$5,114    61 % $2,485    69 % $14,807    59 % $14,149    62 %
EMEA ²
2,160    26    1,349    38    6,660    27    5,974    26
Asia ³
1,077    13    (247 ) (7 ) 3,460    14    2,639    12
Total net revenues
$8,351    100 % $3,587    100 % $24,927    100 % $22,762    100 %
Pre-tax earnings/(loss)

Americas ¹
$1,401    59 % $     92    N.M.    $  3,943    56 % $  3,567    70 %
EMEA ²
709    30    107    N.M.    2,279    32    1,678    33
Asia ³
251    11    (859 ) N.M.    876    12    (159 ) (3 )
Subtotal
2,361    100 % (660 ) 100 % 7,098    100 % 5,086    100 %
Corporate ⁴
(63 ) (70 ) (204 ) (164 )
Total pre-tax earnings/(loss)
$2,298    $  (730 ) $  6,894    $  4,922


	Three Months Ended March
$ in millions		2013				2012
Net revenues
Americas ¹		$ 6,005		60	%	$5,787		58	%

EMEA ²		2,421		24		2,708		27

Asia ³		1,664		16		1,454		15
Total net revenues		$10,090		100	%	$9,949		100	%
Pre-tax earnings
Americas ¹		$ 1,851		55	%	$1,668		52	%

EMEA ²		907		27		1,062		33

Asia ³		616		18		463		15
Subtotal		3,374		100	%	3,193		100	%

Corporate ⁴		(1	)			(12	)
Total pre-tax earnings		$ 3,373				$3,181

1.	Substantially all relates to the U.S.

2.	EMEA (Europe, Middle East and Africa).

3.	Asia also includes Australia and New Zealand.

Consists of net provisions for a number of litigation and regulatory proceedings of $62 million and $59 million for the three months ended September 2012 and September 2011, respectively, and $188 million and $128 million for the nine months ended September 2012 and September 2011, respectively; charitable contributions of $12 million and $25 million for the nine months ended September 2012 and September 2011, respectively; and real estate-related exit costs of $1 million for the three months ended March 2013, and ~~$11~~charitable contributions of $12 million for the three months ended ~~September 2012~~March 2012. Net provisions for litigation and ~~September 2011, respectively, and $4 million and $11 million for~~regulatory proceedings, previously included in Corporate, have now been allocated to the ~~nine months ended September 2012 and September 2011, respectively.~~geographic regions. Reclassifications have been made to previously reported geographic region amounts to conform to the current presentation.


92		Goldman Sachs ~~September 2012~~March 2013 Form 10-Q		93

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Note 26. Credit Concentrations

Note 26.

Credit Concentrations

Credit concentrations may arise from market making, client facilitation, investing, underwriting, lending and collateralized transactions and may be impacted by changes in economic, industry or political factors. The firm seeks to mitigate credit risk by actively monitoring exposures and obtaining collateral from counterparties as deemed appropriate.

While the firm’s activities expose it to many different industries and counterparties, the firm routinely executes a high volume of transactions with asset managers, investment funds, commercial banks, brokers and dealers, clearing houses and exchanges, which results in significant credit concentrations.

In the ordinary course of business, the firm may also be subject to a concentration of credit risk to a particular counterparty, borrower or issuer, including sovereign issuers, or to a particular clearing house or exchange.

The table below presents the credit concentrations in ~~assets~~cash instruments held by the firm. As of ~~September 2012~~March 2013 and December ~~2011,~~2012, the firm did not have credit exposure to any other counterparty that exceeded 2% of total assets.

As of
$ in millions

September
2012



December
2011


U.S. government and federal agency obligations ¹
$116,426    $103,468
% of total assets
12.3 % 11.2 %
Non-U.S. government and agency obligations ^1,²
$  62,952    $  49,025
% of total assets
6.6 % 5.3 %


	As of
$ in millions		March 2013		December 2012
U.S. government and federal agency obligations ¹		$114,268		$114,418

% of total assets		11.9	%	12.2	%

Non-U.S. government and agency obligations ¹		$ 57,666		$ 62,252

% of total assets		6.0	%	6.6	%

1.	~~Included~~Substantially all included in “Financial instruments owned, at fair value” and “Cash and securities segregated for regulatory and other purposes.”

2.	~~Principally related to Germany, Japan and the United Kingdom as of both September 2012 and December 2011.~~

To reduce credit exposures, the firm may enter into agreements with counterparties that permit the firm to offset receivables and payables with such counterparties and/or enable the firm to obtain collateral on an upfront or contingent basis. Collateral obtained by the firm related to derivative assets is principally cash and is held by the firm or a third-party custodian. Collateral obtained by the firm related to resale agreements and securities borrowed transactions is primarily U.S. government and federal agency obligations and ~~Non-U.S.~~non-U.S. government and agency obligations. See Note 9 for further information about collateralized agreements and financings.

The table below presents U.S. government and federal agency obligations, and ~~Non-U.S.~~non-U.S. government and agency obligations, that collateralize resale agreements and securities borrowed transactions (including those in “Cash and securities segregated for regulatory and other purposes”). Because the firm’s primary credit exposure on such transactions is to the counterparty to the transaction, the firm would be exposed to the collateral issuer only in the event of counterparty default.

As of
in millions

September
2012



December
2011
U.S. government and federal agency obligations
$69,330       $  94,603
Non-U.S. government and agency obligations ¹
90,930       110,178


	As of
in millions		March 2013	December 2012
U.S. government and federal agency obligations		$75,935	$73,477

Non-U.S. government and agency obligations ¹		98,908	64,724

1.	Principally consisting of securities issued by the governments of Germany and France.


94		Goldman Sachs ~~September 2012~~March 2013 Form 10-Q		93

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Note 27. Legal Proceedings

Note 27.

Legal Proceedings

The firm is involved in a number of judicial, regulatory and arbitration proceedings (including those described below) concerning matters arising in connection with the conduct of the firm’s businesses. Many of these proceedings are in early stages, and many of these cases seek an indeterminate amount of damages.

Under ASC 450, an event is “reasonably possible” if “the chance of the future event or events occurring is more than remote but less than likely” and an event is “remote” if “the chance of the future event or events occurring is slight.” Thus, references to the upper end of the range of reasonably possible loss for cases in which the firm is able to estimate a range of reasonably possible loss mean the upper end of the range of loss for cases for which the firm believes the risk of loss is more than slight. ~~The amounts reserved against such matters are not significant as compared to the upper end of the range of reasonably possible loss.~~

With respect to proceedings described below for which management has been able to estimate a range of reasonably possible loss where (i) plaintiffs have claimed an amount of money damages, (ii) the firm is being sued by purchasers in an underwriting and is not being indemnified by a party that the firm believes will pay any judgment, or (iii) the purchasers are demanding that the firm repurchase securities, management has estimated the upper end of the range of reasonably possible loss as being equal to (a) in the case of (i), the amount of money damages claimed, (b) in the case of (ii), the amount of securities that the firm sold in the underwritings and (c) in the case of (iii), the price that purchasers paid for the securities less the estimated value, if any, as of ~~September 2012~~March 2013 of the relevant securities, in each of cases (i), (ii) and (iii), taking into account any factors believed to be relevant to the particular proceeding or proceedings of that type. As of the date hereof, the firm has estimated the upper end of the range of reasonably possible aggregate loss for such proceedings and for any other proceedings described below where management has been able to estimate a range of reasonably possible aggregate loss to be approximately ~~$3.6 billion.~~$3.5 billion in excess of the aggregate reserves for such proceedings.

Management is generally unable to estimate a range of reasonably possible loss for proceedings other than those included in the estimate above, including where (i) plaintiffs have not claimed an amount of money damages, unless management can otherwise determine an appropriate

amount, (ii) the proceedings are in early stages, (iii) there is uncertainty as to the likelihood of a class being certified or the ultimate size of the class, (iv) there is uncertainty as to the outcome of pending appeals or motions, (v) there are significant factual issues to be resolved, and/or (vi) there are novel legal issues presented. However, for these cases, management does not believe, based on currently available information, that the outcomes of such proceedings will have a material adverse effect on the firm’s financial condition, though the outcomes could be material to the firm’s operating results for any particular period, depending, in part, upon the operating results for such period.

IPO Process Matters. Group Inc. and GS&Co. are among the numerous financial services companies that have been named as defendants in a variety of lawsuits alleging improprieties in the process by which those companies participated in the underwriting of public offerings.

GS&Co. has been named as a defendant in an action commenced on May 15, 2002 in New York Supreme Court, New York County, by an official committee of unsecured creditors on behalf of eToys, Inc., alleging that the firm intentionally underpriced eToys, Inc.’s initial public offering. The action seeks, among other things, unspecified compensatory damages resulting from the alleged lower amount of offering proceeds. On appeal from rulings on GS&Co.’s motion to dismiss, the New York Court of Appeals dismissed claims for breach of contract, professional malpractice and unjust enrichment, but permitted claims for breach of fiduciary duty and fraud to continue. On remand, the lower court granted GS&Co.’s motion for summary judgment and, on December 8, 2011, the appellate court affirmed the lower court’s decision. On September 6, 2012, the New York Court of Appeals granted the creditors’ motion for leave to appeal.

Group Inc. and certain of its affiliates have, together with various underwriters in certain offerings, received subpoenas and requests for documents and information from various governmental agencies and self-regulatory organizations in connection with investigations relating to the public offering process. Goldman Sachs has cooperated with these investigations.


94		Goldman Sachs ~~September 2012~~March 2013 Form 10-Q		95

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

World Online Litigation. In March 2001, a Dutch shareholders’ association initiated legal proceedings for an unspecified amount of damages against GSI and others in Amsterdam District Court in connection with the initial public offering of World Online in March 2000, alleging misstatements and omissions in the offering materials and that the market was artificially inflated by improper public statements and stabilization activities. Goldman Sachs and ABN AMRO Rothschild served as joint global coordinators of the approximately €2.9 billion offering. GSI underwrote 20,268,846 shares and GS&Co. underwrote 6,756,282 shares for a total offering price of approximately €1.16 billion.

The district court rejected the claims against GSI and ABN AMRO, but found World Online liable in an amount to be determined. On appeal, the Netherlands Court of Appeals affirmed in part and reversed in part the decision of the district court, holding that certain of the alleged disclosure deficiencies were actionable as to GSI and ABN AMRO. On further appeal, the Netherlands Supreme Court affirmed the rulings of the Court of Appeals, except that it found certain additional aspects of the offering materials actionable and held that individual investors could potentially hold GSI and ABN AMRO responsible for certain public statements and press releases by World Online and its former CEO. The parties entered into a definitive settlement agreement, dated July 15, 2011, and GSI has paid the full amount of its ~~proposed~~ contribution. In the first quarter of 2012, GSI and ABN AMRO, on behalf of the underwriting syndicate, entered into a settlement agreement ~~subject to certain conditions,~~ with respect to a claim filed by another shareholders’ association, ~~relating to approximately €4 million of World Online shares.~~and has paid the settlement amount in full. Other shareholders have made demands for compensation of alleged damages, and GSI and other syndicate members are discussing the possibility of settlement with certain of these shareholders.

~~Research Matters.~~ Group Inc. and certain of its affiliates are subject to a number of investigations and reviews by various governmental and regulatory bodies and self-regulatory organizations relating to research practices, including, among other things, research analysts’ methods for obtaining receipt and distribution of information and communications among research analysts, sales and trading personnel and clients.

Adelphia Communications Fraudulent Conveyance Litigation. GS&Co. is named as a defendant in two proceedings commenced in the U.S. Bankruptcy Court for the Southern District of New York, one on July 6, 2003 by a creditors committee, and the second on or about July 31, 2003 by an equity committee of Adelphia Communications, Inc. Those proceedings were consolidated in a single amended complaint filed by the Adelphia Recovery Trust on October 31, 2007. The complaint seeks, among other things, to recover, as fraudulent conveyances, approximately $62.9 million allegedly paid to GS&Co. by Adelphia Communications, Inc. and its affiliates in respect of margin calls made in the ordinary course of business on accounts owned by members of the family that formerly controlled Adelphia Communications, Inc. The district court assumed jurisdiction over the action and, on April 8, 2011, granted GS&Co.’s motion for summary judgment. The plaintiff appealed on May 6, 2011.


		~~Goldman Sachs September 2012 Form 10-Q~~		95

~~THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

Specialist Matters. Spear, Leeds & Kellogg Specialists LLC, (SLKS) and certain affiliates have received requests for information from various governmental agencies and self-regulatory organizations as part of an industry-wide investigation relating to activities of floor specialists in recent years. Goldman Sachs has cooperated with the requests.

On March 30, 2004, certain specialist firms on the NYSE, including SLKS, without admitting or denying the allegations, entered into a final global settlement with the SEC and the NYSE covering certain activities during the years 1999 through 2003. The SLKS settlement involves, among other things, (i) findings by the SEC and the NYSE that SLKS violated certain federal securities laws and NYSE rules, and in some cases failed to supervise certain individual specialists, in connection with trades that allegedly disadvantaged customer orders, (ii) a cease and desist order against SLKS, (iii) a censure of SLKS, (iv) SLKS’ agreement to pay an aggregate of $45.3 million in disgorgement and a penalty to be used to compensate customers, (v) certain undertakings with respect to SLKS’ systems and procedures, and (vi) SLKS’ retention of an independent consultant to review and evaluate certain of SLKS’ compliance systems, policies and procedures. Comparable findings were made and sanctions imposed in the settlements with other specialist firms. The settlement did not resolve the related private civil actions against SLKS and other firms or regulatory investigations involving individuals or conduct on other exchanges. On May 26, 2011, the SEC issued an order directing the undistributed settlement funds to be transferred to the U.S. Treasury; the funds will accordingly not be allocated to any settlement fund for the civil actions described below.

~~SLKS,~~ Spear, Leeds & Kellogg, L.P. and Group Inc. are among numerous defendants named in purported class actions brought beginning in October 2003 on behalf of investors in the U.S. District Court for the Southern District of New York alleging violations of the federal securities laws and state common law in connection with NYSE floor specialist activities. The actions, which have been consolidated, seek unspecified compensatory damages, restitution and disgorgement on behalf of purchasers and sellers of unspecified securities between October 17, 1998 and October 15, 2003. By a decision dated March 14, 2009, the district court granted plaintiffs’ motion for class certification. The defendants’ petition with the U.S. Court of Appeals for the Second Circuit seeking review of the certification ruling was denied, and the specialist defendants’ petition for a rehearing and/or rehearing en banc was denied on February 24, 2010. On October 24, 2012, the parties entered into a definitive settlement agreement, subject to court approval. The firm has reserved the full amount of its proposed contribution to the settlement.


96		Goldman Sachs March 2013 Form 10-Q

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Fannie Mae Litigation. GS&Co. was added as a defendant in an amended complaint filed on August 14, 2006 in a purported class action pending in the U.S. District Court for the District of Columbia. The complaint asserts violations of the federal securities laws generally arising from allegations concerning Fannie Mae’s accounting practices in connection with certain Fannie Mae-sponsored REMIC transactions that were allegedly arranged by GS&Co. The complaint does not specify a dollar amount of damages. The other defendants include Fannie Mae, certain of its past and present officers and directors, and accountants. By a decision dated May 8, 2007, the district court granted GS&Co.’s motion to dismiss the claim against it. The time for an appeal will not begin to run until disposition of the claims against other defendants. A motion to stay the action filed by the Federal Housing Finance Agency (FHFA), which took control of the foregoing action following Fannie Mae’s conservatorship, was denied on November 14, 2011.


96		~~Goldman Sachs September 2012 Form 10-Q~~

~~THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

Compensation-Related Litigation. On January 17, 2008, Group Inc., its Board, executive officers and members of its management committee were named as defendants in a purported shareholder derivative action in the U.S. District Court for the Eastern District of New York predicting that the firm’s 2008 Proxy Statement would violate the federal securities laws by undervaluing certain stock option awards and alleging that senior management received excessive compensation for 2007. The complaint seeks, among other things, an equitable accounting for the allegedly excessive compensation. Plaintiff’s motion for a preliminary injunction to prevent the 2008 Proxy Statement from using options valuations that the plaintiff alleges are incorrect and to require the amendment of SEC ~~Form 4s~~Forms 4 filed by certain of the executive officers named in the complaint to reflect the stock option valuations alleged by the plaintiff was denied, and plaintiff’s appeal from this denial was dismissed. On February 13, 2009, the plaintiff filed an amended complaint, which added purported direct (i.e., non-derivative) claims based on substantially the same theory. The plaintiff filed a further amended complaint on March 24, 2010, and the defendants’ motion to dismiss this further amended complaint was granted on the ground that dismissal of the shareholder plaintiff’s prior action relating to the firm’s 2007 Proxy Statement based on the failure to make a demand to

the Board precluded relitigation of demand futility. On December 19, 2011, the appellate court vacated the order of dismissal, holding only that preclusion principles did not mandate dismissal and remanding for consideration of the alternative grounds for dismissal. On April 18, 2012, plaintiff disclosed that he no longer is a Group Inc. shareholder and thus lacks standing to continue to prosecute the ~~action, as well as~~action. On January 7, 2013, the ~~New York state action described below.~~district court dismissed the claim due to the plaintiff’s lack of standing and the lack of any intervening shareholder.

On March 24, 2009, the same plaintiff filed an action in New York Supreme Court, New York County, against Group Inc., its directors and certain senior executives alleging violation of Delaware statutory and common law in connection with substantively similar allegations regarding stock option awards. On January ~~7, 2011, the plaintiff filed an amended complaint. Defendants~~4, 2013, another purported shareholder moved to ~~dismiss~~intervene as plaintiff, which defendants have opposed. On January 15, 2013, the ~~amended complaint, and~~court dismissed the ~~parties subsequently agreed~~action only as to ~~stay~~ the ~~state court action pending the final resolution~~original plaintiff with prejudice due to his lack of the appeal from the dismissal of the federal court action in respect of the firm’s 2008 Proxy Statement described above, as well as any remanded proceedings further adjudicating defendants’ motion to dismiss.standing.


		~~Goldman Sachs September 2012 Form 10-Q~~		97

~~THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

Mortgage-Related Matters. On April 16, 2010, the SEC brought an action (SEC Action) under the U.S. federal securities laws in the U.S. District Court for the Southern District of New York against GS&Co. and Fabrice Tourre, ~~one of its employees,~~a former employee, in connection with a CDO offering made in early 2007 (ABACUS 2007-AC1 transaction), alleging that the defendants made materially false and misleading statements to investors and seeking, among other things, unspecified monetary penalties. Investigations of GS&Co. by FINRA and of GSI by the FSA were subsequently initiated and resolved, and Group Inc. and certain of its affiliates have received subpoenas and requests for information from other regulators, regarding CDO offerings, including the ABACUS 2007-AC1 transaction, and related matters.

On July 14, 2010, GS&Co. entered into a consent agreement with the SEC, settling all claims made against GS&Co. in the SEC Action, ~~(SEC Settlement),~~ pursuant to which GS&Co. paid $550 million of disgorgement and civil penalties, and which was approved by the U.S. District Court for the Southern District of New York on July 20, 2010.


		Goldman Sachs March 2013 Form 10-Q		97

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

On January 6, 2011, ACA Financial Guaranty Corp. filed an action against GS&Co. in respect of the ABACUS 2007-AC1 transaction in New York Supreme Court, New York County. The complaint includes allegations of fraudulent inducement, fraudulent concealment and unjust enrichment and seeks at least $30 million in compensatory damages, at least $90 million in punitive damages and unspecified disgorgement. On April 25, 2011, the plaintiff filed an amended complaint and, on June 3, 2011, GS&Co. moved to dismiss the amended complaint. By a decision dated April 23, 2012, the court granted the motion to dismiss as to the unjust enrichment claim and denied the motion as to the other claims, and on May 29, 2012, GS&Co. appealed the decision to the extent that its motion was denied and filed counterclaims for breach of contract and fraudulent inducement, and third-party claims against ACA Management, LLC for breach of contract, unjust enrichment and indemnification. ACA Financial Guaranty Corp. and ACA Management, LLC moved to dismiss GS&Co.’s counterclaims and third-party claims on August 31, 2012.

~~Since July 1, 2011, two putative shareholder derivative actions have been~~ On January 31, 2013, ACA filed in the U.S. District Court for the Southern District of New York against Group Inc., the Board and certain officers and employees of Group Inc. and Litton in connection with the servicing of residential mortgage loans and other mortgage-related activities beginning in January 2009. The complaints generally include allegations of breach of fiduciary duty, waste, abuse of control, and mismanagement and seek, among other things, declaratory relief, unspecified damages and certain governance reforms. The district court consolidated the actions, and, on December 20, 2011, the plaintiffs filedan amended complaint naming a ~~consolidated amended complaint. On August 14, 2012, the district court dismissed all of the plaintiffs’ claims and the time~~third party to ~~appeal has run.~~

In addition, the Board has received books and records demands from several shareholders for materials relating to, among other subjects, the firm’s mortgage servicing and foreclosure activities, participation in federal programs providing assistance to financial institutions and homeowners, loan sales to Fannie Mae and Freddie Mac, mortgage-related activities and conflicts management.

Since April 23, 2010, the Board has received letters from shareholders demanding that the Board take action to address alleged misconduct by GS&Co., the Board and certain officers and employees of Group Inc. and its affiliates. These demands, which the Board has rejected, generally alleged misconduct in connection with the firm’s securitization practices, including the ABACUS 2007-AC1 transaction ~~the alleged failure by Group Inc. to adequately disclose the SEC investigation that led to the SEC Action, and Group Inc.’s 2009 compensation practices. An~~as an additional demand that the Board investigate and take action was received from another shareholder in June 2012, relating to the firm’s mortgage-related activities and to stock sales by certain directors and executives of the firm.


98		~~Goldman Sachs September 2012 Form 10-Q~~

~~THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES~~defendant.

~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

~~In addition, beginning~~Beginning April 26, 2010, a number of purported securities law class actions have been filed in the U.S. District Court for the Southern District of New York challenging the adequacy of Group Inc.’s public disclosure of, among other things, the firm’s activities in the CDO market and the SEC investigation that led to the SEC Action. The purported class action complaints, which name as defendants Group Inc. and certain officers and employees of Group Inc. and its affiliates, have been consolidated, generally allege violations of Sections 10(b) and 20(a) of the Exchange Act and seek unspecified damages. Plaintiffs filed a consolidated amended complaint on July 25, 2011. On October 6, 2011, the defendants moved to dismiss, and by a decision dated June 21, 2012, the district court dismissed the claims based on Group Inc.’s not disclosing that it had received a “Wells” notice from the staff of the SEC related to the ABACUS 2007-AC1 transaction, but permitted the plaintiffs’ other claims to proceed.

On February 1, 2013, a putative shareholder derivative action was filed in the U.S. District Court for the Southern District of New York against Group Inc. and certain of its officers and directors in connection with mortgage-related activities during 2006 and 2007, including three CDO offerings. The derivative complaint, which is based on similar allegations to those at issue in the consolidated class action discussed above and purported shareholder derivative actions that were previously dismissed, includes allegations of breach of fiduciary duty, challenges the accuracy and adequacy of Group Inc.’s disclosure and seeks, among other things, declaratory relief, unspecified compensatory and punitive damages and restitution from the individual defendants and certain corporate governance reforms.

In June 2012, the Board received a demand from a shareholder that the Board investigate and take action relating to the firm’s mortgage-related activities and to stock sales by certain directors and executives of the firm. On February 15, 2013, this shareholder filed a putative shareholder derivative action in New York Supreme Court, New York County, against Group Inc. and certain current or former directors and employees, based on these activities and stock sales. The derivative complaint includes allegations of breach of fiduciary duty, unjust enrichment, abuse of control, gross mismanagement and corporate waste, and seeks, among other things, unspecified monetary damages, disgorgement of profits and certain corporate governance and disclosure reforms.


98		Goldman Sachs March 2013 Form 10-Q

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Since April 23, 2010, the Board has received other letters from shareholders demanding that the Board take action to address alleged misconduct by GS&Co., the Board and certain officers and employees of Group Inc. and its affiliates. These demands, which the Board has rejected, generally alleged misconduct in connection with the firm’s securitization practices, including the ABACUS 2007-AC1 transaction, the alleged failure by Group Inc. to adequately disclose the SEC investigation that led to the SEC Action, and Group Inc.’s 2009 compensation practices.

GS&Co., Goldman Sachs Mortgage Company (GSMC) and GS Mortgage Securities Corp. (GSMSC) and three current or former Goldman Sachs employees are defendants in a putative class action commenced on December 11, 2008 in the U.S. District Court for the Southern District of New York brought on behalf of purchasers of various mortgage pass-through certificates and asset-backed certificates issued by various securitization trusts established by the firm and underwritten by GS&Co. in 2007. The complaint generally alleges that the registration statement and prospectus supplements for the certificates violated the federal securities laws, and seeks unspecified compensatory damages and rescission or rescissionary damages. ~~The defendants’ motion to dismiss the second amended complaint was granted with leave to replead~~Following dismissals of certain ~~claims. On March 31, 2010, the plaintiff filed a third amended complaint relating to two offerings, which the defendants moved to dismiss. This motion to dismiss was~~

~~denied as to~~of the plaintiff’s ~~Section 12(a)(2)~~ claims under the initial and granted as to the plaintiff’s Section 11 claims, and the plaintiff’s motion for reconsideration was denied. The plaintiff filed a motion for entry of final judgment or certification of an interlocutory appeal as to plaintiff’s Section 11 claims, which was denied. The plaintiff then filed a motion for leave to amend to reinstate the damages claims basedthree amended complaints, on ~~allegations that it had sold its securities, which was denied. On~~ May 5, 2011, the court granted plaintiff’s motion for entry of a final judgment dismissing all its ~~claims.~~claims, thereby allowing plaintiff to appeal. The plaintiff appealed from the dismissal with respect to all 17 of the offerings included in its original complaint. By a decision dated September 6, 2012, the U.S. Court of Appeals for the Second Circuit affirmed the district court’s dismissal of plaintiff’s claims with respect to 10 of the offerings included

in plaintiff’s original complaint but vacated the dismissal and remanded the case to the district court with instructions to reinstate the plaintiff’s claims with respect to the other seven offerings. On ~~October 26, 2012, the defendants filed a petition for certiorari with~~March 18, 2013, the U.S. Supreme Court ~~seeking review of~~denied the defendants’ petition for certiorari from the Second Circuit decision. On October 31, 2012, the plaintiff served ~~defendants with~~ a fourth amended complaint relating to those seven offerings, plus seven additional offerings. On June 3, 2010, another investor (who had unsuccessfully sought to intervene in the action) filed a separate putative class action asserting substantively similar allegations relating to ~~an additional offering pursuant to~~one of the ~~2007 registration statement.~~offerings included in the initial plaintiff’s complaint. The district court twice granted defendants’ motions to dismiss this separate action, both times with leave to replead. On July 9, 2012, that separate plaintiff filed a second amended complaint, and the defendants moved to dismiss on September 21, 2012. On December 26, 2012, that separate plaintiff filed a motion to amend the second amended complaint to add claims with respect to two additional offerings included in the initial plaintiff’s complaint, which defendants have opposed. The securitization trusts issued, and GS&Co. underwrote, approximately $11 billion principal amount of certificates to all purchasers in the fourteen offerings at issue in the ~~initial plaintiff’s fourth amended complaint and the one offering at issue in the separate plaintiff’s second amended complaint.~~


		~~Goldman Sachs September 2012 Form 10-Q~~		99

~~THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

Group Inc., GS&Co., GSMC and GSMSC are among the defendants in a separate putative class action commenced on February 6, 2009 in the U.S. District Court for the Southern District of New York brought on behalf of purchasers of various mortgage pass-through certificates and asset-backed certificates issued by various securitization trusts established by the firm and underwritten by GS&Co. in 2006. The other original defendants include three current or former Goldman Sachs employees and various rating agencies. The second amended complaint generally alleges that the registration statement and prospectus supplements for the certificates violated the federal securities laws, and seeks unspecified compensatory and rescissionary damages. Defendants moved to dismiss the second amended complaint. On January 12, 2011, the district court granted the motion to dismiss with respect to offerings in which plaintiff had not purchased securities as well as all claims against the rating agencies, but denied the motion to dismiss with respect to a single offering in which the plaintiff allegedly purchased securities. These trusts issued, and GS&Co. underwrote, approximately $698 million principal amount of certificates to all purchasers in the offerings at issue in the complaint (excluding those offerings for which the claims have been dismissed). On February 2, 2012, the district court granted the plaintiff’s motion for class certification and on June 13, 2012, the U.S. Court of Appeals for the Second Circuit granted defendants’ petition to review that ruling. On July 31, 2012, the parties reached a settlement, subject to court approval. The firm has paid the full amount of the proposed settlement into an escrow account.complaints.

On September 30, 2010, a putative class action was filed in the U.S. District Court for the Southern District of New York against GS&Co., Group Inc. and two former GS&Co. employees on behalf of investors in $821 million of notes issued in 2006 and 2007 by two synthetic CDOs (Hudson Mezzanine 2006-1 and 2006-2). The complaint, which was amended on February 4, 2011, asserts federal securities law and common law claims, and seeks unspecified compensatory, punitive and other damages. The defendants moved to dismiss on April 5, 2011, and the motion was granted as to plaintiff’s claim of market manipulation and denied as to the remainder of plaintiff’s claims by a decision dated March 21, 2012. On May 21, 2012, the defendants counterclaimed for breach of contract and fraud. On December 17, 2012, the plaintiff moved for class certification.


		Goldman Sachs March 2013 Form 10-Q		99

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

GS&Co., GSMC and GSMSC are among the defendants in a lawsuit filed in August 2011 by CIFG Assurance of North America, Inc. (CIFG) in ~~the~~ New York Supreme ~~Court.~~Court, New York County. The complaint alleges that CIFG was fraudulently induced to provide credit enhancement for a 2007 securitization sponsored by GSMC, and seeks, among other things, the repurchase of $24.7 million in aggregate principal amount of mortgages that CIFG had previously stated to be non-conforming, an accounting for any proceeds associated with mortgages discharged from the securitization and unspecified compensatory damages. On October 17, 2011, the Goldman Sachs defendants moved to dismiss. By a decision dated May 1, 2012, the court dismissed the fraud and accounting claims but denied the motion as to certain breach of contract claims that were also alleged. On June 6, 2012, the Goldman Sachs defendants filed counterclaims for breach of contract. In addition, the parties have each appealed the court’s May 1, 2012 decision to the extent adverse. ~~The parties have been ordered to mediate, and proceedings in~~By an order dated May 7, 2013, the appellate court reversed the dismissal of the fraud claim but otherwise affirmed the trial ~~court have been stayed pending mediation.~~court’s May 1, 2012 decision.

In addition, on January 15, 2013, CIFG filed a complaint against GS&Co. in New York Supreme Court, New York County, alleging that GS&Co. falsely represented that a third party would independently select the collateral for a 2006 CDO. CIFG seeks unspecified compensatory and punitive damages, including claims for approximately $10 million in connection with its purchase of notes, which CIFG has agreed to refer to arbitration with FINRA, and claims for over $30 million for payments to discharge alleged liabilities arising from its issuance of a financial guaranty insurance policy guaranteeing payment on a credit default swap referencing the CDO, which CIFG has agreed to stay until the arbitration of the notes-related claims has concluded.

Various alleged purchasers of, and counterparties involved in transactions relating to, mortgage pass-through certificates, CDOs and other mortgage-related products (including certain Allstate affiliates, Aozora Bank, Ltd., Bank Hapoalim B.M., Basis Yield Alpha Fund (Master), Bayerische Landesbank, ~~Cambridge Place Investment Management Inc.,~~ the Charles Schwab Corporation, Deutsche Zentral-Genossenschaftbank, the FDIC (as receiver for Guaranty Bank), the Federal Home Loan Banks of Boston, Chicago, Indianapolis and Seattle, the FHFA (as conservator for Fannie Mae and Freddie Mac), ~~Heungkuk Life Insurance Co. Limited (Heungkuk),~~ HSH Nordbank, IKB Deutsche Industriebank AG, Landesbank Baden-Württemberg, Joel I. Sher (Chapter 11 Trustee) on

behalf of TMST, Inc. (TMST), f/k/a Thornburg Mortgage, Inc. and certain TMST affiliates, John Hancock and related parties, Massachusetts Mutual Life Insurance Company, MoneyGram Payment Systems, Inc., National Australia Bank, the National Credit Union Administration, Phoenix Light SF Limited and related parties, Prudential Insurance Company of America and related parties, Royal Park Investments SA/NV, Sealink Funding Limited, ~~Stichting Pensioenfonds ABP,~~ The Union Central Life Insurance Company, Ameritas Life Insurance Corp., Acacia Life Insurance Company, Watertown Savings Bank, and The Western and Southern Life Insurance Co.~~, John Hancock and related parties, and Royal Park Investments SA/NV)~~) have filed complaints or summonses with notice in state and federal court or initiated arbitration proceedings against firm affiliates, generally alleging that the offering documents for the securities that they purchased contained untrue statements of material ~~facts~~fact and material omissions and generally seeking rescission and/or damages. Certain of these complaints allege fraud and seek punitive damages. Certain of these complaints also name other firms as defendants.


~~100~~		~~Goldman Sachs September 2012 Form 10-Q~~

~~THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

A number of other entities (including American International Group, Inc. (AIG), Deutsche Bank National Trust Company, John Hancock and related parties, M&T Bank, ~~and~~ Norges Bank Investment ~~Management)~~Management, Selective Insurance Company and U.S. Bank) have threatened to assert claims of various types against the firm in connection with various mortgage-related transactions, and the firm has entered into agreements with a number of these entities to toll the relevant statute of limitations.

As of the date hereof, the aggregate notional amount of mortgage-related securities sold to plaintiffs in active cases brought against the firm where those plaintiffs are seeking rescission of such securities was approximately ~~$20.1~~$19.7 billion (which does not reflect adjustment for any subsequent paydowns or distributions or any residual value of such securities, statutory interest or any other adjustments that may be claimed). This amount does not include the threatened claims noted above, potential claims by these or other purchasers in the same or other mortgage-related offerings that have not actually been brought against the firm, or claims that have been dismissed.

In June 2011, Heungkuk filed a criminal complaint against certain past and present employees of the firm in South Korea relating to its purchase of a CDO securitization from Goldman Sachs. The filing does not represent any judgment by a governmental entity, but starts a process whereby the prosecutor investigates the complaint and determines whether to take action.

~~On September 1, 2011,~~ Group Inc. and GS Bank USA have entered into a Consent Order and a settlement with the Federal Reserve Board relating to the servicing of residential mortgage ~~loans. In addition, on September 1, 2011, GS Bank USA entered into an Agreement on Mortgage Servicing Practices with the New York State Department of Financial Services, Litton~~loans and Ocwen, in connection with which Group Inc. agreed to forgive 25% of the unpaid principal balance on certain delinquent first lien residential mortgage loans owned by Group Inc. or a subsidiary, totaling approximately $13 million in principal forgiveness.foreclosure practices. See Note 18 for ~~further~~ information about ~~these settlements.~~this settlement.


100		Goldman Sachs March 2013 Form 10-Q

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Group Inc., GS&Co. and GSMC are among the numerous financial services firms named as defendants in aqui tam action originally filed by a relator on April 7, 2010 purportedly on behalf of the City of Chicago and State of Illinois in Cook County, Illinois Circuit Court asserting claims under the Illinois Whistleblower Reward and Protection Act and Chicago False Claims Act, based on allegations that defendants had falsely certified compliance with various Illinois laws, which were purportedly violated in connection with mortgage origination and servicing activities. The complaint, which was originally filed under seal, seeks treble damages and civil penalties. Plaintiff filed an amended complaint on December 28, 2011, naming GS&Co. and GSMC, among others, as additional defendants and a second amended complaint on February 8, 2012. On March 12, 2012, the action was removed to the U.S. District Court for the Northern District of Illinois, and on September 17, 2012 the district court granted the plaintiff’s motion to remand the action to state court. On November 16, 2012, the defendants moved to dismiss, and discovery has been stayed pending a ruling on the motion to dismiss.

Group Inc., Litton and Ocwen are defendants in a putative class action filed on January 23, 2013 in the U.S. District Court for the Southern District of New York generally challenging the procurement manner and scope of “force-placed” hazard insurance arranged by Litton when homeowners failed to arrange for insurance as required by their mortgages. The complaint asserts claims for breach of contract, breach of fiduciary duty, misappropriation, conversion, unjust enrichment and violation of Florida unfair practices law, and seeks unspecified compensatory and punitive damages as well as declaratory and injunctive relief.

On February 25, 2013, Group Inc. was added as a defendant through an amended complaint in a putative class action, originally filed on April 6, 2012 in the U.S. District Court for the Southern District of New York, against Litton, Ocwen and Ocwen Loan Servicing, LLC (Ocwen Servicing). The amended complaint generally alleges that Litton and Ocwen Servicing systematically breached agreements and violated various federal and state consumer protection laws by failing to modify the mortgage loans of homeowners participating in the federal Home Affordable Modification Program, and names Group Inc. based on its prior ownership of Litton. The plaintiffs seek unspecified compensatory, statutory and punitive damages as well as declaratory and injunctive relief. On April 29, 2013, Group Inc. moved to dismiss.

The firm has also received, and continues to receive, requests for information and/or subpoenas from federal, state and local regulators and law enforcement authorities, relating to the mortgage-related securitization process, subprime mortgages, CDOs, synthetic mortgage-related products, particular transactions involving these products, and servicing and foreclosure activities, and is cooperating with these regulators and other authorities, including in some cases agreeing to the tolling of the relevant statute of limitations. See also “Financial Crisis-Related Matters” below.

The firm expects to be the subject of additional putative shareholder derivative actions, purported class actions, rescission and “put back” claims and other litigation, additional investor and shareholder demands, and additional regulatory and other investigations and actions with respect to mortgage-related offerings, loan sales, CDOs, and servicing and foreclosure activities. See Note 18 for further information regarding mortgage-related contingencies.


		Goldman Sachs ~~September 2012~~March 2013 Form 10-Q		101

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Private Equity-Sponsored Acquisitions Litigation. Group Inc. and “GS Capital Partners” are among numerous private equity firms and investment banks named as defendants in a federal antitrust action filed in the U.S. District Court for the District of Massachusetts in December 2007. As amended, the complaint generally alleges that the defendants have colluded to limit competition in bidding for private equity-sponsored acquisitions of public companies, thereby resulting in lower prevailing bids and, by extension, less consideration for shareholders of those companies in violation of Section 1 of the U.S. Sherman Antitrust Act and common law. The complaint seeks, among other things, treble damages in an unspecified amount. Defendants moved to dismiss on August 27, 2008. The district court dismissed claims relating to certain transactions that were the subject of releases as part of the settlement of shareholder actions challenging such transactions, and by an order dated December 15, 2008 otherwise denied the motion to dismiss. On April 26, 2010, the plaintiffs moved for leave to proceed with a second phase of discovery encompassing additional transactions. On August 18, 2010, the court permitted discovery on eight additional transactions, and the plaintiffs filed a fourth amended complaint on October 7, 2010. On January 13, 2011, the court granted defendants’ motion to dismiss certain aspects of the fourth amended complaint. On March 1, 2011, the court granted the motion filed by certain defendants, including Group Inc., to dismiss another claim of the fourth amended complaint on the grounds that the transaction was the subject of a release as part of the settlement of a shareholder action challenging the transaction. On June 14, 2012, the plaintiffs filed a fifth amended complaint encompassing additional transactions. On July 18, 2012, the court granted defendants’ motion to dismiss certain newly asserted claims on the grounds that certain transactions are subject to releases as part of settlements of shareholder actions challenging those transactions, and denied defendants’ motion to dismiss certain additional claims as time-barred. On July 23, 2012, the defendants filed motions for summary judgment. On March 13, 2013, the court granted defendants’ motions in part and denied them in part, rejecting plaintiffs’ theory of overarching collusion, but permitting plaintiffs’ claims to proceed based on narrower theories. On April 16, 2013, the defendants filed renewed motions for summary judgment as to the certain claims and, on April 22, 2013, certain defendants, including Group Inc., filed a motion for reconsideration of the court’s summary judgment denial as to an additional claim.

IndyMac Pass-Through Certificates Litigation. GS&Co. is among numerous underwriters named as defendants in a putative securities class action filed on May 14, 2009 in the U.S. District Court for the Southern District of New York. As to the underwriters, plaintiffs allege that the offering documents in connection with various securitizations of mortgage-related assets violated the disclosure requirements of the federal securities laws. The defendants include IndyMac-related entities formed in connection with the securitizations, the underwriters of the offerings, certain ratings agencies which evaluated the credit quality of the securities, and certain former officers and directors of IndyMac affiliates. On November 2, 2009, the underwriters moved to dismiss the complaint. The motion was granted in part on February 17, 2010 to the extent of dismissing claims based on offerings in which no plaintiff purchased, and the court reserved judgment as to the other aspects of the motion. By a decision dated June 21, 2010, the district court formally dismissed all claims relating to offerings in which no named plaintiff purchased certificates (including all offerings underwritten by GS&Co.), and both granted and denied the defendants’ motions to dismiss in various other respects. On ~~October 12,~~November 16, 2012, the ~~plaintiffs filed a~~district court denied the plaintiffs’ motion seeking reinstatement of claims relating to 42 offerings previously dismissed for lack of ~~standing.~~standing (one of which was co-underwritten by GS&Co. ~~was a co-underwriter for one~~) without prejudice to renewal depending on the outcome of the ~~42 offerings; however,~~now-denied petition for a writ of certiorari to the ~~plaintiffs’ motion does not seek~~U.S. Supreme Court with respect to ~~add GS&Co. as a defendant.~~the Second Circuit’s decision described under “Mortgage-Related Matters” above. By an order dated March 26, 2013, the district court stayed the action for 60 days and directed the parties to mediate. On May 17, 2010, four additional investors filed a motion seeking to intervene in order to assert claims based on additional offerings (including two underwritten by GS&Co.). The defendants opposed the motion on the ground that the putative intervenors’ claims were time-barred and, on June 21, 2011, the court denied the motion to intervene with respect to, among others, the claims based on the offerings underwritten by GS&Co. Certain of the putative intervenors (including those seeking to assert claims based on two offerings underwritten by GS&Co.) have appealed.

GS&Co. underwrote approximately $751 million principal amount of securities to all purchasers in the offerings at issue in the May 2010 motion to intervene.

On July 11, 2008, IndyMac Bank was placed under an FDIC receivership, and on July 31, 2008, IndyMac Bancorp, Inc. filed for Chapter 7 bankruptcy in the U.S. Bankruptcy Court in Los Angeles, California.


102		Goldman Sachs ~~September 2012~~March 2013 Form 10-Q

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

RALI Pass-Through Certificates Litigation. GS&Co. is among numerous underwriters named as defendants in a putative securities class action initially filed in September 2008 in New York Supreme Court, and subsequently removed to the U.S. District Court for the Southern District of New York. As to the underwriters, plaintiffs allege that the offering documents in connection with various offerings of mortgage-backed pass-through certificates violated the disclosure requirements of the federal securities laws. In addition to the underwriters, the defendants include Residential Capital, LLC (ResCap), Residential Accredit Loans, Inc. (RALI), Residential Funding Corporation (RFC), Residential Funding Securities Corporation (RFSC), and certain of their officers and directors. On March 31, 2010, the defendants’ motion to dismiss was granted in part and denied in part by the district court, resulting in dismissal on the basis of standing of all claims relating to offerings in which no plaintiff purchased securities. In June and July 2010, the lead plaintiff and five additional investors moved to intervene in order to assert claims based on additional offerings (including two underwritten by GS&Co.). On April 28, 2011, the court granted defendants’ motion to dismiss as to certain of these claims (including those relating to one offering underwritten by GS&Co. based on a release in an unrelated settlement), but otherwise permitted the intervenor case to proceed. By an order dated January 3, 2013, the district court denied the defendants’ motions to dismiss certain of the intervenors’ remaining claims as time barred. Class certification of the claims based on the pre-intervention offerings was initially denied by the district court, and that denial was upheld on appeal; however, following remand, on October 15, 2012, the district court certified a class in connection with the pre-intervention offerings. ~~The certified~~By an order dated January 3, 2013, the district court granted plaintiffs’ application to modify the class ~~consists of investors “who~~definition to include only initial purchasers who bought the securities ~~on the date of offering~~ directly from the ~~issuers.”~~underwriters or their agents no later than ten trading days after the offering date (rather than just on the offering date). On ~~November 5, 2012, the defendants sought leave from~~March 26, 2013, the U.S. Court of Appeals for the Second Circuit denied the defendants’ petition seeking leave to appeal the district court’s class certification ~~order.~~orders. On April 30, 2013, the district court granted, in part, plaintiffs’ request to reinstate a number of the claims, including claims related to seven offerings underwritten by GS&Co., that were previously dismissed on March 31, 2010.

GS&Co. underwrote approximately ~~$1.28~~$5.51 billion principal amount of securities to all purchasers in the offerings for which claims have not been ~~dismissed.~~dismissed or which have been reinstated. On May 14, 2012, ResCap, RALI and RFC filed for Chapter 11 bankruptcy in the U.S. Bankruptcy Court for the Southern District of New York and the action has been stayed with respect to them, RFSC and certain of their officers and directors.

MF Global Securities Litigation. GS&Co. is among numerous underwriters named as defendants in class action complaints filed in the U.S. District Court for the Southern District of New York commencing November 18, 2011. These complaints generally allege that the offering materials for two offerings of MF Global Holdings Ltd. convertible notes (aggregating approximately $575 million in principal amount) in February 2011 and July 2011, among other things, failed to describe adequately the nature, scope and risks of MF Global’s exposure to European sovereign debt, in violation of the disclosure requirements of the federal securities laws. On August 20, 2012, the plaintiffs filed a consolidated amended complaint and on October 19, 2012, the defendants filed ~~a motion~~motions to dismiss the amended complaint. Numerous parties, including GS&Co., have commenced a mediation relating to various MF Global-related proceedings. GS&Co. underwrote an aggregate principal amount of approximately $214 million of the notes. On October 31, 2011, MF Global Holdings Ltd. filed for Chapter 11 bankruptcy in the U.S. Bankruptcy Court in Manhattan, New York.

GS&Co. has also received inquiries from various governmental and regulatory bodies and self-regulatory organizations concerning certain transactions with MF Global prior to its bankruptcy filing. Goldman Sachs is cooperating with all such inquiries.


		Goldman Sachs ~~September 2012~~March 2013 Form 10-Q		103

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Employment-Related Matters. On September 15, 2010, a putative class action was filed in the U.S. District for the Southern District of New York by three former female employees alleging that Group Inc. and GS&Co. have systematically discriminated against female employees in respect of compensation, promotion, assignments, mentoring and performance evaluations. The complaint alleges a class consisting of all female employees employed at specified levels by Group Inc. and GS&Co. since July 2002, and asserts claims under federal and New York City discrimination laws. The complaint seeks class action status, injunctive relief and unspecified amounts of compensatory, punitive and other damages. Group Inc. and GS&Co. filed a motion to stay the claims of one of the named plaintiffs and to compel individual arbitration with that individual, based on an arbitration provision contained in an employment agreement between Group Inc. and the individual. On April 28, 2011, the magistrate judge to whom the district judge assigned the motion denied the ~~motion. On July 7, 2011, the magistrate judge denied Group Inc.’s~~motion, and ~~GS&Co.’s motion for reconsideration of the magistrate judge’s decision, and on July 21, 2011 Group Inc. and GS&Co. appealed the magistrate judge’s decision to~~ the district court ~~which~~ affirmed the magistrate judge’s decision on November 15, 2011. ~~Group Inc. and GS&Co. have appealed that decision to~~On March 21, 2013, the U.S. Court of Appeals for the Second ~~Circuit.~~Circuit reversed the district court’s decision, holding that arbitration should be compelled. On June 13, 2011, Group Inc. and GS&Co. moved to strike the class allegations of one of the three named plaintiffs based on her failure to exhaust administrative remedies. On September 29, 2011, the magistrate judge recommended denial of the motion to strike and, ~~Group Inc. and GS&Co. filed their objections to that recommendation with the district judge presiding over the case~~ on ~~October 11, 2011. By a decision dated~~ January 10, 2012, the district court denied the motion to strike. On July 22, 2011, Group Inc. and GS&Co. moved to strike all of the plaintiffs’ class allegations, and for partial summary judgment as to plaintiffs’ disparate impact claims. By a decision dated January 19, 2012, the magistrate judge recommended that defendants’ motion be denied as premature. The defendants filed objections to that recommendation with the district judge and on July 17, 2012, the district court issued a decision granting in part Group Inc.’s and GS&Co.’s motion to strike plaintiffs’ class allegations on the ground that plaintiffs lacked standing to pursue certain equitable remedies and denying in part Group Inc.’s and GS&Co.’s motion to strike plaintiffs’ class allegations in their entirety as premature.

~~Hellenic Republic (Greece) Matters.~~ Group Inc. and certain of its affiliates have been subject to a number of investigations and reviews by various governmental and regulatory bodies and self-regulatory organizations in connection with the firm’s transactions with the Hellenic Republic (Greece), including financing and swap transactions, as well as trading and research activities with respect to Greek sovereign debt. Goldman Sachs has cooperated with the investigations and reviews.

Investment Management Services. Group Inc. and certain of its affiliates are parties to various civil litigation and arbitration proceedings and other disputes with clients relating to losses allegedly sustained as a result of the firm’s investment management services. These claims generally seek, among other things, restitution or other compensatory damages and, in some cases, punitive damages. In addition, Group Inc. and its affiliates are subject from time to time to investigations and reviews by various governmental and regulatory bodies and self-regulatory organizations in connection with the firm’s investment management services. Goldman Sachs is cooperating with all such investigations and reviews.

Goldman Sachs Asset Management International (GSAMI) is the defendant in an action filed on July 9, 2012 with the High Court of Justice in London by certain entities representing Vervoer, a Dutch pension fund, alleging that GSAMI was negligent in performing its duties as investment manager in connection with the allocation of the plaintiffs’ funds among asset managers in accordance with asset allocations provided by plaintiffs and that GSAMI breached its contractual and common law duties to the plaintiffs. Specifically, plaintiffs allege that GSAMI ~~provided inadequate disclosure,~~ caused their assets to be invested in unsuitable products for an extended period, thereby causing in excess of ~~€81~~€67 million in losses, and caused them to be under-exposed for a period of time to certain other investments that performed well, thereby resulting in foregone potential gains. The plaintiffs are seeking unspecified monetary damages. On November 2, 2012, GSAMI served its defense to the ~~allegations.~~allegations and on December 21, 2012, the plaintiffs served their reply to the defense.


104		Goldman Sachs ~~September 2012~~March 2013 Form 10-Q

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Financial Advisory Services. Group Inc. and certain of its affiliates are parties to various civil litigation and arbitration proceedings and other disputes with clients and third parties relating to the firm’s financial advisory activities. These claims generally seek, among other things, compensatory damages and, in some cases, punitive damages, and in certain cases allege that the firm did not appropriately disclose or deal with conflicts of interest. In addition, Group Inc. and its affiliates are subject from time to time to investigations and reviews by various governmental and regulatory bodies and self-regulatory organizations in connection with conflicts of interest. Goldman Sachs is cooperating with all such investigations and reviews.

Group Inc., GS&Co. and The Goldman, Sachs & Co. L.L.C. are defendants in an action brought by the founders and former majority shareholders of Dragon Systems, Inc. (Dragon) on November 18, 2008, alleging that the plaintiffs incurred losses due to GS&Co.’s financial advisory services provided in connection with the plaintiffs’ exchange of their purported $300 million interest in Dragon for stock of Lernout & Hauspie Speech Products, N.V. (L&H) in 2000. L&H filed for Chapter 11 bankruptcy in the U.S. Bankruptcy Court in Wilmington, Delaware on November 29, 2000. The action is pending in the United States District Court for the District of Massachusetts. The complaint ~~which was amended in November 2011 following the 2009 dismissal of certain of the plaintiffs’ initial claims, seeks~~sought unspecified compensatory, punitive and other damages, and ~~alleges~~alleged breach of fiduciary duty, ~~breach of contract, breach of implied covenant of good faith and fair dealing,~~ violation of ~~state~~Massachusetts unfair trade practices laws, negligence, negligent and intentional misrepresentation, gross negligence, willful misconduct and bad faith. Former minority shareholders of Dragon ~~have~~ brought a similar action against GS&Co. with respect to their purported $49 million interest in Dragon, and this action ~~has been~~was consolidated with the action described above. ~~All parties moved for summary judgment.~~ By an order dated October 31, 2012, the court granted summary judgment with respect to certain counterclaims and an indemnification claim brought by the Goldman Sachs defendants against one of the shareholders, but denied summary judgment with respect to all other claims. On January 23, 2013, a jury found in favor of the Goldman Sachs defendants on the plaintiffs’ claims for negligence, negligent and intentional misrepresentation, gross negligence, and breach of fiduciary duty. The plaintiffs’ claims for violation of Massachusetts unfair trade practices laws will be addressed by the district court and have not yet been decided.

Sales, Trading and Clearance Practices. Group Inc. and certain of its affiliates are subject to a number of investigations and reviews, certain of which are industry-wide, by various governmental and regulatory bodies and self-regulatory organizations relating to the sales, trading and clearance of corporate and government securities and other financial products, including compliance with the SEC’s short sale rule, algorithmic and quantitative trading, futures trading, transaction reporting, securities lending practices, trading and clearance of credit derivative instruments, commodities trading, private placement practices and compliance with the U.S. Foreign Corrupt Practices Act.

The European Commission announced in April 2011 that it iswas initiating proceedings to investigate further numerous financial services companies, including Group Inc., in connection with the supply of data related to credit default swaps and in connection with profit sharing and fee arrangements for clearing of credit default swaps, including potential anti-competitive practices. The proceedings in connection with the supply of data related to credit default swaps are ~~ongoing but~~ongoing. Group Inc.’s current understanding is that the proceedings related to profit sharing and fee arrangements for clearing of credit default swaps have been suspended indefinitely. The firm has received civil investigative demands from the U.S. Department of Justice (DOJ) for information on similar matters. Goldman Sachs is cooperating with the investigations and reviews.

GS&Co. is among the numerous defendants in a putative antitrust class action filed on May 3, 2013 in the U.S. District Court for the Northern District of Illinois. The complaint generally alleges that defendants violated federal antitrust laws by conspiring to inflate bid-ask spreads for credit derivatives. The complaint seeks declaratory and injunctive relief as well as treble damages in an unspecified amount.

Insider Trading Investigations. From time to time, the firm and its employees are the subject of or otherwise involved in regulatory investigations relating to insider trading, the potential misuse of material nonpublic information and the effectiveness of the firm’s insider trading controls and information barriers. It is the firm’s practice to cooperate fully with any such investigations.


		Goldman Sachs March 2013 Form 10-Q		105

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Research Investigations. From time to time, the firm is the subject of or otherwise involved in regulatory investigations relating to research practices, including research independence and interactions between research analysts and other firm personnel, including investment banking personnel. It is the firm’s practice to cooperate fully with any such investigations.

EU Price-Fixing Matter. On July 5, 2011, the European Commission issued a Statement of Objections to Group Inc. raising allegations of an industry-wide conspiracy to fix prices for power cables, including by an Italian cable company in which certain Goldman Sachs-affiliated investment funds held ownership interests from 2005 to 2009. The Statement of Objections proposes to hold Group Inc. jointly and severally liable for some or all of any fine levied against the cable company under the concept of parental liability under EU competition law.


		~~Goldman Sachs September 2012 Form 10-Q~~		~~105~~

~~THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

Municipal Securities Matters. Group Inc. and certain of its affiliates are subject to a number of investigations and reviews by various governmental and regulatory bodies and self-regulatory organizations relating to transactions involving municipal securities, including wall-cross procedures and conflict of interest disclosure with respect to state and municipal clients, the trading and structuring of municipal derivative instruments in connection with municipal offerings, political contribution rules, underwriting of Build America Bonds, municipal advisory services and the possible impact of credit default swap transactions on municipal issuers. Goldman Sachs is cooperating with the investigations and reviews.

Group Inc., Goldman Sachs Mitsui Marine Derivative Products, L.P. (GSMMDP) and GS Bank USA are among numerous financial services firms that have been named as defendants in numerous substantially identical individual antitrust actions filed beginning on November 12, 2009 that have been coordinated with related antitrust class action litigation and individual actions, in which no Goldman Sachs affiliate is named, for pre-trial proceedings in the U.S. District Court for the Southern District of New York. The plaintiffs include individual California municipal entities and three New York non-profit entities. All of these complaints against Group Inc., GSMMDP and GS Bank USA generally allege that the Goldman Sachs defendants participated in a conspiracy to arrange bids, fix prices and

divide up the market for derivatives used by municipalities in refinancing and hedging transactions from 1992 to 2008. The complaints assert claims under the federal antitrust laws and either California’s Cartwright Act or New York’s Donnelly Act, and seek, among other things, treble damages under the antitrust laws in an unspecified amount and injunctive relief. On April 26, 2010, the Goldman Sachs defendants’ motion to dismiss complaints filed by several individual California municipal plaintiffs was denied. On August 19, 2011, Group Inc., GSMMDP and GS Bank USA were voluntarily dismissed without prejudice from all actions except one brought by a California municipal entity.

On August 21, 2008, GS&Co. entered into a settlement in principle with the Office of the Attorney General of the State of New York and the Illinois Securities Department (on behalf of the North American Securities Administrators Association) regarding auction rate securities. Under the agreement, Goldman Sachs agreed, among other things, (i) to offer to repurchase at par the outstanding auction rate securities that its private wealth management clients purchased through the firm prior to February 11, 2008, with the exception of those auction rate securities where

auctions were clearing, (ii) to continue to work with issuers and other interested parties, including regulatory and governmental entities, to expeditiously provide liquidity solutions for institutional investors, and (iii) to pay a $22.5 million fine. The settlement is subject to approval by the various states. GS&Co. has entered into consent orders with New York, Illinois and most other states and is in the process of doing so with the remaining states.

On September 4, 2008, Group Inc. was named as a defendant, together with numerous other financial services firms, in two complaints filed in the U.S. District Court for the Southern District of New York alleging that the defendants engaged in a conspiracy to manipulate the auction securities market in violation of federal antitrust laws. The actions were filed, respectively, on behalf of putative classes of issuers of and investors in auction rate securities and seek, among other things, treble damages in an unspecified amount. Defendants’ motion to dismiss was granted on January 26, ~~2010. On~~2010 and, by an order dated March ~~1, 2010,~~5, 2013, the ~~plaintiffs appealed from~~U.S. Court of Appeals for the ~~dismissal~~Second Circuit upheld the dismissal. Plaintiffs have agreed not to seek further review of ~~their complaints.~~that decision.


106		Goldman Sachs March 2013 Form 10-Q

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Beginning in February 2012, GS&Co. was named as respondent in ~~three~~four FINRA arbitrations filed, respectively, by the cities of Houston, Texas and Reno, Nevada, ~~and~~ a California school district and a North Carolina municipal power authority, based on GS&Co.’s role as underwriter and broker-dealer of the claimants’ issuances of an aggregate of over ~~$1.7~~$1.8 billion of auction rate securities from ~~2004~~2003 through 2007 (in the Houston arbitration, two other financial services firms were named as respondents, ~~as well)~~and in the North Carolina arbitration, one other financial services firm was named). Each claimant alleges that GS&Co. failed to disclose that it had a practice of placing cover bids on auctions, and failed to offer the claimant the option of a formulaic maximum rate (rather than a fixed maximum rate), and that, as a result, the claimant was forced to engage in a series of expensive refinancing and conversion transactions after the failure of the auction market (at an estimated cost, in the case of Houston, of approximately $90 million). Houston and Reno also allege that GS&Co. advised them to enter into interest rate swaps in connection with their auction rate securities issuances, causing them to incur additional losses (including, in the case of Reno, a swap termination obligation of over $8 million). The claimants assert claims for breach of fiduciary duty, fraudulent concealment, negligent misrepresentation, breach of contract, violations of the Exchange Act and state securities laws, and breach of duties under the rules of the Municipal Securities Rulemaking Board and the NASD, and seek unspecified damages. In federal court, GS&Co. has ~~moved in federal court~~filed complaints and motions seeking to enjoin the Reno, ~~and~~ California school district and North Carolina arbitrations pursuant to anthe exclusive forum selection ~~clause~~clauses in the transaction documents. On November 26, 2012, GS&Co.’s motion to enjoin was denied with regard to the Reno arbitration, and GS&Co. appealed on March 11, 2013. On February 8, 2013, GS&Co.’s motion to enjoin was granted with regard to the California school district arbitration, and the California school district appealed on March 5, 2013. On April 26, 2013, GS&Co. filed its formal motion to enjoin the North Carolina arbitration, and the North Carolina municipal power authority filed a motion to dismiss GS&Co.’s complaint for lack of venue.


~~106~~		~~Goldman Sachs September 2012 Form 10-Q~~

~~THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

Financial Crisis-Related Matters. Group Inc. and certain of its affiliates are subject to a number of investigations and reviews by various governmental and regulatory bodies and self-regulatory organizations and litigation relating to the 2008 financial crisis, including the establishment and unwind of credit default swaps between Goldman Sachs and AIG and other transactions with, and in the securities of, AIG, The Bear Stearns Companies Inc., Lehman Brothers Holdings Inc. and other firms.crisis. Goldman Sachs is cooperating with the investigations and reviews.

In the second quarter of 2011, a Staff Report of the Senate Permanent Subcommittee on Investigations concerning the key causes of the financial crisis was issued. Goldman Sachs and another financial institution were used as case studies with respect to the role of investment banks. The report was referred to the DOJ and the SEC for review. The firm has cooperated with the investigations arising from this referral. On August 9, 2012, the DOJ announced that it had concluded its investigation and would not be bringing criminal charges against the firm or any of its current or former employees in connection with this matter.

~~Subsequent Event~~

~~Note 28.~~

~~Subsequent Event~~

On October 15, 2012, the firm completed the sale of its hedge fund administration business to State Street Corporation for approximately $515 million and will recognize a pre-tax gain of approximately $500 million during the fourth quarter of 2012. The historical operating results of the hedge fund administration business were not material to the firm.


		Goldman Sachs ~~September 2012~~March 2013 Form 10-Q		107

Report of Independent Registered Public Accounting Firm

To the Board of Directors and the Shareholders of

The Goldman Sachs Group, Inc.:

We have reviewed the accompanying condensed consolidated statement of financial condition of The Goldman Sachs Group, Inc. and its subsidiaries (the Company) as of ~~September 30, 2012,~~March 31, 2013, the related condensed consolidated statements of earnings for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2013 and 2012, ~~and 2011,~~ the condensed consolidated statements of comprehensive income for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2013 and 2012, ~~and 2011,~~ the condensed consolidated statement of changes in shareholders’ equity for the ~~nine~~three months ended ~~September 30, 2012,~~March 31, 2013, and the condensed consolidated statements of cash flows for the ~~nine~~three months ended ~~September 30, 2012~~March 31, 2013 and ~~2011.~~2012. These condensed consolidated interim financial statements are the responsibility of the Company’s management.

We conducted our review in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our review, we are not aware of any material modifications that should be made to the accompanying condensed consolidated interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.

We previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated statement of financial condition as of December 31, ~~2011,~~2012, and the related consolidated statements of earnings, comprehensive income, changes in shareholders’ equity and cash flows for the year then ended (not presented herein), and in our report dated February 28, ~~2012,~~2013, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated statement of financial condition as of December 31, ~~2011,~~2012, and the condensed consolidated statement of changes in shareholders’ equity for the year ended December 31, ~~2011,~~2012, is fairly stated in all material respects in relation to the consolidated financial statements from which it has been derived.

/s/ PRICEWATERHOUSECOOPERS LLP

New York, New York

~~November~~May 8, ~~2012~~2013


108		Goldman Sachs ~~September 2012~~March 2013 Form 10-Q

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Statistical Disclosures

Distribution of Assets, Liabilities and Shareholders’ Equity

The ~~tables~~table below ~~present~~presents a summary of consolidated average balances and interest rates.

Three Months Ended September
2012 2011
in millions, except rates

Average
balance


Interest

Average
rate
(annualized)




Average
balance


Interest

Average
rate
(annualized)



Assets

Deposits with banks
$  53,135    $     38    0.28 % $  38,298    $     32    0.33 %
U.S.
49,749    35    0.28    33,184    24    0.29
Non-U.S.
3,386    3    0.35    5,114    8    0.62
Securities borrowed, securities purchased under agreements to resell, at fair value, and federal funds sold
328,166    (74 ) (0.09 ) 353,310    170    0.19
U.S.
185,144    (135 ) (0.29 ) 212,051    (93 ) (0.17 )
Non-U.S.
143,022    61    0.17    141,259    263    0.74
Financial instruments owned, at fair value ^{1, 2}
313,755    2,324    2.95    297,534    2,755    3.67
U.S.
191,000    1,552    3.23    187,405    1,787    3.78
Non-U.S.
122,755    772    2.50    110,129    968    3.49
Other interest-earning assets ³
137,919    341    0.98    146,792    397    1.07
U.S.
90,586    234    1.03    102,620    221    0.85
Non-U.S.
47,333    107    0.90    44,172    176    1.58
Total interest-earning assets
832,975    2,629    1.26    835,934    3,354    1.59
Cash and due from banks
6,463    5,656
Other non-interest-earning assets ²
104,106    127,653
Total assets
$943,544    $969,243
Liabilities

Interest-bearing deposits
$  58,723    $   106    0.72 % $  40,432    $     65    0.64 %
U.S.
50,870    96    0.75    32,939    55    0.66
Non-U.S.
7,853    10    0.51    7,493    10    0.53
Securities loaned and securities sold under agreements to repurchase, at fair value
167,480    188    0.45    178,348    266    0.59
U.S.
112,004    90    0.32    109,042    63    0.23
Non-U.S.
55,476    98    0.70    69,306    203    1.16
Financial instruments sold, but not yet purchased ^{1, 2}
98,815    594    2.39    105,930    585    2.19
U.S.
44,445    225    2.01    55,043    238    1.72
Non-U.S.
54,370    369    2.70    50,887    347    2.71
Commercial paper
756    —    0.14    2,416    1    0.20
U.S.
—    —    —    1,183    1    0.25
Non-U.S.
756    —    0.14    1,233    —    0.15
Other borrowings ^{4, 5}
66,889    133    0.79    80,540    149    0.73
U.S.
45,408    111    0.97    52,674    109    0.82
Non-U.S.
21,481    22    0.41    27,866    40    0.57
Long-term borrowings ^5,⁶
174,598    941    2.14    187,438    829    1.75
U.S.
168,330    913    2.16    179,438    779    1.72
Non-U.S.
6,268    28    1.78    8,000    50    2.48
Other interest-bearing liabilities ⁷
210,475    (169 ) (0.32 ) 211,356    103    0.19
U.S.
152,836    (274 ) (0.71 ) 154,848    (173 ) (0.44 )
Non-U.S.
57,639    105    0.72    56,508    276    1.94
Total interest-bearing liabilities
777,736    1,793    0.92    806,460    1,998    0.98
Non-interest-bearing deposits
358    128
Other non-interest-bearing liabilities ²
92,407    91,390
Total liabilities
870,501    897,978
Shareholders’ equity

Preferred stock
4,975    3,100
Common stock
68,068    68,165
Total shareholders’ equity
73,043    71,265
Total liabilities and shareholders’ equity
$943,544    $969,243
Interest rate spread
0.34 % 0.61 %
Net interest income and net yield on interest-earning assets
$   836    0.40    $1,356    0.64
U.S.
525    0.40    867    0.64
Non-U.S.
311    0.39    489    0.65
Percentage of interest-earning assets and interest-bearing liabilities attributable to non-U.S. operations ⁸

Assets
38.00 % 35.97 %
Liabilities
26.21    27.44


		~~Goldman Sachs September 2012 Form 10-Q~~		~~109~~

~~Statistical Disclosures~~

Nine Months Ended September
2012 2011
in millions, except rates

Average
balance


Interest

Average
rate
(annualized)




Average
balance


Interest

Average
rate
(annualized)



Assets

Deposits with banks
$  50,086    $   111    0.30 % $  36,620    $       88    0.32 %
U.S.
46,363    94    0.27    31,121    68    0.29
Non-U.S.
3,723    17    0.61    5,499    20    0.49
Securities borrowed, securities purchased under agreements to resell, at fair value, and federal funds sold
341,542    (49 ) (0.02 ) 350,695    572    0.22
U.S.
194,089    (359 ) (0.25 ) 221,838    (161 ) (0.10 )
Non-U.S.
147,453    310    0.28    128,857    733    0.76
Financial instruments owned, at fair value ^{1, 2}
304,312    7,334    3.22    291,927    8,218    3.76
U.S.
186,640    4,869    3.48    186,256    5,716    4.10
Non-U.S.
117,672    2,465    2.80    105,671    2,502    3.17
Other interest-earning assets ³
135,594    1,121    1.10    142,942    1,264    1.18
U.S.
89,011    720    1.08    99,216    680    0.92
Non-U.S.
46,583    401    1.15    43,726    584    1.79
Total interest-earning assets
831,534    8,517    1.37    822,184    10,142    1.65
Cash and due from banks
6,760    4,670
Other non-interest-earning assets ²
107,363    118,363
Total assets
$945,657    $945,217
Liabilities

Interest-bearing deposits
$  53,644    $   292    0.73 % $  39,259    $     205    0.70 %
U.S.
45,932    262    0.76    32,476    179    0.74
Non-U.S.
7,712    30    0.52    6,783    26    0.51
Securities loaned and securities sold under agreements to repurchase, at fair value
174,131    615    0.47    175,246    703    0.54
U.S.
117,398    270    0.31    111,088    216    0.26
Non-U.S.
56,733    345    0.81    64,158    487    1.01
Financial instruments sold, but not yet purchased ^{1, 2}
96,514    1,783    2.47    103,871    1,844    2.37
U.S.
42,411    579    1.82    54,214    739    1.82
Non-U.S.
54,103    1,204    2.97    49,657    1,105    2.98
Commercial paper
1,039    2    0.24    1,744    3    0.21
U.S.
110    1    0.62    443    1    0.25
Non-U.S.
929    1    0.19    1,301    2    0.20
Other borrowings ^{4, 5}
70,710    451    0.85    75,123    398    0.71
U.S.
47,955    373    1.04    48,902    339    0.93
Non-U.S.
22,755    78    0.46    26,221    59    0.30
Long-term borrowings ^5,⁶
177,351    2,841    2.14    186,428    2,471    1.77
U.S.
170,680    2,714    2.12    179,499    2,327    1.73
Non-U.S.
6,671    127    2.54    6,929    144    2.78
Other interest-bearing liabilities ⁷
208,968    (374 ) (0.24 ) 202,636    391    0.26
U.S.
152,723    (763 ) (0.67 ) 148,683    (322 ) (0.29 )
Non-U.S.
56,245    389    0.92    53,953    713    1.77
Total interest-bearing liabilities
782,357    5,610    0.96    784,307    6,015    1.03
Non-interest-bearing deposits
264    146
Other non-interest-bearing liabilities ²
91,286    87,331
Total liabilities
873,907    871,784
Shareholders’ equity

Preferred stock
3,850    4,257
Common stock
67,900    69,176
Total shareholders’ equity
71,750    73,433
Total liabilities and shareholders’ equity
$945,657    $945,217
Interest rate spread
0.41 % 0.62 %
Net interest income and net yield on interest-earning assets
$2,907    0.47    $  4,127    0.67
U.S.
1,888    0.49    2,824    0.70
Non-U.S.
1,019    0.43    1,303    0.61
Percentage of interest-earning assets and interest-bearing liabilities attributable to non-U.S. operations ⁸

Assets
37.93 % 34.51 %
Liabilities
26.22    26.65


~~110~~		~~Goldman Sachs September 2012 Form 10-Q~~

~~Statistical Disclosures~~


	Three Months Ended March
	2013						2012
in millions, except rates		Average balance	Interest		Average Rate (annualized)			Average balance	Interest		Average rate (annualized)
Assets
Deposits with banks		$ 64,007	$ 48		0.30	%		$ 48,029	$ 38		0.32	%

U.S.		60,919	43		0.29			43,939	29		0.27

Non-U.S.		3,088	5		0.66			4,090	9		0.89

Securities borrowed, securities purchased under agreements to resell and federal funds sold		316,390	(24	)	(0.03	)		348,873	(14	)	(0.02	)

U.S.		180,008	(85	)	(0.19	)		200,486	(112	)	(0.22	)

Non-U.S.		136,382	61		0.18			148,387	98		0.27

Financial instruments owned, at fair value ^{1, 2}		316,072	2,238		2.87			294,257	2,442		3.34

U.S.		193,652	1,510		3.16			181,376	1,590		3.53

Non-U.S.		122,420	728		2.41			112,881	852		3.04

Other interest-earning assets ³		134,889	346		1.04			133,707	367		1.10

U.S.		82,295	239		1.18			87,609	236		1.08

Non-U.S.		52,594	107		0.83			46,098	131		1.14
Total interest-earning assets		831,358	2,608		1.27			824,866	2,833		1.38

Cash and due from banks		6,074						6,770

Other non-interest-earning assets ²		124,476						110,222
Total assets		$961,908						$941,858
Liabilities
Interest-bearing deposits		$ 69,118	$ 93		0.55	%		$ 48,096	$ 91		0.76	%

U.S.		61,704	88		0.58			40,571	81		0.80

Non-U.S.		7,414	5		0.27			7,525	10		0.53

Securities loaned and securities sold under agreements to repurchase		187,101	164		0.36			176,115	211		0.48

U.S.		122,299	80		0.27			121,092	84		0.28

Non-U.S.		64,802	84		0.53			55,023	127		0.93

Financial instruments sold, but not yet purchased, at fair value ^{1, 2}		95,490	511		2.17			91,587	525		2.31

U.S.		37,028	167		1.83			40,292	162		1.62

Non-U.S.		58,462	344		2.39			51,295	363		2.85

Short-term borrowings ⁴		62,993	106		0.68			75,367	168		0.90

U.S.		43,053	97		0.91			49,891	136		1.10

Non-U.S.		19,940	9		0.18			25,476	32		0.51

Long-term borrowings ⁴		177,257	910		2.08			182,239	1,009		2.23

U.S.		170,652	881		2.09			175,006	947		2.18

Non-U.S.		6,605	29		1.78			7,233	62		3.45

Other interest-bearing liabilities ⁵		197,393	(101	)	(0.21	)		204,166	(152	)	(0.30	)

U.S.		141,253	(221	)	(0.63	)		150,736	(251	)	(0.67	)

Non-U.S.		56,140	120		0.87			53,430	99		0.75
Total interest-bearing liabilities		789,352	1,683		0.86			777,570	1,852		0.96

Non-interest-bearing deposits		750						184

Other non-interest-bearing liabilities ²		95,104						93,280
Total liabilities		885,206						871,034

Shareholders’ equity
Preferred stock		6,200						3,100

Common stock		70,502						67,724
Total shareholders’ equity		76,702						70,824

Total liabilities and shareholders’ equity		$961,908						$941,858
Interest rate spread					0.41	%					0.42	%

Net interest income and net yield on interest-earning assets			$ 925		0.45				$ 981		0.48

U.S.			615		0.48				584		0.46

Non-U.S.			310		0.40				397		0.51

Percentage of interest-earning assets and interest-bearing liabilities attributable to non-U.S. operations ⁶
Assets					37.83	%					37.76	%

Liabilities					27.03						25.72

1.	Consists of cash financial instruments, including equity securities and convertible debentures.

2.	Derivative instruments and commodities are included in other non-interest-earning assets and other non-interest-bearing liabilities.

3.	Primarily consists of cash and securities segregated for regulatory and other purposes and certain receivables from customers and counterparties.

4.	~~Consists of short-term other secured financings and unsecured short-term borrowings, excluding commercial paper.~~

5.	Interest rates include the effects of interest rate swaps accounted for as hedges.

6.	~~Consists of long-term secured financings and unsecured long-term borrowings.~~

7.5.	Primarily consists of certain payables to customers and counterparties.

8.6.	Assets, liabilities and interest are attributed to U.S. and non-U.S. based on the location of the legal entity in which the assets and liabilities are held.


		Goldman Sachs March 2013 Form 10-Q		109

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Statistical Disclosures

Ratios

The table below presents selected financial ratios.


	Three Months Ended September			Nine Months Ended September			Three Months Ended March
		2012	2011		2012	2011		2013		2012
Annualized net earnings to average assets		0.6%	N.M.		0.6%	0.5%		0.9	%	0.9	%

Annualized return on average common shareholders’ equity ¹		8.6	N.M.		8.8	3.7⁴		12.4		12.2

Annualized return on average total shareholders’ equity ²		8.3	N.M.		8.5	6.2		11.8		11.9

Total average equity to average assets		7.7	7.4%		7.6	7.8		8.0		7.5

Dividend payout ratio ³		16.1	N.M.		14.8	38.9		11.7		8.9

1.	Based on annualized net earnings applicable to common shareholders divided by average monthly common shareholders’ equity.

2.	Based on annualized net earnings divided by average monthly total shareholders’ equity.

3.	Dividends declared per common share as a percentage of diluted earnings per common share.

4.	The $1.64 billion Series G Preferred Stock dividend was not annualized in the calculation of annualized net earnings applicable to common shareholders since it has no impact on other quarters in the year.


110		Goldman Sachs ~~September 2012~~March 2013 Form 10-Q		~~111~~

~~Statistical Disclosures~~

~~Cross-border Outstandings~~

Cross-border outstandings are based on the Federal Financial Institutions Examination Council’s (FFIEC) regulatory guidelines for reporting cross-border information and represent the amounts that the firm may not be able to obtain from a foreign country due to country-specific events, including unfavorable economic and political conditions, economic and social instability, and changes in government policies.

Credit exposure represents the potential for loss due to the default or deterioration in credit quality of a counterparty or an issuer of securities or other instruments the firm holds and is measured based on the potential loss in an event of non-payment by a counterparty. Credit exposure is reduced through the effect of risk mitigants, such as netting agreements with counterparties that permit the firm to offset receivables and payables with such counterparties or obtaining collateral from counterparties. The tables below do not include all the effects of such risk mitigants and do not represent the firm’s credit exposure.

Claims in the tables below include cash, receivables, securities purchased under agreements to resell, securities borrowed and cash financial instruments, but exclude derivative instruments and commitments. Securities purchased under agreements to resell and securities borrowed are presented gross, without reduction for related securities collateral held, based on the domicile of the counterparty. Margin loans (included in receivables) are presented based on the amount of collateral advanced by the counterparty.

~~The tables below present cross-border outstandings for each country in which cross-border outstandings exceed 0.75% of consolidated assets in accordance with the FFIEC guidelines.~~

As of September 2012
in millions Banks       Governments       Other    Total
Country

France
$34,569 ¹    $  2,254       $  5,483    $42,306
Cayman Islands
15       —       41,452    41,467
Japan
18,068       8       7,285    25,361
Germany
6,836       9,076       3,192    19,104
Switzerland
4,060       30       5,343    9,433
Canada
678       441       7,260    8,379
United Kingdom
1,625       1,130       5,559    8,314
Italy
763       5,048       1,685    7,496
Ireland
402       148       6,803    7,353 ²
As of December 2011
in millions Banks       Governments       Other    Total
Country

France
$33,916 ¹    $  2,859       $  3,776    $40,551
Cayman Islands
—       —       33,742    33,742
Japan
18,745       31       6,457    25,233
Germany
5,458       16,089       3,162    24,709
United Kingdom
2,111       3,349       5,243    10,703
Italy
6,143       3,054       841    10,038 ³
Ireland
1,148       63       8,801 ² 10,012
China
6,722       38       2,908    9,668
Switzerland
3,836       40       5,112    8,988
Canada
676       1,019       6,841    8,536
Australia
1,597       470       5,209    7,276

1.	~~Primarily comprised of secured lending transactions with a clearing house which are secured by collateral.~~

2.	~~Primarily comprised of interests in and receivables from funds domiciled in Ireland, but whose underlying investments are primarily located outside of Ireland, and secured lending transactions.~~

3.	~~Primarily comprised of secured lending transactions which are primarily secured by German government obligations.~~


~~112~~		~~Goldman Sachs September 2012 Form 10-Q~~

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

INDEX


	Page No.

Introduction		~~114~~112

Executive Overview		~~114~~112

Business Environment		~~118~~114

Critical Accounting Policies		~~119~~115

Use of Estimates		~~123~~119

Results of Operations		~~124~~120

Regulatory Developments		130

Balance Sheet and Funding Sources		~~139~~133

Equity Capital		~~146~~140

Off-Balance-Sheet Arrangements and Contractual Obligations		~~151~~147

Overview and Structure of Risk Management		~~154~~149

Liquidity Risk Management		~~159~~154

Market Risk Management		~~166~~161

Credit Risk Management		~~171~~167

Operational Risk Management		~~178~~174

Recent Accounting Developments		~~180~~176

Certain Risk Factors That May Affect Our Businesses		~~181~~177

Available Information		178

Cautionary Statement Pursuant to the U.S. Private Securities Litigation Reform Act of 1995		~~182~~178


		Goldman Sachs ~~September 2012~~March 2013 Form 10-Q		~~113~~111

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management’s Discussion and Analysis

Introduction

The Goldman Sachs Group, Inc. (Group Inc.) is a leading global investment banking, securities and investment management firm that provides a wide range of financial services to a substantial and diversified client base that includes corporations, financial institutions, governments and high-net-worth individuals. Founded in 1869, the firm is headquartered in New York and maintains offices in all major financial centers around the world.

We report our activities in four business segments: Investment Banking, Institutional Client Services, Investing & Lending and Investment Management. See “Results of Operations” below for further information about our business segments.

This Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, ~~2011.~~2012. References to “our Annual Report on Form 10-K” are to our Annual Report on Form 10-K for the year ended December 31, ~~2011.~~2012.

When we use the terms “Goldman Sachs,” “the firm,” “we,” “us” and “our,” we mean Group Inc., a Delaware corporation, and its consolidated subsidiaries.

References to “this Form 10-Q” are to our Quarterly Report on Form 10-Q for the quarterly period ended ~~September 30, 2012.~~March 31, 2013. All references to ~~September~~March 2013 and March 2012 ~~and September 2011~~ refer to our periods ended, or the dates, as the context requires, ~~September 30,~~March 31, 2013 and March 31, 2012, ~~and September 30, 2011,~~ respectively. All references to ~~June~~December 2012 ~~and December 2011~~ refer to the ~~dates June 30, 2012 and~~date December 31, ~~2011, respectively.~~2012. Any reference to a future year refers to a year ending on December 31 of that year. Certain reclassifications have been made to previously reported amounts to conform to the current presentation.

Executive Overview

~~Three Months Ended September 2012 versus September 2011.~~The firm generated net earnings of ~~$1.51~~$2.26 billion ~~for the third quarter of 2012, compared with a net loss of $393 million for the third quarter of 2011. Our~~and diluted earnings per common share ~~were $2.85~~of $4.29 for the ~~third~~first quarter of ~~2012,~~2013, compared with ~~a diluted loss~~$2.11 billion and $3.92 per common share, ~~of $0.84~~respectively, for the ~~third~~first quarter of ~~2011.~~2012. Annualized return on average common shareholders’ equity (ROE)¹ was ~~8.6%~~12.4% for the ~~third~~first quarter of 2013, compared with 12.2% for the first quarter of 2012.

Book value per common share was ~~$140.58~~$148.41 and tangible book value per common share ² was ~~$129.69~~$138.62 as of ~~September 2012,~~March 2013, both approximately 3% higher compared with the end of ~~the second quarter of 2012. Our Tier 1 capital ratio under Basel 1 was 15.0% and our Tier 1 common ratio under Basel 1~~ ³ ~~was 13.1% as of September 2012, both unchanged from the end of the second quarter of~~ 2012. During the quarter, the firm repurchased ~~11.8~~10.1 million shares of its common stock for a total cost of ~~$1.25~~$1.52 billion. Our Tier 1 capital ratio was 14.4% and our Tier 1 common ratio ³ was 12.7% as of March 2013, in each case under Basel 1 and reflecting the revised market risk regulatory capital requirements which became effective on January 1, 2013. As of December 2012, our Tier 1 capital ratio under Basel 1 was 16.7% and our Tier 1 common ratio under Basel 1 was 14.5% (prior to the implementation of the revised market risk regulatory capital requirements).

The firm generated net revenues of ~~$8.35~~$10.09 billion for the ~~third~~first quarter of ~~2012,~~2013, compared with ~~$3.59~~$9.95 billion for the ~~third~~first quarter of ~~2011.~~2012. These results reflected ~~significantly improved results in Investing & Lending and, to a lesser extent,~~ significantly higher net revenues in Investment Banking, as well as higher net revenues in both Investing & Lending and ~~slightly higher~~Investment Management compared with the first quarter of 2012. These increases were largely offset by lower net revenues in Institutional Client Services compared with the ~~third~~first quarter of ~~2011. These increases were partially offset by slightly lower net revenues in Investment Management compared with the third quarter of 2011.~~2012.

An overview of net revenues for each of our business segments is provided below.

1.	See “Results of Operations — Financial Overview” below for further information about our calculation of annualized ROE.

2.	Tangible book value per common share is a non-GAAP measure and may not be comparable to similar non-GAAP measures used by other companies. See “Equity Capital — Other Capital Metrics” below for further information about our calculation of tangible book value per common share.

3.	Tier 1 common ratio is a non-GAAP measure and may not be comparable to similar non-GAAP measures used by other companies. See “Equity Capital — Consolidated Regulatory Capital Ratios” below for further information about our Tier 1 common ratio.


~~114~~112		Goldman Sachs ~~September 2012~~March 2013 Form 10-Q

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management’s Discussion and Analysis

Investment Banking

Net revenues in Investment Banking increased significantly compared with the ~~third~~first quarter of ~~2011, as~~2012 due to significantly higher net revenues in our Underwriting ~~business were more than double the amount in the third quarter of 2011, which had particularly low volumes.~~business. This increase primarily reflected significantly higher net revenues in debt underwriting, ~~principally~~ due to ~~higher net revenues from~~ leveraged finance and commercial mortgage-related activity. Net revenues in equity underwriting were also significantly higher compared with the ~~third~~first quarter of ~~2011, primarily~~2012, reflecting an increase in client activity. Net revenues in Financial Advisory were ~~slightly lower~~essentially unchanged compared with the ~~third~~first quarter of ~~2011.~~2012.

Institutional Client Services

Net revenues in Institutional Client Services ~~increased slightly~~decreased compared with the ~~third~~first quarter of ~~2011,~~2012, reflecting ~~significantly higher~~lower net revenues in both Equities and Fixed Income, Currency and Commodities Client ~~Execution, partially offset by lower net revenues in Equities.~~Execution.

The ~~increase~~decrease in Fixed Income, Currency and Commodities Client Execution compared with the ~~third~~first quarter of ~~2011 reflected significantly higher~~2012 was due to lower net revenues ~~in mortgages and higher net revenues in credit products, currencies and interest rate products, partially offset by~~across most businesses, primarily reflecting significantly lower net revenues in ~~commodities.~~interest rate products compared with a strong first quarter of 2012. Net revenues in mortgages were higher compared with the first quarter of 2012. During the ~~third~~ quarter, ~~of 2012,~~ Fixed Income, Currency and Commodities Client Execution operated in an environment ~~generally~~ characterized by generally tighter credit spreads ~~as certain central banks took steps to ease monetary policy; however, broad market concerns persisted~~ and improved client activity levels compared with the fourth quarter of ~~activity generally remained low.~~2012.

The decrease in Equities compared with the ~~third~~first quarter of ~~2011 was~~2012 primarily ~~due to significantly lower commissions and fees, reflecting lower market volumes, and~~reflected lower net revenues in equities client execution. ~~In addition,~~This decrease reflected significantly lower net revenues in ~~securities services~~derivatives compared with a strong first quarter of 2012, partially offset by higher net revenues in cash products. Commissions and fees were ~~slightly~~ lower compared with the ~~third~~first quarter of ~~2011, primarily~~2012, reflecting lower market volumes. In addition, securities services net revenues were lower compared with the ~~impact~~first quarter of ~~lower average customer balances.~~2012. During the quarter, Equities operated in an environment generally characterized by an increase in global equity prices, ~~and~~ lower volatility ~~levels.~~levels and improved client activity levels compared with the fourth quarter of 2012.

The net loss attributable to the impact of changes in our own credit spreads on borrowings for which the fair value option was elected was ~~$370~~$77 million ($~~225~~42 million and ~~$145~~$35 million related to Fixed Income, Currency and Commodities Client Execution and equities client execution, respectively) for the ~~third~~first quarter of ~~2012,~~2013, compared with a net ~~gain~~loss of ~~$450~~$224 million ($~~308~~117 million and ~~$142~~$107 million related to Fixed Income, Currency and Commodities Client Execution and equities client execution, respectively) for the ~~third~~first quarter of ~~2011.~~2012.

Investing & Lending

Net revenues in Investing & Lending were ~~$1.80~~$2.07 billion for the ~~third~~first quarter of ~~2012,~~2013, compared with ~~negative net revenues of $2.48~~$1.91 billion for the ~~third~~first quarter of ~~2011.~~2012. During the ~~third~~first quarter of ~~2012,~~2013, Investing & Lending net revenues were positively impacted by ~~tighter credit spreads and~~ an increase in ~~global~~ equity ~~prices.~~prices and generally tighter credit spreads. Results for the ~~third~~first quarter of ~~2012~~2013 included a gain of ~~$99~~$24 million from our investment in the ordinary shares of Industrial and Commercial Bank of China Limited (ICBC), net gains of ~~$824 million~~$1.10 billion from other investments in equities, primarily in private equities, net gains and net interest income of ~~$558~~$566 million from debt securities and loans, and other net revenues of ~~$323~~$375 million ~~principally~~ related to our consolidated ~~investment entities.~~investments.


		~~Goldman Sachs September 2012 Form 10-Q~~		~~115~~

~~THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES~~

~~Management’s Discussion and Analysis~~

Investment Management

Net revenues in Investment Management ~~decreased slightly~~increased compared with the ~~third~~first quarter of ~~2011, reflecting lower transaction revenues~~2012, due to higher incentive fees and ~~slightly lower~~higher management and other ~~fees, partially offset by higher incentive~~ fees. During the quarter, assets under ~~management~~supervision ¹ increased ~~$20~~$3 billion to ~~$856~~$968 billion, reflecting net market ~~appreciation.~~

~~Nine Months Ended September 2012 versus September 2011.~~~~The firm generated net earnings~~appreciation of ~~$4.58~~$12 billion, for the first nine months of 2012, compared with $3.43 billion for the first nine months of 2011. Our diluted earnings per common share were $8.57 for the first nine months of 2012, compared with $2.70 ¹ ~~for the first nine months of 2011. Annualized ROE~~² ~~was 8.8% for the first nine months of 2012, compared with 3.7%~~¹ ~~for the first nine months of 2011.~~

The firm generated net revenues of $24.93 billion for the first nine months of 2012, compared with $22.76 billion for the first nine months of 2011. These results reflected significantly higher net revenues in Investing & Lending compared with the first nine months of 2011. This increase was partially offset by slightly lower net revenues in both Institutional Client Services and Investment Management compared with the first nine months of 2011. Net revenues in Investment Banking were essentially unchanged compared with the first nine months of 2011. An overview of net revenues for each of our business segments is provided below.

~~Investment Banking~~

Net revenues in Investment Banking were essentially unchanged compared with the first nine months of 2011. Net revenues in our Underwriting business were slightly higher than the first nine months of 2011. Net revenues in debt underwriting were significantly higher compared with the first nine months of 2011, reflecting higher net revenues across all types of underwriting offerings. Net revenuesprimarily in equity ~~underwriting were significantly lower compared with the first nine months of 2011, primarily reflecting a decline in industry-wide initial public offerings.~~assets. Net ~~revenues in Financial Advisory were slightly lower compared with the first nine months of 2011.~~

~~Institutional Client Services~~

Net revenues in Institutional Client Services decreased slightly compared with the first nine months of 2011, reflecting lower net revenues in Equities, partially offset by slightly higher net revenues in Fixed Income, Currency and Commodities Client Execution.

The increase in Fixed Income, Currency and Commodities Client Execution compared with the first nine months of 2011 reflected significantly higher net revenues in mortgages and higher net revenues in interest rate products, partially offset by significantly lower net revenues in commodities and lower net revenues in currencies. Net revenues in credit products were essentially unchanged compared with the first nine months of 2011. Although credit spreads generally tightened during the first nine months of 2012, broad market concerns and uncertainties contributed to generally low levels of activity, particularly during the second and third quarters of 2012.

The decrease in Equities compared with the first nine months of 2011 was primarily due to lower commissions and fees, reflecting lower market volumes, and slightly lower net revenues in equities client execution. In addition, net revenues in securities services were slightly lower compared with the first nine months of 2011, primarily reflecting the impact of lower average customer balances. During the first nine months of 2012, Equities operated in an environment generally characterized by an increase in global equity prices and lower volatility levels, as compared with the first nine months of 2011.

The net loss attributable to the impact of changes in our own credit spreads on borrowings for which the fair value option was elected was $588 million ($354 million and $234 million related to Fixed Income, Currency and Commodities Client Execution and equities client execution, respectively) for the first nine months of 2012, compared with a net gain of $576 million ($399 million and $177 million related to Fixed Income, Currency and Commodities Client Execution and equities client execution, respectively) for the first nine months of 2011.

Excluding the impact of the preferred dividend of $1.64 billion in the first quarter of 2011 related to the redemption of our Series G Preferred Stock (calculated as the difference between the carrying value and the redemption value of the preferred stock), diluted earnings per common share were $5.60 and annualized ROE was 6.0% for the first nine months of 2011. We believe that presenting our results for the first nine months of 2011 excluding this dividend is meaningful, as it increases the comparability of period-to-period results. Diluted earnings per common share and annualized ROE excluding this dividend are non-GAAP measures and may not be comparable to similar non-GAAP measures used by other companies. See “Results of Operations — Financial Overview” below for further information about our calculation of diluted earnings per common share and annualized ROE excluding the impact of this dividend.

2.	~~See “Results of Operations — Financial Overview” below for further information about our calculation of annualized ROE.~~


~~116~~		~~Goldman Sachs September 2012 Form 10-Q~~

~~THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES~~

~~Management’s Discussion and Analysis~~

~~Investing & Lending~~

Net revenues in Investing & Lending were $3.92 billion for the first nine months of 2012, compared with $1.27 billion for the first nine months of 2011. During the first nine months of 2012, Investing & Lending net revenues were positively impacted by generally tighter credit spreads and an increase in global equity prices. Results for the first nine months of 2012 included a gain of $74 million from our investment in the ordinary shares of ICBC and net gains of $1.60 billion from other investments in equities, primarily in private equities. In addition, Investing & Lending included net gains and net interest income of $1.37 billion from debt securities and loans, and other net revenues of $876 million, principally related to our consolidated investment entities.

~~Investment Management~~

Net revenues in Investment Management decreased slightly compared with the first nine months of 2011 due to slightly lower management and other fees, and lower transaction revenues, partially offset by significantly higher incentive fees, primarily related to the sale of our funds’ remaining investment in the ordinary shares of ICBC during the second quarter of 2012. During the first nine months of 2012, assets under management increased $28 billion to $856 billion. The increaseoutflows in assets under ~~management included net market appreciation of $39~~supervision were $9 billion, ~~primarily in fixed income and equity assets, partially offset by net outflows of $11 billion. Net outflows included~~as outflows in money market ~~equity~~assets and, to a lesser extent, alternative investment assets, were partially offset by inflows in fixed income ~~assets (including $17 billion of fixed income asset inflows in connection with our acquisition of Dwight Asset Management Company LLC (Dwight Asset Management)).~~and equity assets.

Our ~~business,~~businesses, by ~~its~~their nature, ~~does~~do not produce predictable earnings. Our results in any given period can be materially affected by conditions in global financial markets, economic conditions generally and other factors. For a further discussion of the factors that may affect our future operating results, see “Certain Risk Factors That May Affect Our Businesses” below, as well as “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K.

Assets under supervision include assets under management and other client assets. Assets under management include client assets where we earn a fee for managing assets on a discretionary basis. Other client assets include 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.


		Goldman Sachs ~~September 2012~~March 2013 Form 10-Q		~~117~~113

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management’s Discussion and Analysis

Business Environment

Global

Global economic conditions ~~continued to weaken~~improved during the ~~third~~first quarter of ~~2012,~~2013, as real gross domestic product (GDP) appeared to ~~decline~~increase in ~~Europe and Japan, while~~most major economies. However, real GDP ~~growth~~ in the ~~United States and China was modest. After~~Euro area appeared to decline due to continued concerns ~~regarding~~about European sovereign debt risk ~~heightened~~and ongoing fiscal retrenchment. Political developments in the ~~second quarter of 2012 and~~Euro area temporarily increased market volatility, although the continued ~~into the beginning~~supportive stance of the ~~third quarter, some positive~~European Central Bank (ECB) to address funding risks for European financial institutions and sovereigns helped to improve global market conditions. Positive U.S. economic data also contributed to the improvement in market sentiment. These developments ~~including certain central bank actions~~contributed to ~~ease monetary policy, alleviated market pressure. These actions resulted in~~generally tighter credit spreads, higher global equity prices and lower ~~volatility~~ levels ~~compared with the second quarter~~ of ~~2012.~~volatility. In addition, the price of crude oil ~~increased. However, concerns~~increased during the quarter. The U.S. dollar appreciated significantly against the Japanese yen, and ~~uncertainties about~~appreciated against both the ~~outlook of~~British pound and the ~~global economy, particularly as it relates to Europe, persisted. These concerns continued to weigh on~~Euro. In investment banking, activity ~~particularly in mergers and acquisitions, and~~levels were mixed during the quarter, as industry-wide debt underwriting activity continued at a robust pace, industry-wide equity underwriting activity improved, although initial public offerings activity ~~levels, although~~remained low, and industry-wide ~~debt underwriting~~announced and completed mergers and acquisitions activity ~~improved~~declined compared with the ~~second~~fourth quarter of 2012.

United States

In the United States, real GDP growth accelerated ~~modestly~~ during the quarter, reflecting an increase in the growth of consumer spending and ~~an upturn~~a positive turn in the inventory cycle. The expiration of the payroll tax cuts and the increase in some income tax rates did not appear to have had a large impact on personal consumption during the quarter, but cuts in government spending ~~although growth in fixed investment slowed and net exports declined.~~continued to have a negative effect on growth. Measures of consumer and business confidence were mixed over the quarter. Housing market activity continued to improve as sales increased and ~~consumer confidence improved.~~housing starts were at their highest levels since mid-2008. Unemployment levels declined, although the rate of unemployment remained elevated. Measures of inflation ~~on average were lower compared with~~remained subdued during the ~~second quarter of 2012. Housing market activity continued to improve, particularly in housing starts.~~quarter. The U.S. Federal Reserve maintained its federal funds rate at a target range of zero to 0.25% and ~~announced further easing measures that included an open-ended~~continued its program to purchase U.S. Treasury securities and mortgage-backed ~~securities, as well as an extension of its commitment to keep interest rates exceptionally low until at least mid-2015. After reaching yields close to 1.40% earlier in the quarter, the~~securities. The 10-year U.S. Treasury note yield ended the quarter at ~~1.65%~~1.87%, ~~essentially unchanged compared with~~9 basis points higher than at the end ~~of the second quarter~~ of 2012. In equity markets, the ~~NASDAQ Composite Index and~~Dow Jones Industrial Average, the S&P 500 Index, ~~each~~and the NASDAQ Composite Index increased by 6%11%, ~~while~~10% and 8%, respectively, compared with the ~~Dow Jones Industrial Average increased by 4%.~~end of 2012.

Europe

In the Euro area, real GDP appeared to decline ~~during the quarter~~ for the ~~fourth~~sixth consecutive quarter, ~~reflecting~~although at a lower rate than in the ~~impact that~~fourth quarter of 2012. This reflected a smaller decrease in consumer spending, which was partially offset by a downturn in government spending. Political uncertainty around the ~~ongoing sovereign~~Italian elections and the debt crisis ~~has had on the region’s economic growth, particularly~~ in ~~Spain and Italy. Although measures of business confidence improved~~Cyprus increased uncertainty in ~~some countries from low levels, they deteriorated in the aggregate.~~financial markets. Measures of inflation ~~on average~~ were ~~essentially unchanged~~

slightly lower compared with the ~~second~~fourth quarter of ~~2012.~~2012, and unemployment levels remained elevated. The ~~European Central Bank (ECB) decreased~~ECB maintained its main refinancing operations rate ~~by 25 basis points to~~at 0.75%~~. In addition,~~ and received payments on parts of the ECB announced a new program to make outright purchases of sovereign bonds in the secondary markets, with the goal of having a single monetary policy in the Euro area, maintaining price stability and preserving the Euro.loans made through its longer-term refinancing operations program. The Euro ~~appreciated~~depreciated by 2%3% against the U.S. dollar. In the United Kingdom, real GDP ~~strongly rebounded~~increased during the quarter, after ~~declining for three consecutive quarters, reflecting increases in industrial production, consumption and exports, positively impacted in part by~~having contracted during the ~~Olympic Games.~~fourth quarter of 2012. The Bank of England maintained its official bank rate at 0.50% and ~~increased~~ the ~~size of its asset purchase program. The~~ British pound ~~appreciated~~depreciated by 3%6% against the U.S. dollar. ~~Long-term~~The movements in long-term government bond yields were mixed, as yields increased in Greece and Italy, declined in ~~most Euro area economies, while yields decreased slightly~~Spain, and only marginally changed in France, Germany and the ~~U.K.~~United Kingdom. In equity markets, ~~the DAX Index, the Euro Stoxx 50 Index, the CAC 40 Index, and~~ the FTSE 100 Index increased by ~~12%~~9%, ~~8%, 5%~~the DAX Index and the CAC 40 Index both increased by 2%, and ~~3%, respectively, during~~ the ~~quarter.~~Euro Stoxx 50 Index was essentially unchanged compared with the end of 2012.

Asia

In Japan, real GDP growth appeared to ~~decline~~accelerate during the quarter, ~~primarily~~ reflecting ~~declines~~an upturn in ~~consumer spending and fixed investment, as well as~~private investment. In the midst of a ~~sharp contraction in exports. The~~leadership transition, the Bank of Japan ~~left its~~introduced a 2% price stability target ~~overnight call rate unchanged at a range of zero to 0.10%,~~ and ~~continued to ease monetary policy by further increasing the size of~~made its asset purchase program ~~and by facilitating outright purchases~~open-ended. As a result of ~~government and corporate bonds. The~~expectations for an aggressive monetary easing program, the yield on 10-year Japanese government bonds ~~decreased, while~~declined to near record lows, the Japanese yen ~~appreciated by 2%~~depreciated against the U.S. ~~dollar. The~~dollar by 9% and the Nikkei 225 Index ~~ended~~increased by 19% compared with the ~~quarter 2% lower.~~end of 2012. In China, real GDP growth ~~increased modestly~~moderated during the quarter, reflecting ~~growth~~a slowdown in ~~industrial production and~~ retail ~~spending, but remained lower~~sales. Measures of inflation increased slightly compared with the ~~solid pace~~fourth quarter of ~~growth in previous years. Measures of inflation continued to decline during the quarter, reaching its lowest level since 2010.~~2012. The People’s Bank of China left ~~the~~its reserve requirement ratio unchanged during the quarter. The Chinese yuan appreciated slightly against the U.S. ~~dollar,~~dollar. In equity markets, the Hang Seng Index decreased 2%, while the Shanghai Composite Index ~~decreased by 6%. In contrast, equity markets in Hong Kong~~ and ~~South Korea increased during~~ the ~~quarter.~~KOSPI Composite Index were both essentially unchanged compared with the end of 2012. In India, ~~real GDP~~economic growth appeared to increase during the quarter, ~~appeared to remain weak, reflecting continued weakness in investment demand, negatively impacted in part by less than normal monsoon rainfall. In addition, measures~~although growth rates are still at the lower end of the historical range. The rate of wholesale inflation declined during the quarter, but remained ~~at an elevated level.~~elevated. The Indian rupee appreciated slightly against the U.S. dollar, and ~~equity markets in India ended~~ the ~~quarter higher.~~BSE Sensex Index decreased by 3% compared with the end of 2012.


~~118~~114		Goldman Sachs ~~September 2012~~March 2013 Form 10-Q

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management’s Discussion and Analysis

Critical Accounting Policies

Fair Value

Fair Value Hierarchy. Financial instruments owned, at fair value and Financial instruments sold, but not yet purchased, at fair value (i.e., inventory), as well as certain other financial assets and financial liabilities, are reflected in our condensed consolidated statements of financial condition at fair value (i.e., marked-to-market), with related gains or losses generally recognized in our condensed 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.

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. 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). 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 financial liabilities are based on observable prices and inputs and are classified in levels 1 and 2 of the fair value hierarchy. Certain level 2 and level 3 financial assets and financial liabilities may require appropriate valuation adjustments that a market participant would require to arrive at fair value for factors such as counterparty and the firm’s credit quality, funding risk, transfer restrictions, liquidity and bid/offer spreads. Valuation adjustments are generally based on market evidence.

Instruments categorized within level 3 of the fair value hierarchy are those which ~~represent approximately 5% of the firm’s total assets,~~ require one or more significant inputs that are not observable. As of March 2013 and December 2012, level 3 assets represented 4.8% and 5.0%, respectively, of the firm’s total assets. Absent evidence to the contrary, instruments classified within level 3 of the fair value hierarchy are initially valued at transaction price, which is considered to be the best initial estimate of fair value. Subsequent to the transaction date, we use other methodologies to determine fair value, which vary based on the type of instrument. Estimating the fair value of level 3 financial instruments requires judgments to be made. These judgments include:

determining the appropriate valuation methodology and/or model for each type of level 3 financial instrument;

determining model inputs based on an evaluation of all relevant empirical market data, including prices evidenced by market transactions, interest rates, credit spreads, volatilities and correlations; and

determining appropriate valuation adjustments related to illiquidity or counterparty credit quality.

Regardless of the methodology, valuation inputs and assumptions are only changed when corroborated by substantive evidence.


		Goldman Sachs March 2013 Form 10-Q		115

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management’s Discussion and Analysis

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 control and support functions that are independent of the revenue-producing units (independent control and support functions). This independent price verification is critical to ensuring that our financial instruments are properly valued.


		~~Goldman Sachs September 2012 Form 10-Q~~		~~119~~

~~THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES~~

~~Management’s Discussion and Analysis~~

Price Verification.All financial instruments at fair value 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 within level 3 of the fair value hierarchy. Price verification strategies utilized by our independent control and support functions include:

Trade Comparison.Analysis of trade data (both internal and external where available) is used to determine the most relevant pricing inputs and valuations.

External Price Comparison.Valuations and prices are compared to pricing data obtained from third parties (e.g., broker or dealers, MarkIt, Bloomberg, IDC, TRACE). Data obtained from various sources is compared to ensure consistency and validity. When broker or dealer quotations or third-party pricing vendors are used for valuation or price verification, greater priority is generally given to executable quotations.

Calibration to Market Comparables.Market-based transactions are used to corroborate the valuation of positions with similar characteristics, risks and components.

Relative Value ~~Analyses~~Analyses..Market-based transactions are analyzed to determine the similarity, measured in terms of risk, liquidity and return, of one instrument relative to another or, for a given instrument, of one maturity relative to another.

Collateral Analyses.Margin disputes on derivatives are examined and investigated to determine the impact, if any, on our valuations.

Execution of Trades.Where appropriate, trading desks are instructed to execute trades in order to provide evidence of market-clearing levels.

Backtesting.Valuations are corroborated by comparison to values realized upon sales.

See Notes 5 through 8 to the condensed consolidated financial statements in Part I, Item 1 of this Form 10-Q for further information about fair value measurements.

Review of Net Revenues.Independent control and support 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.~~Quantitative~~The firm’s independent model validation group, consisting of quantitative professionals ~~within our Market Risk Management department (Market Risk Management) perform~~who are separate from model developers, performs an independent model approval process. This process incorporates a review of a diverse set of model and trade parameters across a broad range of values (including extreme and/or improbable conditions) in order to critically evaluate:

the model’s suitability for valuation and risk management of a particular instrument type;

the model’s accuracy in reflecting the characteristics of the related product and its significant risks;

the suitability ~~and properties~~ of the ~~numerical algorithms~~calculation techniques incorporated in the model;

the model’s consistency with models for similar products; and

the model’s sensitivity to input parameters and assumptions.

New or changed models are reviewed and ~~approved.~~approved prior to being put into use. Models are evaluated and re-approved annually to assess the impact of any changes in the product or market and any market developments in pricing theories.


~~120~~116		Goldman Sachs ~~September 2012~~March 2013 Form 10-Q

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management’s Discussion and Analysis

Level 3 Financial Assets at Fair Value. The table below presents financial assets measured at fair value and the amount of such assets that are classified within level 3 of the fair value hierarchy.

Total level 3 financial assets were ~~$47.81 billion, $46.51~~$46.02 billion and ~~$47.94~~$47.10 billion as of ~~September 2012, June 2012~~March 2013 and December ~~2011,~~2012, respectively.

See Notes 5 through 8 to the condensed consolidated financial statements in Part I, Item 1 of this Form 10-Q for further information about changes in level 3 financial assets and fair value measurements.


	As of September 2012			As of June 2012			As of December 2011			As of March 2013			As of December 2012
in millions		Total at Fair Value	Level 3 Total		Total at Fair Value	Level 3 Total		Total at Fair Value	Level 3 Total		Total at Fair Value	Level 3 Total		Total at Fair Value	Level 3 Total
Commercial paper, certificates of deposit, time deposits and other money market instruments		$ 10,708	$ —		$ 10,011	$ 7		$ 13,440	$ —		$ 5,705	$ —		$ 6,057	$ —

U.S. government and federal agency obligations		95,529	—		94,949	—		87,040	—		96,930	—		93,241	—

Non-U.S. government and agency obligations		62,952	13		63,890	8		49,205	148		57,657	47		62,250	26

Mortgage and other asset-backed loans and securities:
Loans and securities backed by commercial real estate		7,536	3,318		7,199	3,166		6,699	3,346		6,909	3,164		9,805	3,389

Loans and securities backed by residential real estate		9,602	1,288		8,467	1,632		7,592	1,709		7,570	1,683		8,216	1,619

Bank loans and bridge loans		21,011	10,833		20,770	10,461		19,745	11,285		22,467	11,688		22,407	11,235

Corporate debt securities		25,345	2,721		21,534	2,367		22,131	2,480		20,442	2,442		20,981	2,821

State and municipal obligations		3,296	583		3,493	547		3,089	599		2,219	334		2,477	619

Other debt obligations		4,489	2,008		4,639	1,757		4,362	1,451		2,481	855		2,251	1,185

Equities and convertible debentures		91,225	15,126		74,606	14,420		65,113	13,667		89,278	15,224		96,454	14,855

Commodities		10,771	—		6,330	—		5,762	—		7,695	—		11,696	—
Total cash instruments		342,464	35,890		315,888	34,365		284,178	34,685		319,353	35,437		335,835	35,749

Derivatives		72,829	11,110		71,308	10,501		80,028	11,900		68,040	9,284		71,176	9,920
Financial instruments owned, at fair value		415,293	47,000		387,196	44,866		364,206	46,585		387,393	44,721		407,011	45,669

Securities segregated for regulatory and other purposes		34,087	—		37,279	—		42,014	—		22,676	—		30,484	—

Securities purchased under agreements to resell		147,361	185		167,344	1,023		187,789	557		158,283	104		141,331	278

Securities borrowed		47,986	—		51,897	—		47,621	—		54,879	—		38,395	—

Receivables from customers and counterparties		6,920	625		7,444	616		9,682	795		7,154	633		7,866	641

Other assets ¹											13,448	565		13,426	507
Total		$651,647	$47,810		$651,160	$46,505		$651,312	$47,937		$643,833	$46,023		$638,513	$47,095

Consists of assets classified as held for sale related to our reinsurance business, primarily consisting of securities accounted for as available-for-sale and insurance separate account assets. See Note 12 to the condensed consolidated financial statements in Part I, Item 1 of this Form 10-Q for further information about assets held for sale.


		Goldman Sachs ~~September 2012~~March 2013 Form 10-Q		~~121~~117

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management’s Discussion and Analysis

Goodwill and Identifiable Intangible Assets

Goodwill.Goodwill is the cost of acquired companies in excess of the fair value of net assets, including identifiable intangible assets, at the acquisition date. Goodwill is assessed annually for impairment, or more frequently if events occur or circumstances change that indicate an impairment may exist, by first assessing qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If the results of the qualitative assessment are not conclusive, a quantitative goodwill impairment test is performed by comparing the estimated fair value of each reporting unit with its estimated net book value.

Estimating the fair value of our reporting units requires management to make judgments. Critical inputs to the fair value estimates include (i) projected earnings, (ii) estimated long-term growth rates and (iii) cost of equity. The net book value of each reporting unit reflects an allocation of total shareholders’ equity and represents the estimated amount of shareholders’ equity required to support the activities of the reporting unit under guidelines issued by the Basel Committee on Banking Supervision (Basel Committee) in December 2010.

~~During the second half of 2011, consistent with the decline in stock prices in the broader financial services sector, our stock price declined and throughout most of this period, our~~Our market capitalization was below book ~~value.~~value during 2012. Accordingly, we performed a quantitative impairment test during the fourth quarter of ~~2011~~2012 and determined that goodwill was not impaired. The estimated fair value of our reporting units in which we hold substantially all of our goodwill significantly exceeded the estimated carrying values. We believe that it is appropriate to consider market capitalization, among other factors, as an indicator of fair value over a reasonable period of time.

If ~~the current economic market conditions persist, and there is~~we return to a prolonged period of weakness in the business environment ~~and~~or financial markets, our ~~earnings may~~goodwill could be ~~adversely affected, which could result in an impairment of goodwill~~impaired in the future. In addition, significant changes to ~~other~~ critical inputs of the goodwill impairment test (e.g., cost of equity) could cause the estimated fair value of our reporting units to decline, which could result in an impairment of goodwill in the future.

See Note 13 to the condensed consolidated financial statements in Part I, Item 1 of this Form 10-Q for ~~the carrying value of~~further information about our goodwill.

Identifiable Intangible Assets. We amortize our identifiable intangible assets (i) over their estimated lives, (ii) based on economic usage or (iii) in proportion to estimated gross profits or premium revenues. Identifiable intangible assets are tested for impairment whenever events or changes in circumstances suggest that an asset’s or asset group’s carrying value may not be fully recoverable.

An impairment loss, generally calculated as the difference between the estimated fair value and the carrying value of an asset or asset group, is recognized if the sum of the estimated undiscounted cash flows relating to the asset or asset group is less than the corresponding carrying value. See Note 13 to the condensed consolidated financial statements in Part I, Item 1 of this Form 10-Q for the carrying value and estimated remaining lives of our identifiable intangible assets by major asset class and impairments of our identifiable intangible assets.

A prolonged period of market weakness could adversely impact our businesses and impair the value of our identifiable intangible assets. In addition, certain events could indicate a potential impairment of our identifiable intangible assets, including (i) decreases in revenues from commodity-related customer contracts and relationships, (ii) ~~decreases in cash receipts from television broadcast royalties, (iii)~~ an adverse action or assessment by a regulator or ~~(iv)~~(iii) adverse actual experience on the contracts in our variable annuity and life insurance business. Management judgment is required to evaluate whether indications of potential impairment have occurred, and to test intangibles for impairment if required.


~~122~~118		Goldman Sachs ~~September 2012~~March 2013 Form 10-Q

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management’s Discussion and Analysis

Use of Estimates

The use of generally accepted accounting principles requires management to make certain estimates and assumptions. In addition to the estimates we make in connection with fair value measurements, the accounting for goodwill and identifiable intangible assets, and discretionary compensation accruals, the use of estimates and assumptions is also important in determining provisions for losses that may arise from litigation, regulatory proceedings and tax audits.

A substantial portion of our compensation and benefits represents discretionary compensation, which is finalized at year-end. We believe the most appropriate way to allocate estimated annual discretionary compensation among interim periods is in proportion to the net revenues earned in such periods. In addition to the level of net revenues, our overall compensation expense in any given year is also influenced by, among other factors, overall financial performance, prevailing labor markets, business mix, the structure of our share-based compensation programs and the external environment. See “Results of Operations — Financial Overview — Operating Expenses” below for information regarding our ratio of compensation and benefits to net revenues.

We 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 accounting for income taxes, we estimate and provide for potential liabilities that may arise out of tax audits to the extent that uncertain tax positions fail to meet the recognition standard under FASB Accounting Standards Codification 740. See Note 24 to the condensed consolidated financial statements in Part I, Item 1 of this Form 10-Q for further information about accounting for income taxes.

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 a case-by-case basis and represents an estimate of probable losses after considering, among other factors, the progress of each case or proceeding, our experience and the experience of others in similar cases or proceedings, and the opinions and views of legal counsel. See Notes 18 and 27 to the condensed consolidated financial statements in Part I, Item 1 of this Form 10-Q for information on certain judicial, regulatory and legal proceedings.


		Goldman Sachs ~~September 2012~~March 2013 Form 10-Q		~~123~~119

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 “Certain Risk Factors That May Affect Our Businesses” below and “Risk Factors”

in ~~Part~~ Part��I, Item 1A of our Annual Report on

Form 10-K for a further discussion of the impact of economic and market conditions on our results of operations.

Financial Overview

The table below presents an overview of our financial results.

Three Months
Ended September
Nine Months
Ended September

$ in millions, except per share amounts 2012    2011    2012    2011
Net revenues
$8,351    $3,587    $24,927    $22,762
Pre-tax earnings/(loss)
2,298    (730 ) 6,894    4,922
Net earnings/(loss)
1,512    (393 ) 4,583    3,429
Net earnings/(loss) applicable to common shareholders
1,458    (428 ) 4,459    1,532
Diluted earnings/(loss) per common share
2.85    (0.84 ) 8.57    2.70 ²
Annualized return on average common shareholders’ equity¹
8.6 % N.M.    8.8 % 3.7 %²


	Three Months Ended March
$ in millions, except per share amounts		2013		2012
Net revenues		$10,090		$9,949

Pre-tax earnings		3,373		3,181

Net earnings		2,260		2,109

Net earnings applicable to common shareholders		2,188		2,074

Diluted earnings per common share		4.29		3.92

Annualized return on average common shareholders’ equity ¹		12.4	%	12.2	%

Annualized ROE is computed by dividing annualized net earnings applicable to common shareholders by average monthly common shareholders’ equity. The impact of the $1.64 billion Series G Preferred Stock dividend in the first quarter of 2011 was not annualized in the calculation of annualized net earnings applicable to common shareholders for the nine months ended September 2011 as this amount had no impact on other quarters in the year. The table below presents our average common shareholders’ equity.

Average for the
Three Months
Ended September
Nine Months
Ended September

in millions 2012       2011    2012       2011
Total shareholders’ equity
$73,043       $71,265    $71,750       $73,433
Preferred stock
(4,975 )    (3,100 ) (3,850 )    (4,257 )
Common shareholders’ equity
$68,068       $68,165    $67,900       $69,176

Excluding the impact of the preferred dividend of $1.64 billion in the first quarter of 2011 related to the redemption of our Series G Preferred Stock (calculated as the difference between the carrying value and the redemption value of the preferred stock), diluted earnings per common share were $5.60 and annualized ROE was 6.0% for the first nine months of 2011. We believe that presenting our results for the first nine months of 2011 excluding this dividend is meaningful, as it increases the comparability of period-to-period results. Diluted earnings per common share and annualized ROE excluding this dividend are non-GAAP measures and may not be comparable to similar non-GAAP measures used by other companies. The tables below present the calculation of net earnings applicable to common shareholders, diluted earnings per common share and average common shareholders’ equity excluding the impact of this dividend.


~~in millions, except per share amount~~			~~Nine Months Ended~~ ~~September 2011~~
~~Net earnings applicable to common shareholders~~			~~$ 1,532~~
~~Impact of the Series G Preferred Stock dividend~~			~~1,643~~
~~Net earnings applicable to common shareholders, excluding the impact of the Series G Preferred Stock dividend~~			~~3,175~~
~~Divided by: average diluted common shares outstanding~~			~~566.6~~
~~Diluted earnings per common share, excluding the impact of the Series G Preferred Stock dividend~~			~~$ 5.60~~


~~in millions~~	~~Average for the~~ ~~Nine Months Ended~~ ~~September 2011~~
~~Total shareholders’ equity~~	~~$73,433~~
~~Preferred stock~~	~~(4,257~~	)
~~Common shareholders’ equity~~	~~69,176~~
~~Impact of the Series G Preferred Stock dividend~~	~~1,150~~
~~Common shareholders’ equity, excluding the impact of the Series G Preferred Stock dividend~~	~~$70,326~~


	Average for the Three Months Ended March
in millions		2013		2012
Total shareholders’ equity		$76,702		$70,824

Preferred stock		(6,200	)	(3,100	)
Common shareholders’ equity		$70,502		$67,724


~~124~~120		Goldman Sachs ~~September 2012~~March 2013 Form 10-Q

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management’s Discussion and Analysis

Net Revenues

Three Months Ended ~~September 2012~~March 2013 versus ~~September 2011.~~Net revenues on the condensed consolidated statements of earnings were $8.35 billion for the third quarter of 2012, compared with $3.59 billion for the third quarter of 2011, reflecting significantly improved other principal transactions revenues and, to a lesser extent, significantly higher market-making revenues and investment banking revenues compared with the third quarter of 2011. These increases were partially offset by significantly lower net interest income and commissions and fees compared with the third quarter of 2011. Investment management revenues were essentially unchanged compared with the third quarter of 2011.

~~Nine Months Ended September 2012 versus September 2011.~~March 2012. Net revenues on the condensed consolidated statements of earnings were ~~$24.93~~$10.09 billion for the first ~~nine months~~quarter of ~~2012, 10% higher than~~2013, essentially unchanged compared with the first ~~nine months~~quarter of ~~2011, reflecting~~2012. Net revenues in the first quarter of 2013 included significantly higher investment banking revenues, as well as higher investment management revenues and higher other principal transactions revenues compared with the first quarter of 2012. These increases were largely offset by lower market-making revenues and, to a lesser extent, ~~higher market-making revenues. These increases were partially offset by significantly~~ lower net interest income ~~as well as~~and lower commissions and fees compared with the first ~~nine months~~quarter of ~~2011. Investment banking revenues and investment management revenues were essentially unchanged compared with the first nine months of 2011.~~2012.

Non-interest Revenues

Investment banking

During the ~~third~~first quarter of ~~2012,~~2013, investment banking revenues reflected an operating environment generally characterized by mixed activity levels as a result of continued ~~concerns about the outlook for the global economy, particularly~~macroeconomic concerns. Industry-wide debt underwriting activity continued at a robust pace, as ~~it relates to Europe. These concerns weighed on investment banking~~interest rates remained low and credit spreads generally tightened. In addition, industry-wide equity underwriting activity ~~particularly in mergers and acquisitions, and~~improved, although initial public offerings activity ~~levels. However, industry-wide debt underwriting~~remained low. Industry-wide announced and completed mergers and acquisitions activity ~~improved~~declined compared with the ~~second~~fourth quarter of ~~2012, as credit spreads tightened and interest rates remained low.~~2012. If macroeconomic concerns continue and result in lower levels of client activity, investment banking revenues would likely be negatively impacted.

Three Months Ended ~~September 2012~~March 2013 versus ~~September 2011.~~March 2012.Investment banking revenues on the condensed consolidated statements of earnings were ~~$1.17~~$1.57 billion for the ~~third~~first quarter of 2013, 35% higher than the first quarter of 2012, ~~50%~~due to significantly higher ~~than the third quarter of 2011, as~~ revenues in our underwriting ~~business were more than double the amount in the third quarter of 2011, which had particularly low volumes.~~business. This increase primarily reflected significantly higher revenues in debt underwriting, ~~principally~~ due to ~~higher revenues from~~ leveraged finance and commercial mortgage-related activity. Revenues in equity underwriting were also significantly higher compared with the ~~third~~first quarter of ~~2011, primarily~~2012, reflecting an increase in client activity. Revenues in financial advisory were ~~slightly lower compared with the third quarter of 2011.~~

~~Nine Months Ended September 2012 versus September 2011.~~~~Investment banking revenues on the condensed consolidated statements of earnings were $3.53 billion for the first nine months of 2012,~~ essentially unchanged compared with the first ~~nine months~~quarter of 2011. Revenues in our underwriting business were slightly higher than the first nine months of 2011. Revenues in debt underwriting were significantly higher compared with the first nine months of 2011, reflecting higher revenues across all types of underwriting offerings. Revenues in equity underwriting were significantly lower compared with the first nine months of 2011, primarily reflecting a decline in industry-wide initial public offerings. Revenues in financial advisory were slightly lower compared with the first nine months of 2011.2012.

Investment management

During the ~~third~~first quarter of ~~2012,~~2013, investment management revenues reflected an operating environment generally characterized by improved asset prices, resulting in appreciation in the value of client assets. ~~However,~~In addition, the mix of assets under ~~management~~supervision has shifted slightly ~~to lower risk asset classes~~ compared with the ~~third~~fourth quarter of ~~2011.~~2012 from asset classes that typically generate lower fees to asset classes that typically generate higher fees. In the future, if asset prices were to decline, or investors favor asset classes that typically generate lower fees or investors continue to withdraw their assets, investment management revenues would likely be negatively impacted. In addition, continued concerns about the global economic outlook could result in downward pressure on assets under ~~management.~~supervision.

Three Months Ended March 2013 versus March 2012. Investment management revenues on the condensed consolidated statements of earnings were $1.25 billion for the first quarter of 2013, 13% higher than the first quarter of 2012, due to higher incentive fees and higher management and other fees.

Commissions and fees

During the first quarter of 2013, commissions and fees reflected an operating environment generally characterized by an increase in global equity prices and lower volatility levels. Although macroeconomic concerns persisted, positive developments during the quarter contributed to higher market volumes compared with the fourth quarter of 2012. If macroeconomic concerns continue and result in lower market volumes, commissions and fees would likely be negatively impacted.

Three Months Ended March 2013 versus March 2012. Commissions and fees on the condensed consolidated statements of earnings were $829 million for the first quarter of 2013, 4% lower than the first quarter of 2012, reflecting lower market volumes.


		Goldman Sachs ~~September 2012~~March 2013 Form 10-Q		~~125~~121

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management’s Discussion and Analysis

~~Three Months Ended September 2012 versus September 2011.~~ Investment management revenues on the condensed consolidated statements of earnings were $1.15 billion for the third quarter of 2012, essentially unchanged compared with the third quarter of 2011, as higher incentive fees were offset by slightly lower management and other fees.

~~Nine Months Ended September 2012 versus September 2011.~~Investment management revenues on the condensed consolidated statements of earnings were $3.52 billion for the first nine months of 2012, essentially unchanged compared with the first nine months of 2011, as significantly higher incentive fees, primarily related to the sale of our funds’ remaining investment in the ordinary shares of ICBC during the second quarter of 2012, were offset by slightly lower management and other fees, and lower transaction revenues.

~~Commissions and fees~~

Although global equity prices generally increased during the third quarter of 2012, commissions and fees reflected an environment characterized by significantly lower market volumes due to lower volatility levels, and broad market concerns and uncertainties about the outlook of the global economy, particularly as it relates to Europe. If macroeconomic concerns continue and result in lower market volumes, commissions and fees would likely continue to be negatively impacted.

~~Three Months Ended September 2012 versus September 2011.~~~~Commissions and fees on the condensed consolidated statements of earnings were $748 million for the third quarter of 2012, 29% lower than the third quarter of 2011, reflecting lower market volumes.~~

~~Nine Months Ended September 2012 versus September 2011.~~Commissions and fees on the condensed consolidated statements of earnings were $2.41 billion for the first nine months of 2012, 19% lower than the first nine months of 2011, reflecting lower market volumes.

Market making

During the ~~third~~first quarter of ~~2012,~~2013, market-making revenues reflected an operating environment generally characterized by ~~some~~ positive developments ~~including certain central bank actions~~in the U.S. economy early in the quarter, specifically in housing and unemployment. These improvements contributed to ~~ease monetary policy, which resulted in~~improved client activity levels, generally tighter credit spreads, higher global equity prices and lower volatility levels compared with the second quarter of 2012. However, concerns and uncertainties about the outlook of the global economy, particularly as it relates to Europe, persisted, which resulted in weak investor conviction and generally low levels of ~~activity.~~volatility. However, later in the quarter, market sentiment was mixed, as political uncertainty in Europe and the United States began to resurface, contributing to client risk aversion and lower client activity levels. Also, uncertainty over financial regulatory reform persisted. If these concerns and uncertainties continue over the long term, market-making revenues would likely continue to be negatively impacted.

Three Months Ended ~~September 2012~~March 2013 versus ~~September 2011.~~March 2012. Market-making revenues on the condensed consolidated ~~statement~~statements of earnings were $2.65 billion for the third quarter of 2012, 47% higher than the third quarter of 2011, primarily reflecting significantly higher revenues in mortgages, equity shares and credit products, partially offset by significantly lower revenues in commodities.

~~Nine Months Ended September 2012 versus September 2011.~~ ~~Market-making revenues on the condensed consolidated statement of earnings were $8.65~~$3.44 billion for the first ~~nine months~~quarter of ~~2012, 8% higher~~2013, 12% lower than the first ~~nine months~~quarter of ~~2011,~~2012. Revenues were lower across most products, primarily reflecting significantly ~~higher~~lower revenues in ~~mortgages,~~ interest rate products and equity ~~shares, partially offset by significantly lower revenues~~derivatives both compared with a strong first quarter of 2012. Revenues in ~~commodities and equity derivatives.~~mortgages were higher compared with the first quarter of 2012.


~~126~~		~~Goldman Sachs September 2012 Form 10-Q~~

~~THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES~~

~~Management’s Discussion and Analysis~~

Other principal transactions

During the ~~third~~first quarter of ~~2012,~~2013, other principal transactions revenues reflected an operating environment characterized by ~~tighter credit spreads and~~ an increase in ~~global~~ equity ~~prices.~~prices and generally tighter credit spreads. However, concerns about the outlook for the global economy ~~particularly as it relates to Europe,~~ and uncertainty over financial regulatory reform ~~persisted during~~continues to be a meaningful consideration for the ~~quarter.~~global marketplace. If equity ~~prices~~markets decline ~~and~~or credit spreads widen, other principal transactions revenues would likely be negatively impacted.

Three Months Ended ~~September 2012~~March 2013 versus ~~September 2011.~~March 2012.Other principal transactions revenues on the condensed consolidated ~~statement~~statements of earnings were ~~$1.80~~$2.08 billion for the ~~third~~first quarter of ~~2012,~~2013, compared with ~~negative revenues of $2.54~~$1.94 billion for the ~~third~~first quarter of ~~2011.~~2012. Results for the ~~third~~first quarter of ~~2012~~2013 included a gain from our investment in the ordinary shares of ICBC, net gains from other investments in equities, primarily in private equities, net gains from debt securities and loans, and revenues related to our consolidated ~~investment entities.~~

investments. In the ~~third~~first quarter of ~~2011,~~2012, other principal transactions revenues included a loss from our investment in the ordinary shares of ICBC, net losses from other investments in equities, primarily in public equities, as well as net losses from debt securities and loans, primarily in mezzanine and senior corporate loans. These net losses were partially offset by revenues related to our consolidated investment entities.

~~Nine Months Ended September 2012 versus September 2011.~~Other principal transactions revenues on the condensed consolidated statements of earnings were $3.91 billion for the first nine months of 2012, compared with $675 million for the first nine months of 2011. Results for the first nine months of 2012 included a gain from our investment in the ordinary shares of ICBC, ~~and~~ net gains from other investments in equities ~~primarily in~~(with public and private ~~equities. In addition, other principal transactions revenues included~~equities each contributing approximately one-half of the net gains), net gains from debt securities and loans, and revenues related to our consolidated ~~investment entities.~~investments.

In the first nine months of 2011, other principal transactions revenues included a loss from our investment in the ordinary shares of ICBC and net gains from other investments in equities, primarily driven by gains from private equities, partially offset by losses from public equities. In addition, other principal transactions revenues included net losses from debt securities and loans, primarily reflecting the impact of significantly wider credit spreads during the first nine months of 2011, and revenues related to our consolidated investment entities.

Net Interest Income

Three Months Ended ~~September 2012~~March 2013 versus ~~September 2011.~~March 2012.Net interest income on the condensed consolidated statements of earnings was ~~$836~~$925 million for the ~~third~~first quarter of ~~2012, 38%~~2013, 6% lower than the ~~third~~first quarter of ~~2011.~~2012. The decrease compared with the ~~third~~first quarter of ~~2011~~2012 was primarily due to lower average yields on financial instruments owned, at fair value, partially offset by lower interest expense related to our short- and ~~collateralized agreements.~~long-term borrowings.


122		Goldman Sachs March 2013 Form 10-Q

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

~~Nine Months Ended September 2012 versus September 2011.~~ Net interest income on the condensed consolidated statements of earnings was $2.91 billion for the first nine months of 2012, 30% lower than the first nine months of 2011. The decrease compared with the first nine months of 2011 was primarily due to lower average yields on financial instruments, owned at fair valueManagement’s Discussion and ~~collateralized agreements.~~Analysis

Operating Expenses

Our operating expenses are primarily influenced by compensation, headcount and levels of business activity. Compensation and benefits includes salaries, estimated year-end discretionary compensation, amortization of equity awards and other items such as benefits. Discretionary compensation is significantly impacted by, among other factors, the level of net revenues, overall financial performance, prevailing labor markets, business mix, the structure of our share-based compensation programs and the external environment.

In the context of more difficult economic and financial conditions, the firm launched an initiative during the second quarter of 2011 to identify areas where we can operate more efficiently and reduce our operating expenses. We have met our 2011 targeted annual run rate compensation and non-compensation reduction of approximately $1.4 billion. We are currently targeting approximately $500 million in additional annual run rate compensation and non-compensation reductions that we expect to complete by year-end.


		~~Goldman Sachs September 2012 Form 10-Q~~		~~127~~

~~THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES~~

~~Management’s Discussion and Analysis~~

The table below presents our operating expenses and total staff.


	Three Months Ended September			Nine Months Ended September			Three Months Ended March
$ in millions		2012	2011		2012	2011		2013	2012
Compensation and benefits		$ 3,675	$ 1,578		$10,968	$10,015		$ 4,339	$ 4,378

Brokerage, clearing, exchange and distribution fees		547	668		1,658	1,903		561	567

Market development		123	140		369	502		141	117

Communications and technology		190	209		588	617		188	196

Depreciation and amortization		396	389		1,238	1,351		302	433

Occupancy		217	262		643	781		218	212

Professional fees		205	253		652	749		246	234

Insurance reserves ¹		153	197		431	402		127	157

Other expenses		547	621		1,486	1,520		595	474
Total non-compensation expenses		2,378	2,739		7,065	7,825		2,378	2,390
Total operating expenses		$ 6,053	$ 4,317		$18,033	$17,840		$ 6,717	$ 6,768
Total staff at period-end ²		32,600	34,200					32,000	32,400

1.	~~Revenues related to our insurance activities~~Related revenues are included in “Market making” on the condensed consolidated statements of earnings.

2.	Includes employees, consultants and temporary staff.

Three Months Ended ~~September 2012~~March 2013 versus ~~September 2011.~~March 2012.Operating expenses on the condensed consolidated statements of earnings were ~~$6.05~~$6.72 billion for the ~~third~~first quarter of ~~2012, 40% higher than~~2013, essentially unchanged compared with the ~~third~~first quarter of ~~2011.~~2012. The accrual for compensation and benefits expenses on the condensed consolidated statements of earnings was ~~$3.68 billion for the third quarter of 2012, which was higher than the third quarter of 2011 due to higher net revenues. Total staff remained essentially unchanged during the third quarter of 2012.~~

Non-compensation expenses were $2.38 billion, 13% lower than the third quarter of 2011. The decrease compared with the third quarter of 2011 primarily reflected lower brokerage, clearing, exchange and distribution fees which principally reflected lower transaction volumes in Equities, lower expenses related to the U.K. bank levy (approximately $100 million related to the enactment of the U.K. bank levy was included in other expenses in the third quarter of 2011) and the impact of expense reduction initiatives. The third quarter of 2012 included net provisions for litigation and regulatory proceedings of $62 million.

~~Nine Months Ended September 2012 versus September 2011.~~~~Operating expenses were $18.03~~$4.34 billion for the first ~~nine months~~quarter of ~~2012,~~2013, essentially unchanged compared with the first ~~nine months~~quarter of ~~2011. The accrual for compensation and benefits expenses was $10.97 billion for the first nine months of 2012, which was higher than the first nine months of 2011 due to higher net revenues.~~2012. The ratio of compensation and benefits to net revenues for the first ~~nine months~~quarter of ~~2012~~2013 was ~~44.0%~~43.0%, ~~consistent~~compared with 44.0% for the first ~~nine months~~quarter of ~~2011.~~2012. Total staff decreased 2%1% during the first ~~nine months~~quarter of ~~2012.~~2013.

Non-compensation expenses on the condensed consolidated statements of earnings were ~~$7.07~~$2.38 billion ~~10% lower than~~for the first ~~nine months~~quarter of ~~2011. The decrease~~2013, essentially unchanged compared with the first ~~nine months~~quarter of ~~2011~~2012. Non-compensation expenses for the first quarter of 2013 included lower depreciation and amortization expenses, primarily ~~reflected lower brokerage, clearing, exchange and distribution fees which principally reflected lower transaction volumes in Equities, the impact of expense reduction initiatives and~~reflecting lower impairment charges ~~during the first nine months of 2012.~~related to consolidated investments. This decrease was largely offset by higher other expenses, primarily reflecting increased net provisions for litigation and regulatory proceedings and higher expenses related to consolidated investments. The first ~~nine months~~quarter of ~~2012~~2013 included net provisions for litigation and regulatory proceedings of ~~$188~~$110 million.

Provision for Taxes

The effective income tax rate for the first ~~nine months~~quarter of ~~2012~~2013 was ~~33.5%~~33.0%, ~~up slightly~~essentially unchanged from ~~33.2% for~~ the ~~first half of 2012 and up from 28.0% for 2011. The increase from 28.0% to 33.5% was primarily due to the earnings mix and a decrease in the impact of permanent benefits.~~

Effective January 1, 2012, the rules related to the deferral of U.S. tax on certain non-repatriated active financing income expired. This change did not have a material effect on our financial condition, results of operations or cash flows as of or for the three and nine months ended September 2012 and we do not expect this change to have a material effect on our financial condition, results of operations or cash flows for the remainder of 2012. This change may have a material impact on our effectivefull year tax rate of 33.3% for ~~2013 if the expired provisions are not re-enacted.~~2012.


~~128~~		Goldman Sachs ~~September 2012~~March 2013 Form 10-Q		123

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management’s Discussion and Analysis

Segment Operating Results

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


		Three Months Ended September				Nine Months Ended September					Three Months Ended March
in millions			2012	2011			2012	2011				2013	2012
Investment Banking	Net revenues		$1,164	$ 781			$ 3,521	$ 3,498		Net revenues		$ 1,568	$1,154
	Operating expenses		825	541			2,560	2,445
	Pre-tax earnings		$ 339	$ 240			$ 961	$ 1,053		Operating expenses		1,064	871
										Pre-tax earnings		$ 504	$ 283
Institutional Client Services	Net revenues		$4,184	$ 4,062			$13,782	$14,224		Net revenues		$ 5,139	$5,709

	Operating expenses		3,186	2,631			10,016	10,255		Operating expenses		3,566	3,938
	Pre-tax earnings		$ 998	$ 1,431			$ 3,766	$ 3,969		Pre-tax earnings		$ 1,573	$1,771
Investing & Lending	Net revenues		$1,804	$(2,479	)		$ 3,918	$ 1,270		Net revenues		$ 2,068	$1,911
	Operating expenses		1,002	86			2,216	1,864
	Pre-tax earnings/(loss)		$ 802	$(2,565	)		$ 1,702	$ (594	)	Operating expenses		996	958
										Pre-tax earnings		$ 1,072	$ 953
Investment Management	Net revenues		$1,199	$ 1,223			$ 3,706	$ 3,770		Net revenues		$ 1,315	$1,175

	Operating expenses		977	989			3,037	3,112		Operating expenses		1,090	989
	Pre-tax earnings		$ 222	$ 234			$ 669	$ 658		Pre-tax earnings		$ 225	$ 186
Total	Net revenues		$8,351	$ 3,587			$24,927	$22,762		Net revenues		$10,090	$9,949
	Operating expenses		6,053	4,317			18,033	17,840
	Pre-tax earnings/(loss)		$2,298	$ (730	)		$ 6,894	$ 4,922		Operating expenses		6,717	6,768
										Pre-tax earnings		$ 3,373	$3,181

Total operating expenses in the table above include the following expenses that have not been allocated to our segments:

~~net provisions for a number~~charitable contributions of ~~litigation and regulatory proceedings of $62 million and $59~~$12 million for the three months ended ~~September 2012 and September 2011, respectively, and $188 million and $128 million for the nine months ended September 2012 and September 2011, respectively;~~

~~charitable contributions of $12 million and $25 million for the nine months ended September 2012 and September 2011, respectively;~~March 2012; and

Operating expenses related to net provisions for litigation and regulatory proceedings, previously not allocated to our segments, have now been allocated. This allocation is consistent with the manner in which management currently views the performance of our segments. Reclassifications have been made to previously reported segment amounts to conform to the current presentation.

Net revenues in our segments include allocations of interest income and interest expense to specific securities, commodities and other positions in relation to the cash generated by, or funding requirements of, such underlying positions. See Note 25 to the condensed consolidated financial statements in Part I, Item 1 of this Form 10-Q for further information about our business segments.

The cost drivers of Goldman Sachs taken as a whole — compensation, headcount and levels of business activity — are broadly similar in each of our business segments. Compensation and benefits expenses within our segments reflect, among other factors, the overall performance of Goldman Sachs as well as the performance of individual businesses. Consequently, pre-tax margins in one segment of our business may be significantly affected by the performance of our other business segments. A discussion of segment operating results follows.


124		Goldman Sachs ~~September 2012~~March 2013 Form 10-Q		~~129~~

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management’s Discussion and Analysis

Investment Banking

Our Investment Banking segment is comprised of:

Financial Advisory.Includes strategic advisory assignments with respect to mergers and acquisitions, divestitures, corporate defense activities, risk management, restructurings and spin-offs, and derivative transactions directly related to these client advisory assignments.

Underwriting.Includes public offerings and private placements, including domestic and cross-border transactions, of a wide range of securities, loans and other financial instruments, and derivative transactions directly related to these client underwriting activities.

The table below presents the operating results of our Investment Banking segment.


	Three Months Ended September			Nine Months Ended September			Three Months Ended March
in millions		2012	2011		2012	2011		2013	2012
Financial Advisory		$ 509	$523		$1,467	$1,517		$ 484	$ 489

Equity underwriting		189	90		683	894		390	255

Debt underwriting		466	168		1,371	1,087		694	410
Total Underwriting		655	258		2,054	1,981		1,084	665
Total net revenues		1,164	781		3,521	3,498		1,568	1,154

Operating expenses		825	541		2,560	2,445		1,064	871
Pre-tax earnings		$ 339	$240		$ 961	$1,053		$ 504	$ 283

The table below presents our financial advisory and underwriting transaction volumes.¹


	Three Months Ended September			Nine Months Ended September			Three Months Ended March
in billions		2012	2011		2012	2011		2013	2012
Announced mergers and acquisitions		$176	$143		$473	$497		$ 134	$ 117

Completed mergers and acquisitions		153	165		374	520		214	81

Equity and equity-related offerings ²		17	6		41	48		24	13

Debt offerings ³		55	41		166	174		84	73

Source: Thomson Reuters. 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.

2.	Includes Rule 144A and public common stock offerings, convertible offerings and rights offerings.

3.	Includes non-convertible preferred stock, mortgage-backed securities, asset-backed securities and taxable municipal debt. Includes publicly registered and Rule 144A issues. Excludes leveraged loans.

Three Months Ended ~~September 2012~~March 2013 versus ~~September 2011.~~March 2012.Net revenues in Investment Banking were ~~$1.16~~$1.57 billion ~~49%~~for the first quarter of 2013, 36% higher than the ~~third~~first quarter of ~~2011.~~2012.

Net revenues in Financial Advisory were ~~$509~~$484 million, ~~slightly lower~~essentially unchanged compared with the ~~third~~first quarter of ~~2011.~~2012. Net revenues in our Underwriting business were ~~$655 million, more~~$1.08 billion, 63% higher than ~~double~~ the ~~amount in the third~~first quarter of ~~2011, which had particularly low volumes.~~2012. This increase primarily reflected significantly higher net revenues in debt underwriting, ~~principally~~ due to ~~higher net revenues from~~ leveraged finance and commercial mortgage-related activity. Net revenues in equity underwriting were also significantly higher compared with the ~~third~~first quarter of ~~2011, primarily~~2012, reflecting an increase in client activity.

During the ~~third~~first quarter of ~~2012,~~2013, Investment Banking operated in an environment generally characterized by mixed activity levels as a result of continued ~~concerns about the outlook for the global economy, particularly~~macroeconomic concerns. Industry-wide debt underwriting activity continued at a robust pace, as ~~it relates to Europe. These concerns weighed on investment banking~~interest rates remained low and credit spreads generally tightened. In addition, industry-wide equity underwriting activity ~~particularly in mergers and acquisitions, and~~improved, although initial public offerings activity ~~levels. However, industry-wide debt underwriting~~remained low. Industry-wide announced and completed mergers and acquisitions activity ~~improved~~declined compared with the ~~second~~fourth quarter of ~~2012, as credit spreads tightened and interest rates remained low.~~2012. If macroeconomic concerns continue and result in lower levels of client activity, net revenues in Investment Banking would likely be negatively impacted.

Our investment banking transaction backlog ~~declined slightly~~decreased compared with the end ~~of the second quarter~~ of 2012, reflecting lower estimated net revenues from potential ~~underwriting~~advisory transactions ~~partially offset by higher~~and lower estimated net revenues from potential ~~advisory~~equity underwriting transactions, due to a decrease in potential initial public offerings transactions. Estimated net revenues from potential debt underwriting transactions were ~~lower~~higher compared with the ~~second quarter~~end of 2012, primarily reflecting a decrease in estimated net revenues related to underwriting commercial mortgage-backed securities and leveraged finance transactions. Estimated net revenues from potential equity underwriting transactions were also lower compared with the second quarter of 2012, reflecting a decreasean increase in potential transactions ~~due to uncertainty in market conditions.~~across a broad range of products.


~~130~~		Goldman Sachs ~~September 2012~~March 2013 Form 10-Q		125

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management’s Discussion and Analysis

Our investment banking transaction backlog represents an estimate of our future net revenues from investment banking transactions where we believe that future revenue realization is more likely than not. We believe changes in our investment banking transaction 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 and others may enter and leave within the same reporting period. In addition, our transaction 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.

Operating expenses were ~~$825 million~~$1.06 billion for the ~~third~~first quarter of ~~2012, 52%~~2013, 22% higher than the ~~third~~first quarter of ~~2011,~~2012, due to increased compensation and benefits expenses, ~~due to~~primarily resulting from higher net revenues. Pre-tax earnings were ~~$339~~$504 million in the ~~third~~first quarter of ~~2012, 41% higher than the third quarter of 2011.~~

~~Nine Months Ended September 2012 versus September 2011.~~ ~~Net revenues in Investment Banking were $3.52 billion, essentially unchanged compared with the first nine months of 2011.~~

~~Net revenues in Financial Advisory were $1.47 billion, slightly lower than the first nine months of 2011. Net revenues in our Underwriting business were $2.05 billion, slightly~~2013, 78% higher than the first ~~nine months~~quarter of 2011. Net revenues in debt underwriting were significantly higher compared with the first nine months of 2011, reflecting higher net revenues across all types of underwriting offerings. Net revenues in equity underwriting were significantly lower compared with the first nine months of 2011, primarily reflecting a decline in industry-wide initial public offerings.2012.

During the first nine months of 2012, Investment Banking operated in an environment generally characterized by continued concerns about the outlook for the global economy, particularly as it relates to Europe. These concerns weighed on investment banking activity, particularly in mergers and acquisitions, and equity and equity-related underwriting activity levels. However, industry-wide debt underwriting activity improved compared with the first nine months of 2011, as credit spreads tightened and interest rates remained low. If macroeconomic concerns continue and result in lower levels of client activity, net revenues in Investment Banking would likely be negatively impacted.

Our investment banking transaction backlog increased compared with the end of 2011. The increase compared with the end of 2011 was due to an increase in potential debt underwriting transactions, primarily reflecting an increase in leveraged finance transactions, and an increase in potential advisory transactions. These increases were partially offset by a decrease in potential equity underwriting transactions compared with the end of 2011, reflecting uncertainty in market conditions.

Operating expenses were $2.56 billion for the first nine months of 2012, 5% higher than the first nine months of 2011, due to increased compensation and benefits expenses. Pre-tax earnings were $961 million in the first nine months of 2012, 9% lower than the first nine months of 2011.


		~~Goldman Sachs September 2012 Form 10-Q~~		~~131~~

~~THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES~~

~~Management’s Discussion and Analysis~~

Institutional Client Services

Our Institutional Client Services segment is comprised of:

Fixed Income, Currency and Commodities Client Execution.Includes client execution activities related to making markets in interest rate products, credit products, mortgages, currencies and commodities.

We generate market-making revenues in these activities, in three ways:

In large, highly liquid markets (such as markets for U.S. Treasury bills ~~large capitalization S&P 500 stocks~~ or certain mortgage pass-through certificates), we execute a high volume of transactions for our clients for modest spreads and fees.

In less liquid markets (such as mid-cap corporate bonds, growth market currencies ~~and~~or certain non-agency mortgage-backed securities), we execute transactions for our clients for spreads and fees that are generally somewhat larger.

We also 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).

Given the focus on the mortgage market, our mortgage activities are further described below.

Our activities in mortgages include commercial mortgage-related securities, loans and derivatives, residential mortgage-related securities, loans and derivatives (including U.S. government agency-issued collateralized mortgage obligations, other prime, subprime and Alt-A securities and loans), and other asset-backed securities, loans and derivatives.

We buy, hold and sell long and short mortgage positions, primarily for market making for our clients. Our inventory therefore changes based on client demands and is generally held for short-term periods.

See Notes 18 and 27 to the condensed consolidated financial statements in Part I, Item 1 of this Form 10-Q for information about exposure to mortgage repurchase requests, mortgage rescissions and mortgage-related litigation.

Equities. Includes client execution activities related to making markets in equity products, as well as commissions and fees from executing and clearing institutional client transactions on major stock, options and futures exchanges worldwide. Equities also includes our securities services business, which provides financing, securities lending and other prime brokerage services to institutional clients, including hedge funds, mutual funds, pension funds and foundations, and generates revenues primarily in the form of interest rate spreads or fees, and revenues related to our ~~insurance~~reinsurance activities.

The table below presents the operating results of our Institutional Client Services segment.


	Three Months Ended September			Nine Months Ended September		Three Months Ended March
in millions		2012	2011	2012	2011		2013	2012
Fixed Income, Currency and Commodities Client Execution		$2,224	$1,731	$ 7,876	$ 7,655		$3,217	$3,458
Equities client execution		847	903	2,407	2,505

Equities client execution ¹							809	1,050

Commissions and fees		721	1,019	2,331	2,851		793	834

Securities services		392	409	1,168	1,213		320	367
Total Equities		1,960	2,331	5,906	6,569		1,922	2,251
Total net revenues		4,184	4,062	13,782	14,224		5,139	5,709

Operating expenses		3,186	2,631	10,016	10,255		3,566	3,938
Pre-tax earnings		$ 998	$1,431	$ 3,766	$ 3,969		$1,573	$1,771

~~Three Months Ended September 2012 versus September 2011.~~~~Net revenues in Institutional Client Services were $4.18 billion, 3% higher than the third quarter of 2011.~~

Net revenues in Fixed Income, Currency and Commodities Client Execution were $2.22 billion, 28% higher than the third quarter of 2011. This increase reflected significantly higher net revenues in mortgages and higher net revenues in credit products, currencies and interest rate products, partially offset by significantly lower net revenues in commodities. During the third quarter of 2012, Fixed Income, Currency and Commodities Client Execution operated in an environment generally characterized by tighter credit spreads, as certain central banks took steps to ease monetary policy; however, broad market concerns persisted and levels of activity generally remained low.
1.
Includes net revenues related to reinsurance of $233 million and $211 million for the three months ended March 2013 and March 2012, respectively.


~~132~~126		Goldman Sachs ~~September 2012~~March 2013 Form 10-Q

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management’s Discussion and Analysis

Three Months Ended March 2013 versus March 2012. Net revenues in Institutional Client Services were $5.14 billion for the first quarter of 2013, 10% lower than the first quarter of 2012.

Net revenues in Fixed Income, Currency and Commodities Client Execution were $3.22 billion, 7% lower than the first quarter of 2012. Net revenues were lower across most businesses, primarily reflecting significantly lower net revenues in interest rate products compared with a strong first quarter of 2012. Net revenues in mortgages were higher compared with the first quarter of 2012. During the quarter, Fixed Income, Currency and Commodities Client Execution operated in an environment characterized by generally tighter credit spreads and improved client activity levels compared with the fourth quarter of 2012.

Net revenues in Equities were ~~$1.96~~$1.92 billion, ~~16%~~15% lower than the ~~third~~first quarter of ~~2011,~~2012, primarily ~~due to significantly lower commissions and fees,~~ reflecting ~~lower market volumes, and~~ lower net revenues in equities client execution. ~~In addition,~~This decrease reflected significantly lower net revenues in ~~securities services~~derivatives compared with a strong first quarter of 2012, partially offset by higher net revenues in cash products. Commissions and fees were ~~slightly~~ lower compared with the ~~third~~first quarter of ~~2011, primarily~~2012, reflecting lower market volumes. In addition, securities services net revenues were lower compared with the ~~impact~~first quarter of ~~lower average customer balances.~~2012. During the quarter, Equities operated in an environment generally characterized by an increase in global equity prices, ~~and~~ lower volatility ~~levels.~~levels and improved client activity levels compared with the fourth quarter of 2012.

The net loss attributable to the impact of changes in our own credit spreads on borrowings for which the fair value option was elected was ~~$370~~$77 million ($~~225~~42 million and $145 million related to Fixed Income, Currency and Commodities Client Execution and equities client execution, respectively) for the third quarter of 2012, compared with a net gain of $450 million ($308 million and $142 million related to Fixed Income, Currency and Commodities Client Execution and equities client execution, respectively) for the third quarter of 2011.

During the third quarter of 2012, Institutional Client Services operated in an environment generally characterized by some positive developments, including certain central bank actions to ease monetary policy, which resulted in tighter credit spreads, higher global equity prices and lower volatility levels compared with the second quarter of 2012. However, concerns and uncertainties about the outlook of the global economy, particularly as it relates to Europe, persisted, which resulted in weak investor conviction and generally low levels of activity. If these concerns and uncertainties continue over the long term, net revenues in Fixed Income, Currency and Commodities Client Execution and Equities would likely be negatively impacted.

Operating expenses were $3.19 billion for the third quarter of 2012, 21% higher than the third quarter of 2011, due to increased compensation and benefits expenses, partially offset by lower brokerage, clearing, exchange and distribution fees, principally reflecting lower transaction volumes in Equities. Pre-tax earnings were $998 million in the third quarter of 2012, 30% lower than the third quarter of 2011.

~~Nine Months Ended September 2012 versus September 2011.~~~~Net revenues in Institutional Client Services were $13.78 billion, 3% lower than the first nine months of 2011.~~

Net revenues in Fixed Income, Currency and Commodities Client Execution were $7.88 billion, slightly higher than the first nine months of 2011, reflecting significantly higher net revenues in mortgages and higher net revenues in interest rate products, partially offset by significantly lower net revenues in commodities and lower net revenues in currencies. Net revenues in credit products were essentially unchanged compared with the first nine months of 2011. Although credit spreads generally tightened during the first nine months of 2012, broad market concerns and uncertainties contributed to generally low levels of activity, particularly during the second and third quarters of 2012.

Net revenues in Equities were $5.91 billion, 10% lower than the first nine months of 2011, primarily due to lower commissions and fees, reflecting lower market volumes, and slightly lower net revenues in equities client execution. In addition, net revenues in securities services were slightly lower compared with the first nine months of 2011, primarily reflecting the impact of lower average customer balances. During the first nine months of 2012, Equities operated in an environment generally characterized by an increase in global equity prices and lower volatility levels, as compared with the first nine months of 2011.

~~The net loss attributable to the impact of changes in our own credit spreads on borrowings for which the fair value option was elected was $588 million ($354 million and $234~~$35 million related to Fixed Income, Currency and Commodities Client Execution and equities client execution, respectively) for the first ~~nine months~~quarter of ~~2012,~~2013, compared with a net ~~gain~~loss of ~~$576~~$224 million ($~~399~~117 million and ~~$177~~$107 million related to Fixed Income, Currency and Commodities Client Execution and equities client execution, respectively) for the first ~~nine months~~quarter of ~~2011.~~2012.


		~~Goldman Sachs September 2012 Form 10-Q~~		~~133~~

~~THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES~~

~~Management’s Discussion and Analysis~~

During the first quarter of 2013, Institutional Client Services operated in an environment generally characterized by ~~continued broad market concerns and uncertainties, although~~ positive developments ~~during~~in the ~~first nine months of 2012 helped~~U.S. economy early in the quarter, specifically in housing and unemployment. These improvements contributed to ~~improve market conditions. These developments included certain central bank actions to ease monetary policy and address funding risks for European financial institutions, which resulted in~~improved client activity levels, generally tighter credit spreads, higher global equity prices and lower ~~volatility~~levels of volatility. However, later in the quarter, market sentiment was mixed, as political uncertainty in Europe and the United States began to resurface, contributing to client risk aversion and lower client activity levels. ~~However, concerns and uncertainties about the outlook of the global economy, particularly as it relates to Europe, and~~Also, uncertainty over financial regulatory reform persisted. If these concerns and uncertainties continue over the long term, net revenues in Fixed Income, Currency and Commodities Client Execution and Equities would likely continue to be negatively impacted.

Operating expenses were ~~$10.02~~$3.57 billion for the first ~~nine months~~quarter of ~~2012, slightly~~2013, 9% lower than the first ~~nine months~~quarter of ~~2011, primarily~~2012, due to decreased compensation and benefits expenses, primarily resulting from lower ~~brokerage, clearing, exchange~~net revenues, partially offset by higher net provisions for litigation and distribution fees, principally reflecting lower transaction volumes in Equities, and the impact of impairment charges during the first nine months of 2011, principally related to Litton Loan Servicing LP.regulatory proceedings. Pre-tax earnings were ~~$3.77~~$1.57 billion in the first ~~nine months~~quarter of ~~2012, 5%~~2013, 11% lower than the first ~~nine months~~quarter of ~~2011.~~2012.

Investing & Lending

Investing & Lending includes our investing activities and the origination of loans to provide financing to clients. These investments and loans are typically longer-term in nature. We make investments, directly and indirectly through funds that we manage, in debt securities and loans, public and private equity securities, real estate, consolidated investment entities and power generation facilities.

The table below presents the operating results of our Investing & Lending segment.

Three Months
Ended September Nine Months
Ended September
in millions 2012    2011    2012    2011
ICBC
$     99    $(1,045 ) $     74    $  (905)
Equity securities
(excluding ICBC)
824    (1,004 ) 1,603    736
Debt securities and loans
558    (907 ) 1,365    317
Other
323    477    876    1,122
Total net revenues
1,804    (2,479 ) 3,918    1,270
Operating expenses
1,002    86    2,216    1,864
Pre-tax earnings/(loss)
$   802    $(2,565 ) $1,702    $  (594)

~~Three Months Ended September 2012 versus September 2011.~~Net revenues in Investing & Lending were $1.80 billion for the third quarter of 2012, compared with negative net revenues of $2.48 billion for the third quarter of 2011. During the third quarter of 2012, Investing & Lending net revenues were positively impacted by tighter credit spreads and an increase in global equity prices. Results for the third quarter of 2012 included a gain of $99 million from our investment in the ordinary shares of ICBC, net gains of $824 million from other investments in equities, primarily in private equities, net gains and net interest income of $558 million from debt securities and loans, and other net revenues of $323 million, principally related to our consolidated investment entities.

During the third quarter of 2011, Investing & Lending net revenues were negatively impacted by a significant decline in global equity markets and unfavorable credit markets. Results for the third quarter of 2011 included a loss of $1.05 billion from our investment in the ordinary shares of ICBC, net losses of $1.00 billion from other investments in equities, primarily in public equities, as well as net losses of $907 million from debt securities and loans, primarily in mezzanine and senior corporate loans. These net losses were partially offset by other net revenues of $477 million, principally related to our consolidated investment entities.

Operating expenses were $1.00 billion for the third quarter of 2012, compared with $86 million in the third quarter of 2011. The increase compared with the third quarter of 2011 was primarily due to increased compensation and benefits expenses due to higher net revenues. Pre-tax earnings were $802 million in the third quarter of 2012, compared with a pre-tax loss of $2.57 billion in the third quarter of 2011.


	Three Months Ended March
in millions		2013	2012
ICBC		$ 24	$ 169

Equity securities (excluding ICBC)		1,103	891

Debt securities and loans		566	585

Other		375	266
Total net revenues		2,068	1,911

Operating expenses		996	958
Pre-tax earnings		$1,072	$ 953


~~134~~		Goldman Sachs ~~September 2012~~March 2013 Form 10-Q		127

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management’s Discussion and Analysis

~~Nine~~Three Months Ended ~~September 2012~~March 2013 versus ~~September 2011.~~March 2012.Net revenues in Investing & Lending were ~~$3.92~~$2.07 billion for the first ~~nine months~~quarter of ~~2012,~~2013, compared with ~~$1.27~~$1.91 billion for the first ~~nine months~~quarter of ~~2011.~~2012. During the first ~~nine months~~quarter of ~~2012,~~2013, Investing & Lending net revenues were positively impacted by an increase in equity prices and generally tighter credit ~~spreads and an increase in global equity prices.~~spreads. Results for the first ~~nine months~~quarter of ~~2012~~2013 included a gain of $74 million from our investment in the ordinary shares of ICBC and net gains of $1.60 billion from other investments in equities, primarily in private equities. In addition, Investing & Lending included net gains and net interest income of $1.37 billion from debt securities and loans, and other net revenues of $876 million, principally related to our consolidated investment entities.

~~Results for the first nine months of 2011 included a loss of $905~~$24 million from our investment in the ordinary shares of ICBC, net gains of ~~$736~~$1.10 billion from other investments in equities, primarily in private equities, net gains and net interest income of $566 million from debt securities and loans, and other net revenues of $375 million related to our consolidated investments.

During the first quarter of 2012, an increase in global equity prices and tighter credit spreads contributed to positive results in Investing & Lending. These results included a gain of $169 million from our investment in the ordinary shares of ICBC, net gains of $891 million from other investments in equities ~~primarily driven by gains from~~(with public and private equities ~~partially offset by losses from public equities,~~each contributing approximately one-half of the net gains), net gains and net ~~revenues~~interest of ~~$317~~$585 million from debt securities and loans, driven by net interest income, partially offset by losses, reflecting the impact of significantly wider credit spreads during the first nine months of 2011. In addition, Investing & Lending net revenues for the first nine months of 2011 includedand other net revenues of ~~$1.12 billion, principally~~$266 million related to our consolidated ~~investment entities.~~investments.

Operating expenses were ~~$2.22 billion~~$996 million for the first ~~nine months~~quarter of ~~2012, 19%~~2013, 4% higher than the first ~~nine months~~quarter of ~~2011,~~2012, due to increased compensation and benefits expenses, ~~due to~~primarily resulting from higher net revenues, ~~and higher impairment charges~~partially offset by lower non-compensation expenses related to our consolidated ~~investment entities.~~investments. Pre-tax earnings were ~~$1.70~~$1.07 billion in the first ~~nine months~~quarter of ~~2012, compared with a pre-tax loss of $594 million in~~2013, 12% higher than the first ~~nine months~~quarter of ~~2011.~~2012.

Investment Management

Investment Management provides investment management services and offers investment products (primarily through separately managed accounts and commingled vehicles, such as mutual funds and private investment funds) across all major asset classes to a diverse set of institutional and individual clients. Investment Management also offers wealth advisory services, including portfolio management and financial counseling, and brokerage and other transaction services to high-net-worth individuals and families.

Assets under supervision include assets under management and other client assets. Assets under management include client assets where we earn a fee for managing assets on a discretionary basis. This includes net assets in our mutual funds, hedge funds, credit funds and private equity funds (including real estate funds), and separately managed accounts for institutional and individual investors. Other client assets include 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. Assets under supervision do not include the self-directed brokerage assets of our clients.

Assets under management and other client assets typically generate fees as a percentage of net asset value, which vary by asset class and are affected by investment performance as well as asset inflows and redemptions.

In certain circumstances, we are also entitled to receive incentive fees based on a percentage of a fund’s return or when the return exceeds a specified benchmark or other performance targets. Incentive fees are recognized only when all material contingencies are resolved.

The table below presents the operating results of our Investment Management segment.

Three Months
Ended September
Nine Months
Ended September

in millions 2012       2011    2012 2011
Management and other fees
$1,016       $1,044    $3,038 $3,172
Incentive fees
82       45    357 182
Transaction revenues
101       134    311 416
Total net revenues
1,199       1,223    3,706 3,770
Operating expenses
977       989    3,037 3,112
Pre-tax earnings
$   222       $   234    $   669 $   658

Assets under management include client assets where we earn a fee for managing assets on a discretionary basis. This includes net assets in our mutual funds, hedge funds and private equity funds (including real estate funds), and separately managed accounts for institutional and individual investors. Assets under management do not include the self-directed assets of our clients, including brokerage accounts, or interest-bearing deposits held through our bank depository institution subsidiaries.

~~The tables below present our assets under management by asset class and a summary of the changes in our assets under management.~~

As of
September 30,    December 31,
in billions 2012       2011       2011       2010
Alternative investments ¹
$136       $144       $142       $148
Equity
135       123       126       144
Fixed income
378       347       340       340
Total non-money market assets
649       614       608       632
Money markets
207       207       220       208
Total assets under management
$856       $821       $828       $840

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


	Three Months Ended March
in millions		2013	2012
Management and other fees		$1,060	$1,003

Incentive fees		140	58

Transaction revenues		115	114
Total net revenues		1,315	1,175

Operating expenses		1,090	989
Pre-tax earnings		$ 225	$ 186


128		Goldman Sachs ~~September 2012~~March 2013 Form 10-Q		~~135~~

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management’s Discussion and Analysis

Three Months
Ended September 30,
Nine Months
Ended September 30,

in billions 2012       2011    2012    2011
Balance, beginning of period
$836       $844    $828    $840
Net inflows/(outflows)

Alternative investments
(3 )    —    (8 ) (3 )
Equity
(1 )    —    (8 ) (2 )
Fixed income
5       (5 ) 18    (3 )
Total non-money market net inflows/(outflows)
1       (5 ) 2    (8 )
Money markets
(2 )    11    (13 ) (1 )
Total net inflows/(outflows)
(1 )    6 ¹ (11 ) ² (9 ) ¹
Net market
appreciation/(depreciation)
21       (29 ) 39    (10 )
Balance, end of period
$856       $821    $856    $821

The tables below present our assets under supervision, including assets under management by asset class and other client assets, as well as a summary of the changes in our assets under supervision.


	As of
	March 31,			December 31,
in billions		2013	2012		2012	2011
Alternative investments ¹		$130	$139		$133	$142

Equity		149	136		133	126

Fixed income		378	347		370	340
Total non-money market assets		657	622		636	608

Money markets		203	202		218	220
Total assets under management (AUM)		860	824		854	828

Other client assets		108	76		111	67
Total assets under supervision (AUS)		$968	$900		$965	$895

~~Includes $6 billion of~~Primarily includes hedge funds, credit, funds, private equity, real estate, currencies, commodities and asset ~~inflows across all asset classes in connection with our acquisitions of Goldman Sachs Australia Pty Ltd and Benchmark Asset Management Company Private Limited.~~allocation strategies.


	Three Months Ended March 31,
in billions		2013		2012
Balance, beginning of period		$965		$895

Net inflows/(outflows)
Alternative investments		(3	)	(4	)

Equity		4		(5	)

Fixed income		10		1
Total non-money market net inflows/(outflows)		11		(8	)

Money markets		(15	)	(18	)
Total AUM net inflows/(outflows)		(4	)	(26	)
Other client assets net inflows/(outflows)		(5	)	5
Total AUS net inflows/(outflows)		(9	)	(21	)

Net market appreciation/(depreciation)
AUM		10		22

Other client assets		2		4
Total AUS net market appreciation/(depreciation)		12		26
Balance, end of period		$968		$900

~~Includes $17 billion of fixed income asset inflows in connection with our acquisition of Dwight Asset Management.~~

Three Months Ended ~~September 2012~~March 2013 versus ~~September 2011.~~March 2012.Net revenues in Investment Management were ~~$1.20~~$1.32 billion ~~2% lower~~for the first quarter of 2013, 12% higher than the ~~third~~first quarter of ~~2011. The decrease in net revenues compared with the third quarter of 2011 reflected lower transaction revenues~~2012, due to higher incentive fees and ~~slightly lower~~higher management and other ~~fees, partially offset by higher incentive~~ fees. During the quarter, assets under ~~management~~supervision increased ~~$20~~$3 billion to ~~$856~~$968 billion, reflecting net market ~~appreciation.~~appreciation of $12 billion, primarily in equity assets. Net outflows in assets under supervision were $9 billion, as outflows in money market assets and, to a lesser extent, alternative investment assets, were partially offset by inflows in fixed income and equity assets.

During the ~~third~~first quarter of ~~2012,~~2013, Investment Management operated in an environment generally characterized by improved asset prices, resulting in appreciation in the value of client assets. ~~However,~~In addition, the mix of assets under ~~management~~supervision has shifted slightly ~~to lower risk asset classes~~ compared with the ~~third~~fourth quarter of ~~2011.~~2012 from asset classes that typically generate lower fees to asset classes that typically generate higher fees. In the future, if asset prices were to decline, or investors favor asset classes that typically generate lower fees or investors continue to withdraw their assets, net revenues in Investment Management would likely ~~continue to~~ be negatively impacted. In addition, continued concerns about the global economic outlook could result in downward pressure on assets under ~~management.~~supervision.

Operating expenses were $977 million for the third quarter of 2012, essentially unchanged compared with the third quarter of 2011. Pre-tax earnings were $222 million in the third quarter of 2012, 5% lower than the third quarter of 2011.

~~Nine Months Ended September 2012 versus September 2011.~~Net revenues in Investment Management were $3.71 billion, 2% lower than the first nine months of 2011 due to slightly lower management and other fees, and lower transaction revenues, partially offset by significantly higher incentive fees, primarily related to the sale of our funds’ remaining investment in the ordinary shares of ICBC during the second quarter of 2012. During the first nine months of 2012, assets under management increased $28 billion to $856 billion. The increase in assets under management included net market appreciation of $39 billion, primarily in fixed income and equity assets, partially offset by net outflows of $11 billion. Net outflows included outflows in money market, equity and alternative investment assets, partially offset by inflows in fixed income assets (including $17 billion of fixed income asset inflows in connection with our acquisition of Dwight Asset Management).

During the first nine months of 2012, Investment Management operated in an environment generally characterized by improved asset prices, resulting in appreciation in the value of client assets. However, the mix of assets under management has shifted slightly to lower risk asset classes compared with the first nine months of 2011. In the future, if asset prices were to decline or investors continue to withdraw their assets, net revenues in Investment Management would likely continue to be negatively impacted. In addition, continued concerns about the global economic outlook could result in downward pressure on assets under management.

~~Operating expenses were $3.04~~$1.09 billion for the first ~~nine months~~quarter of ~~2012, slightly lower~~2013, 10% higher than the first ~~nine months~~quarter of ~~2011.~~2012, primarily due to increased compensation and benefits expenses, primarily resulting from higher net revenues. Pre-tax earnings were ~~$669~~$225 million in the first ~~nine months~~quarter of ~~2012, slightly~~2013, 21% higher than the first ~~nine months~~quarter of ~~2011.~~2012.

Geographic Data

See Note 25 to the condensed consolidated financial statements in Part I, Item 1 of this Form 10-Q for a summary of our total net revenues and pre-tax earnings by geographic region.


~~136~~		Goldman Sachs ~~September 2012~~March 2013 Form 10-Q		129

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management’s Discussion and Analysis

Regulatory Developments

The U.S. Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), enacted in July 2010, significantly altered the financial regulatory regime within which we operate. The implications of the Dodd-Frank Act for our businesses will depend to a large extent on the rules that will be adopted by the ~~Board of Governors of the~~ Federal Reserve ~~System (Federal Reserve Board),~~Board, the Federal Deposit Insurance Corporation (FDIC), the SEC, the U.S. Commodity Futures Trading Commission (CFTC) and other agencies to implement the legislation, as well as the development of market practices and structures under the regime established by the legislation and the implementing rules. ~~Similar~~Other reforms have been adopted or are being considered by other regulators and policy makers worldwide and these reforms may affect our businesses. We expect that the principal areas of impact from regulatory reform for us will be:

the Dodd-Frank prohibition on “proprietary trading” and the limitation on the sponsorship of, and investment in, hedge funds and private equity funds by banking entities, including bank holding companies, referred to as the “Volcker Rule”;

increased regulation of and restrictions on over-the-counter (OTC) derivatives markets and transactions; and

increased regulatory capital requirements.

In October 2011, the proposed rules to implement the Volcker Rule were issued and included an extensive request for comments on the proposal. The proposed rules are highly complex, and many aspects of the Volcker Rule remain unclear. The full impact of the rule on us will depend upon the detailed scope of the prohibitions, permitted activities, exceptions and exclusions, and ~~the full impact on the firm~~ will not be known with certainty until the rules are ~~finalized.~~finalized and market practices and structures develop under the final rules. Currently, companies are expected to be required to be in compliance by July 2014 (subject to possible extensions).

While many aspects of the Volcker Rule remain unclear, we evaluated the prohibition on “proprietary trading” and determined that businesses that engage in “bright line” proprietary trading are most likely to be prohibited. In 2011 and 2010, we liquidated substantially all of our Principal Strategies and ~~global macro proprietary~~Global Macro Proprietary trading positions.

In addition, we have evaluated the limitations on sponsorship of, and investments in, hedge funds and private equity funds. The firm earns management fees and incentive fees for investment management services from hedge funds and private equity ~~and hedge~~ funds, which are included in our Investment Management segment. The firm also makes

investments in funds, and the gains and losses from ~~such~~these investments are included in our Investing & Lending segment; these gains and losses will be impacted by the Volcker Rule. The Volcker Rule limitation on investments in hedge funds and private equity funds requires the firm to reduce its investment in each hedge fund and private equity ~~and hedge~~ fund to 3% or less of the fund’s net asset value, and to reduce the firm’s aggregate investment in all such funds to 3% or less of the firm’s Tier 1 capital. ~~Over the period from 1999 through the third quarter of 2012, the~~The firm’s aggregate net revenues from its investments in hedge funds and private equity funds were not material to the firm’s aggregate total net revenues over the ~~same period.~~period from 1999 through the first quarter of 2013. We continue to manage our existing private equity funds, taking into account the transition periods under the Volcker Rule. With respect to our hedge funds, we currently plan to comply with the Volcker Rule by redeeming certain of our interests in the funds. ~~We currently expect to redeem~~Since March 2012, we have been redeeming up to approximately 10% of certain hedge funds’ total redeemable units per quarter, ~~over ten consecutive quarters, beginning~~and expect to continue to do so through June 2014. Since March 2012, ~~and ending June 2014. We~~we have redeemed approximately ~~$300 million and $800 million~~$1.32 billion of these interests in hedge funds, including approximately $260 million during the three ~~and nine~~ months ended ~~September 2012, respectively.~~March 2013. In addition, we have limited the firm’s initial investment to 3% for certain new investments in hedge funds and private equity funds.


		~~Goldman Sachs September 2012 Form 10-Q~~		~~137~~

~~THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES~~

~~Management’s Discussion and Analysis~~

As required by the Dodd-Frank Act, the Federal Reserve Board and FDIC have jointly issued a rule requiring each bank holding company with over $50 billion in assets and each designated systemically important financial institution to provide to regulators an annual plan for its rapid and orderly resolution in the event of material financial distress or failure (resolution plan). Our resolution plan must, among other things, ~~ensure~~demonstrate that Goldman Sachs Bank USA (GS Bank USA) is adequately protected from risks arising from our other entities. The regulators’ joint rule sets specific standards for the resolution plans, including requiring a detailed resolution strategy and analyses of the company’s material entities, organizational structure, interconnections and interdependencies, and management information systems, among other elements. We submitted our first resolution plan to the regulators on June 29, 2012. GS Bank USA also submitted aits first resolution plan ~~for its rapid and orderly resolution in the event of material financial distress or failure~~ on June 29, 2012, as required by the FDIC. In April 2013, the Federal Reserve Board and the FDIC provided additional guidance to the firm relating to its 2013 resolution plan. At the same time, they extended the deadline for submission of our 2013 resolution plan to October 1, 2013. The deadline for submission of GS Bank USA’s 2013 resolution plan was also extended by the FDIC to October 1, 2013.


130		Goldman Sachs March 2013 Form 10-Q

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management’s Discussion and Analysis

In September 2011, the SEC proposed rules to implement the Dodd-Frank Act’s prohibition against securitization participants’ engaging in any transaction that would involve or result in any material conflict of interest with an investor in a securitization transaction. The proposed rules would except bona fide market-making activities and risk-mitigating hedging activities in connection with securitization activities from the general prohibition. We will also be affected by rules to be adopted by federal agencies pursuant to the Dodd-Frank Act that require any person who organizes or initiates an asset-backed security transaction to retain a portion (generally, at least five percent) of any credit risk that the person conveys to a third party.

In December 2011, the Federal Reserve Board ~~has~~ proposed regulations designed to strengthen the regulation and supervision of large bank holding companies and systemically important nonbank financial ~~firms.~~institutions. These proposals address, among other things, risk-based capital and leverage requirements, liquidity requirements, overall risk management requirements, single counterparty limits and early remediation requirements that are designed to address financial weakness at an early stage. Although many of the proposals mirror initiatives to which bank holding companies are already subject, their full impact on the firm will not be known with certainty until the rules are ~~finalized.~~finalized and market practices and structures develop under the final rules. In addition, in October 2012, the Federal Reserve Board issued final rules for stress testing requirements for certain bank holding companies, including the firm. See “Equity Capital” below for further information about our Comprehensive Capital Analysis and Review (CCAR).

The Dodd-Frank Act also contains provisions that include (i) requiring the registration of all swap dealers and major swap participants with the CFTC and of security-based swap dealers ~~and/or~~and major security-based swap participants ~~and~~with the SEC, the clearing and execution of ~~more liquid “swaps”~~certain swaps and security-based swaps through central counterparties, regulated exchanges or electronic facilities ~~(subject to limited exceptions)~~ and ~~both~~real-time public and regulatory reporting of trade information,

(ii) placing new business conduct standards and other requirements on swap dealers, ~~and~~major swap participants, security-based swap dealers ~~to comply with new business conduct standards,~~and major security-based swap participants, covering their relationships with counterparties, ~~and~~ their internal ~~management~~oversight and compliance structures, conflict of ~~risks~~interest rules, internal information barriers, general and ~~information associated with swaps~~trade-specific record-keeping and ~~security-based swaps, and~~risk management, (iii) establishing mandatory margin requirements for trades that are not cleared through a central ~~counterparty.~~counterparty, (iv) position limits that cap exposure to derivatives on certain physical commodities and (v) entity-level capital requirements for swap dealers, major swap participants, security-based swap dealers and major security-based swap participants.

The CFTC is responsible for issuing rules relating to swaps, swap dealers and major swap participants, and the SEC is responsible for issuing rules relating to security-based swaps, security-based swap dealers and major security-based swap participants. Although itthe CFTC has not yet finalized its capital regulations, certain of the requirements, including registration of swap dealers and real-time public trade reporting, have taken effect already under CFTC rules, and the SEC and the CFTC have finalized the definitions of a number of key terms. The CFTC adopted final rules requiring the mandatory clearing of certain credit default swaps and interest rate swaps between dealers beginning in March 2013, which include a phase-in for covered transactions with non-dealer financial entities in June 2013 and end-users in September 2013. The CFTC has finalized ~~many~~a number of other implementing rules and ~~has~~ laid out a series of implementation deadlines in the fourth quarter of 2012 and into 2013. Among other requirements, firms that meet the regulatory definition of a swap dealer must register as such with the CFTC by December 31, 2012. Additional CFTC requirements, including2013, covering rules for business conduct standards for swap dealers and ~~swap reporting requirements for all market participants, will also start on or shortly after December 31, 2012. In October 2012, the~~clearing requirements.

The SEC ~~also published~~has proposed rules to ~~implement certain of the above provisions of the Dodd-Frank Act related to~~impose margin, capital and ~~capital~~segregation requirements for security-based swap dealers and major security-based swap participants. The SEC has also proposed rules relating to registration of security-based swap dealers and major security-based swap participants, trade reporting and real-time reporting, and business conduct requirements for security-based swap dealers and major security-based swap participants.


		Goldman Sachs March 2013 Form 10-Q		131

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management’s Discussion and Analysis

We have registered certain subsidiaries as “swap dealers” under the ~~clearing~~CFTC rules, including Goldman, Sachs & Co. (GS&Co.), GS Bank USA, Goldman Sachs International (GSI) and ~~execution of security-based swaps. Furthermore,~~J. Aron & Company. We expect that these entities, and our businesses more broadly, will be subject to significant and developing regulation and regulatory oversight in connection with swap-related activities. Similar regulations have been proposed or adopted in jurisdictions outside the United States and, in July 2012 and February 2013, the Basel Committee and the International Organization of Securities Commissions released a consultative ~~document~~documents proposing margin requirements for non-centrally-cleared derivatives. The full impact of ~~these proposals on~~ the ~~firm~~various U.S. and non-U.S. regulatory developments in this area will not be known with certainty until the rules are ~~finalized.~~implemented and market practices and structures develop under the final rules.

The Dodd-Frank Act also establishes ~~a Bureau of~~the Consumer Financial Protection ~~having~~Bureau, which has broad authority to regulate providers of credit, payment and other consumer financial products and services, and ~~this Bureau~~ has oversight over certain of our products and services.

In February 2013, the European Commission published a proposal for enhanced cooperation in the area of financial transactions tax in response to a request from certain member states of the European Union. The proposed financial transactions tax is broad in scope and would apply to transactions in a wide variety of financial instruments and derivatives. The proposed date for implementation of the tax is January 1, 2014. We are currently evaluating the impact of the draft legislation, which is still subject to further revisions. The full impact of these proposals will not be known with certainty until the legislation is finalized.

See Note 20 to the condensed consolidated financial statements in Part I, Item I1 of this Form 10-Q for additional information about regulatory developments as they relate to our regulatory capital ratios.

See “Business — Regulation” in Part I, Item 1 of our Annual Report on Form 10-K for more ~~information.~~information on the laws, rules and regulations and proposed laws, rules and regulations that apply to us and our operations.


~~138~~132		Goldman Sachs ~~September 2012~~March 2013 Form 10-Q

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management’s Discussion and Analysis

Balance Sheet and Funding Sources

Balance Sheet Management

One of our most important 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 reflect (i) our overall risk tolerance, (ii) our ability to access stable funding sources and (iii) the amount of equity capital we hold.

Although our balance sheet fluctuates on a day-to-day basis, our total assets and adjusted assets at quarterly and year-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 liquid balance sheet and have processes in place to dynamically manage our assets and liabilities which include:

quarterly planning;

business-specific limits;

monitoring of key metrics; and

scenario analyses.

Quarterly Planning. We prepare a quarterly balance sheet plan that combines our projected total assets and composition of assets with our expected funding sources and capital levels for the upcoming quarter. The objectives of this quarterly planning process are:

to develop our near-term balance sheet projections, taking into account the general state of the financial markets and expected ~~client-driven and firm-driven~~business activity levels;

to ensure that our projected assets are supported by an adequate amount and tenor of funding and that our projected capital and liquidity metrics are within management ~~guidelines;~~guidelines and regulatory requirements; and

to allow business risk managers and managers from our independent control and support functions to objectively evaluate balance sheet limit requests from business managers in the context of the firm’s overall balance sheet constraints. These constraints include the firm’s liability profile and equity capital levels, maturities and plans for new debt and equity issuances, share repurchases, deposit trends and secured funding transactions.

To prepare our quarterly balance sheet plan, business risk managers and managers from our independent control and support functions meet with business managers to review current and prior period metrics and discuss expectations for the upcoming quarter. The specific metrics reviewed include asset and liability size and composition, aged inventory, limit utilization, risk and performance measures, and capital usage.

Our consolidated quarterly plan, including our balance sheet plans by business, funding and capital projections, and projected capital and liquidity metrics, is reviewed by the Firmwide Finance Committee. See “Overview and Structure of Risk ~~Management.”~~Management” for an overview of our risk management structure.


		Goldman Sachs ~~September 2012~~March 2013 Form 10-Q		~~139~~133

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management’s Discussion and Analysis

Business-Specific Limits. The Firmwide Finance Committee sets asset and liability limits for each business and aged inventory limits for certain financial instruments as a disincentive to hold inventory over longer periods of time. These limits are set at levels which are close to actual operating levels in order to ensure prompt escalation and discussion among business managers and managers in our independent control and support functions on a routine basis. The Firmwide Finance Committee reviews and approves balance sheet limits on a quarterly basis and may also approve changes in limits on an ad hoc basis in response to changing business needs or market conditions.

Monitoring of Key Metrics. We monitor key balance sheet metrics daily both by business and on a consolidated basis, including asset and liability size and composition, aged inventory, limit utilization, risk measures and capital usage. We allocate assets to businesses and review and analyze movements resulting from new business activity as well as market fluctuations.

Scenario Analyses. We conduct scenario analyses to determine how we would manage the size and composition of our balance sheet and maintain appropriate funding, liquidity and capital positions in a variety of situations:

These scenarios cover short-term and long-term time horizons using various macro-economic and firm-specific assumptions. We use these analyses to assist us in developing longer-term funding plans, including the level of unsecured debt issuances, the size of our secured funding program and the amount and composition of our equity capital. We also consider any potential future constraints, such as limits on our ability to grow our asset base in the absence of appropriate funding.

Through our Internal Capital Adequacy Assessment Process (ICAAP), CCAR, the Dodd-Frank Act Stress Tests (DFAST), and our resolution and recovery planning, we further analyze how we would manage our balance sheet and risks through the duration of a severe crisis and we develop plans to access funding, generate liquidity, and/or redeploy or issue equity capital, as appropriate.

Balance Sheet Allocation

In addition to preparing our condensed consolidated statements of financial condition in accordance with U.S. GAAP, we prepare a balance sheet that generally allocates assets to our businesses, which is a non-GAAP presentation and may not be comparable to similar non-GAAP presentations used by other companies. We believe that presenting our assets on this basis is meaningful because it is consistent with the way management views and manages risks associated with the firm’s assets and better enables investors to assess the liquidity of the firm’s assets. The table below presents a summary of this balance sheet allocation.


	As of			As of
in millions		September 2012	December 2011		March 2013	December 2012
Excess liquidity (Global Core Excess)		$170,210	$171,581		$174,435	$174,622

Other cash		6,328	7,888		7,440	6,839
Excess liquidity and cash		176,538	179,469		181,875	181,461

Secured client financing		246,744	283,707		238,029	229,442

Inventory		325,960	273,640		297,813	318,323

Secured financing agreements		84,819	71,103		106,491	76,277

Receivables		37,142	35,769		41,897	36,273
Institutional Client Services		447,921	380,512		446,201	430,873
ICBC		1,733	4,713
Equity (excluding ICBC)		21,662	23,041

ICBC¹					1,110	2,082

Public equity (excluding ICBC)					2,931	3,866

Private equity					17,164	17,401

Debt		24,003	23,311		23,788	25,386

Receivables and other		6,882	5,320		9,637	8,421
Investing & Lending		54,280	56,385		54,630	57,156
Total inventory and related assets		502,201	436,897		500,831	488,029
Other assets		23,724	23,152

Other assets²					38,488	39,623
Total assets		$949,207	$923,225		$959,223	$938,555

1.	In January 2013, we sold approximately 45% of the ordinary shares of ICBC.

2.	Includes assets related to our reinsurance business classified as held for sale as of March 2013 and December 2012, respectively. See Note 12 to the condensed consolidated financial statements in Part I, Item 1 of this Form 10-Q for further information.


~~140~~134		Goldman Sachs ~~September 2012~~March 2013 Form 10-Q

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management’s Discussion and Analysis

The following is a description of the captions in the table above.

Excess Liquidity and Cash.We maintain substantial excess liquidity to meet a broad range of potential cash outflows and collateral needs in the event of a stressed environment. See “Liquidity Risk Management” below for details on the composition and sizing of our excess liquidity pool or “Global Core Excess” (GCE). In addition to our excess liquidity, we maintain other operating cash balances, primarily for use in specific currencies, entities, or jurisdictions where we do not have immediate access to parent company liquidity.

Secured Client Financing. We provide collateralized financing for client positions, including margin loans secured by client collateral, securities borrowed, and resale agreements primarily collateralized by government obligations. As a result of client activities, we are required to segregate cash and securities to satisfy regulatory requirements. Our secured client financing arrangements, which are generally short-term, are accounted for at fair value or at amounts that approximate fair value, and include daily margin requirements to mitigate counterparty credit risk.

Institutional Client Services. In Institutional Client Services, we maintain inventory positions to facilitate market-making in fixed income, equity, currency and commodity products. Additionally, as part of client market-making activities, we enter into resale or securities borrowing arrangements to obtain securities which we can use to cover transactions in which we or our clients have sold securities that have not yet been purchased. The receivables in Institutional Client Services primarily relate to securities transactions.

Investing & Lending. In Investing & Lending, we make investments and originate loans to provide financing to clients. These investments and loans are typically longer-term in nature. We make investments, directly and indirectly through funds that we manage, in debt securities, loans, public and private equity securities, real estate and other investments.

Other Assets.Other assets are generally less liquid, non-financial assets, including property, leasehold improvements and equipment, goodwill and identifiable intangible assets, income tax-related receivables, equity-method investments, assets classified as held for sale and miscellaneous receivables.


		Goldman Sachs ~~September 2012~~March 2013 Form 10-Q		~~141~~135

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management’s Discussion and Analysis

The tables below present the reconciliation of this balance sheet allocation to our U.S. GAAP balance sheet. In the tables below, total assets for Institutional Client Services and Investing & Lending represent the inventory and related assets. These amounts differ from total assets by

business segment disclosed in Note 25 to the condensed consolidated financial statements in Part I, Item 1 of this Form 10-Q because total assets disclosed in Note 25 include allocations of our excess liquidity and cash, secured client financing and other assets.


	As of September 2012								As of March 2013
in millions		Excess Liquidity and Cash	¹	Secured Client Financing	Institutional Client Services	Investing & Lending	Other Assets	Total Assets		Excess Liquidity and Cash	¹	Secured Client Financing	Institutional Client Services	Investing & Lending	Other Assets	Total Assets
Cash and cash equivalents		$ 63,639		$ —	$ —	$ —	$ —	$ 63,639		$ 63,333		$ —	$ —	$ —	$ —	$ 63,333

Cash and securities segregated for regulatory and other purposes		—		53,597	—	—	—	53,597		—		41,044	—	—	—	41,044

Securities purchased under agreements to resell and federal funds sold		47,051		68,071	32,055	184	—	147,361		37,803		73,253	46,832	618	—	158,506

Securities borrowed		24,905		87,581	52,764	—	—	165,250		36,913		75,469	59,659	—	—	172,041

Receivables from brokers, dealers and clearing organizations		—		3,282	12,253	21	—	15,556		—		5,662	14,802	37	—	20,501

Receivables from customers and counterparties		—		34,213	24,889	5,685	—	64,787		—		42,601	27,095	8,221	—	77,917

Financial instruments owned, at fair value		40,943		—	325,960	48,390	—	415,293		43,826		—	297,813	45,754	—	387,393

Other assets		—		—	—	—	23,724	23,724		—		—	—	—	38,488	38,488
Total assets		$176,538		$246,744	$447,921	$54,280	$23,724	$949,207		$181,875		$238,029	$446,201	$54,630	$38,488	$959,223

	As of December 2011								As of December 2012
in millions		Excess Liquidity and Cash	¹	Secured Client Financing	Institutional Client Services	Investing & Lending	Other Assets	Total Assets		Excess Liquidity and Cash	¹	Secured Client Financing	Institutional Client Services	Investing & Lending	Other Assets	Total Assets
Cash and cash equivalents		$ 56,008		$ —	$ —	$ —	$ —	$ 56,008		$ 72,669		$ —	$ —	$ —	$ —	$ 72,669

Cash and securities segregated for regulatory and other purposes		—		64,264	—	—	—	64,264		—		49,671	—	—	—	49,671

Securities purchased under agreements to resell and federal funds sold		70,220		98,445	18,671	453	—	187,789		28,018		84,064	28,960	292	—	141,334

Securities borrowed		14,919		85,990	52,432	—	—	153,341		41,699		47,877	47,317	—	—	136,893

Receivables from brokers, dealers and clearing organizations		—		3,252	10,612	340	—	14,204		—		4,400	14,044	36	—	18,480

Receivables from customers and counterparties		—		31,756	25,157	3,348	—	60,261		—		43,430	22,229	7,215	—	72,874

Financial instruments owned, at fair value		38,322		—	273,640	52,244	—	364,206		39,075		—	318,323	49,613	—	407,011

Other assets		—		—	—	—	23,152	23,152		—		—	—	—	39,623	39,623
Total assets		$179,469		$283,707	$380,512	$56,385	$23,152	$923,225		$181,461		$229,442	$430,873	$57,156	$39,623	$938,555

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


~~142~~136		Goldman Sachs ~~September 2012~~March 2013 Form 10-Q

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management’s Discussion and Analysis

~~Less Liquid Inventory Composition~~

We seek to maintain a liquid balance sheet comprised of assets that can be readily sold or funded on a secured basis. However, we do hold certain financial instruments that may be more difficult to sell, or fund on a secured basis, especially during times of market stress. We focus on funding these assets with liabilities that have longer-term contractual maturities to reduce the need to refinance in periods of market stress. The table below presents our aggregate holdings in these categories of financial instruments.

As of
in millions

September
2012



December
2011
Bank loans and bridge loans ¹
$21,011         $19,745
Mortgage and other asset-backed loans and securities
17,138         14,291
Private equity investments and restricted public equity securities ²
16,827         15,463
High-yield and other debt obligations
12,864         11,118
Emerging market debt securities
8,198         4,624
Emerging market equity securities
4,933         3,922
Other investments in funds ³
2,755         3,394
ICBC ordinary shares ⁴
1,733         4,713

1.	~~Includes funded commitments and inventory held in connection with our origination, investing and market-making activities.~~

Includes interests in funds that we manage. Such amounts exclude assets for which the firm does not bear economic exposure of $2.41 billion and $2.38 billion as of September 2012 and December 2011, respectively, including assets related to consolidated investment funds and consolidated variable interest entities (VIEs).

Includes interests in other investment funds that we manage. We redeemed approximately $300 million and $800 million of these interests in hedge funds during the three and nine months ended September 2012, respectively. See “Results of Operations — Regulatory Developments” for more information about our plans to redeem certain of our interests in hedge funds to comply with the Volcker Rule.

4.	~~Includes interests of $2.60 billion as of December 2011, held by investment funds managed by Goldman Sachs. These investment funds no longer have an interest in the ordinary shares of ICBC.~~

~~See Notes 4 through 6 to the condensed consolidated financial statements in Part I, Item 1 of this Form 10-Q for further information about the financial instruments we hold.~~

Balance Sheet Analysis and Metrics

As of ~~September 2012,~~March 2013, total assets on our condensed consolidated statements of financial condition were ~~$949.21~~$959.22 billion, an increase of ~~$25.98~~$20.67 billion from December ~~2011.~~2012. This increase was primarily due to an increase in collateralized agreements of $52.32 billion, primarily due to firm and client activities. This increase was partially offset by a decrease in financial instruments owned, at fair value of $19.62 billion, primarily due to decreases in equities and convertible debentures, non-U.S. government and agency obligations, commodities and derivatives.

As of March 2013, total liabilities on our condensed consolidated statements of financial condition were $882.00 billion, an increase of $19.16 billion from December 2012. This increase was primarily due to an increase in financial instruments ~~owned,~~sold, but not yet purchased, at fair value of ~~$51.09~~$27.11 billion, primarily due to increases in non-U.S. government and agency obligations, U.S. government and federal agency obligations, and equities and convertible debentures. This increase was partially offset by ~~decreases~~a decrease in ~~collateralized~~securities sold under agreements to repurchase, at fair value of ~~$28.52~~$16.45 billion, primarily due to ~~client activity.~~firm financing activities.

As of September 2012, total liabilities on our condensed consolidated statements of financial condition were $875.52 billion, an increase of $22.67 billion from December 2011. This increase was primarily due to an increase in deposits of $15.42 billion, primarily due to increases in client activity.

~~As of September 2012~~March 2013 and December ~~2011,~~2012, our total securities sold under agreements to repurchase, at fair value, accounted for as collateralized financings, were ~~$166.19~~$155.36 billion and ~~$164.50~~$171.81 billion, respectively, which were ~~both 7% higher than~~8% lower and essentially unchanged, respectively, compared with the daily average amount of repurchase agreements over the respective quarters. As of ~~September 2012,~~March 2013, the ~~increase~~decrease in our repurchase agreements relative to the daily average during the quarter was primarily due to ~~an increase in client activity and~~ firm financing ~~at the end of the quarter.~~activities. The level of our repurchase agreements fluctuates between and within periods, primarily due to providing clients with access to highly liquid collateral, such as U.S. government and federal agency, and investment-grade sovereign obligations through collateralized financing activities.


		~~Goldman Sachs September 2012 Form 10-Q~~		~~143~~

~~THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES~~

~~Management’s Discussion and Analysis~~

The table below presents information on our assets, unsecured long-term borrowings, shareholders’ equity and leverage ratios.


	As of
$ in millions		September 2012		December 2011		As of
$ in millions						March 2013		December 2012
$ in millions		$ 949,207		$ 923,225			$959,223		$938,555

Adjusted assets		$ 675,407		$ 604,391			$689,034		$686,874

Unsecured long-term borrowings		$ 167,878		$ 173,545			$167,008		$167,305

Total shareholders’ equity		$ 73,687		$ 70,379			$ 77,228		$ 75,716

Leverage ratio		12.9	x	13.1	x		12.4x		12.4x

Adjusted leverage ratio		9.2	x	8.6	x		8.9x		9.1x

Debt to equity ratio		2.3	x	2.5	x		2.2x		2.2x

Adjusted assets.Adjusted assets equals total assets less (i) low-risk collateralized assets generally associated with our secured client financing transactions, federal funds sold and excess liquidity (which includes financial instruments sold, but not yet purchased, at fair value, less derivative liabilities) and (ii) cash and securities we segregate for regulatory and other purposes. Adjusted assets is a non-GAAP measure and may not be comparable to similar non-GAAP measures used by other companies.

The table below presents the reconciliation of total assets to adjusted assets.


			As of							As of
in millions	in millions			September 2012		December 2011		in millions			March 2013		December 2012
Total assets	Total assets			$ 949,207		$ 923,225		Total assets			$ 959,223		$ 938,555

Deduct:		Securities borrowed		(165,250	)	(153,341	)		Securities borrowed		(172,041	)	(136,893	)

									Securities purchased under agreements to resell and federal funds sold		(158,506	)	(141,334	)
		Securities purchased under agreements to resell and federal funds sold		(147,361	)	(187,789	)
Add:		Financial instruments sold, but not yet purchased, at fair value		144,179		145,013			Financial instruments sold, but not yet purchased, at fair value		153,749		126,644
		Less derivative liabilities		(51,771	)	(58,453	)
		Subtotal		(220,203	)	(254,570	)		Less derivative liabilities		(52,347	)	(50,427	)
									Subtotal		(229,145	)	(202,010	)

Deduct:		Cash and securities segregated for regulatory and other purposes		(53,597	)	(64,264	)		Cash and securities segregated for regulatory and other purposes		(41,044	)	(49,671	)
Adjusted assets	Adjusted assets			$ 675,407		$ 604,391		Adjusted assets			$ 689,034		$ 686,874

Leverage ratio.The leverage ratio equals total assets divided by total shareholders’ equity and measures the proportion of equity and debt the firm is using to finance assets. This ratio is different from the Tier 1 leverage ratio included in “Equity Capital — Consolidated Regulatory Capital Ratios” below, and further described in Note 20 to the condensed consolidated financial statements in Part I, Item 1 of this Form 10-Q.


		Goldman Sachs March 2013 Form 10-Q		137

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management’s Discussion and Analysis

Adjusted leverage ratio.The adjusted leverage ratio equals adjusted assets divided by total shareholders’ equity. We believe that the adjusted leverage ratio is a more meaningful measure of our capital adequacy than the leverage ratio because it excludes certain low-risk collateralized assets that are generally supported with little or no capital. The adjusted leverage ratio is a non-GAAP measure and may not be comparable to similar non-GAAP measures used by other companies.

Our adjusted leverage ratio ~~increased~~decreased to ~~9.2x~~8.9x as of ~~September 2012~~March 2013 from ~~8.6x~~9.1x as of December ~~2011~~2012 as our ~~adjusted assets~~total shareholders’ equity increased.

Debt to equity ratio.The debt to equity ratio equals unsecured long-term borrowings divided by total shareholders’ equity.

Funding Sources

Our primary sources of funding are secured financings, unsecured long-term and short-term borrowings, and deposits. We seek to maintain broad and diversified funding sources globally.

We raise funding through a number of different products, including:

collateralized financings, such as repurchase agreements, securities loaned and other secured financings;

long-term unsecured debt (including structured notes) 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;

~~demand~~savings and ~~savings~~demand deposits through deposit sweep programs and time deposits through internal and third-party broker-dealers; and

short-term unsecured debt through U.S. and non-U.S. commercial paper and promissory note issuances and other methods.

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, pension funds, insurance companies, mutual funds and individuals. We have imposed various internal guidelines to monitor creditor concentration across our funding programs.


~~144~~		~~Goldman Sachs September 2012 Form 10-Q~~

~~THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES~~

~~Management’s Discussion and Analysis~~

Secured Funding. We fund a significant amount of ~~our~~ inventory on a secured basis. Secured funding is less sensitive to changes in our credit quality than unsecured funding, due to ~~the nature~~our posting of ~~the~~ collateral ~~we post~~ to our lenders. ~~However, because~~Nonetheless, we continually analyze the ~~terms or availability~~refinancing risk of our secured funding ~~particularly short-dated funding, can deteriorate rapidly in a difficult environment, we generally do not rely on short-dated~~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, ~~unless it is~~and pre-funding residual risk through our GCE.

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 ~~with highly liquid securities such as government obligations.~~

by asset classes that may be harder to fund on a secured basis especially during times of market stress. Substantially all of our ~~other~~ secured funding, excluding funding collateralized by liquid government obligations, is executed for tenors of one month or greater. ~~Additionally, we monitor counterparty concentration~~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 ~~hold~~other asset-backed loans and securities, non-investment grade corporate debt securities, equities and convertible debentures and emerging market securities. Assets that are classified as level 3 in the fair value hierarchy are generally funded on an unsecured basis. See Note 6 to the condensed consolidated financial statements in Part I, Item 1 of this Form 10-Q for further information about the classification of financial instruments in the fair value hierarchy and see “— Unsecured Long-Term Borrowings” below for further information about the use of unsecured long-term borrowings as a ~~portion~~source of our GCE for refinancing risk associated with our secured funding transactions. We seek longer terms for secured funding collateralized by lower-quality assets because these funding transactions may pose greater refinancing risk. In addition, we maintain secured funding capacity that is in excess of our existing requirements. This capacity is available to finance additional eligible inventory or to replace other secured liabilities.funding.

The weighted average maturity of our secured funding, excluding funding collateralized by highly liquid securities eligible for inclusion in our GCE, exceeded 100 days as of ~~September 2012.~~March 2013.

A majority of our secured funding for securities not eligible for inclusion in the GCE is executed through term repurchase agreements and securities lending contracts. We also raise financing through other types of collateralized financings, such as secured loans and notes.

GS Bank USA has access to funding through the Federal Reserve Bank discount window. While we do not rely on this funding in our liquidity planning and stress testing, we maintain policies and procedures necessary to access this funding and test discount window borrowing procedures.


138		Goldman Sachs March 2013 Form 10-Q

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management’s Discussion and Analysis

Unsecured Long-Term Borrowings. We issue unsecured long-term borrowings as a source of funding for inventory and other assets and to finance a portion of our GCE. 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 through the ~~third~~first quarter of ~~2018~~2019 as of ~~September 2012.~~March 2013.


		~~Goldman Sachs September 2012 Form 10-Q~~		~~145~~

~~THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES~~

~~Management’s Discussion and Analysis~~

The weighted average maturity of our unsecured long-term borrowings as of ~~September 2012~~March 2013 was approximately eight years. To mitigate refinancing risk, we seek to limit the principal amount of debt maturing on any one day or during any week or year. We enter into interest rate swaps to convert a substantial portion of our long-term

borrowings into floating-rate obligations in order to manage our exposure to interest rates. See Note 16 to the condensed consolidated financial statements in Part I, Item 1 of this Form 10-Q for further information about our unsecured long-term borrowings.


		Goldman Sachs March 2013 Form 10-Q		139

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

~~Temporary Liquidity Guarantee Program (TLGP).~~ The remaining portion of our senior unsecured short-term debt guaranteed by the FDIC under the TLGP matured during the second quarter of 2012. As of September 2012, no borrowings guaranteed by the FDIC under the TLGP were outstandingManagement’s Discussion and ~~the program had expired for new issuances.~~Analysis

Deposits. As part of ~~September 2012,~~ our ~~bank depository institution subsidiaries had $61.53 billion in customer~~efforts to diversify our funding base, deposits ~~including $25.69 billion~~have become a more meaningful share of ~~deposits from private wealth management clients (substantially all from overnight~~our funding activities. GS Bank USA has been actively growing its deposit ~~sweep programs), $19.99 billion~~base with an emphasis on issuance of long-term certificates of deposit and ~~other long-term time deposits with a weighted average maturity of three years and $15.85 billion of other deposits, primarily from overnight~~on expanding our deposit sweep ~~programs,~~program, which ~~are administered under~~involves long-term ~~agreements. Substantially all of our deposits from private wealth management clients and other overnight deposit~~contractual agreements with several U.S. broker-dealers who sweep ~~programs were sourced through our own sales force and third-party distributors.~~client cash to FDIC-insured deposits. We utilize deposits to finance activities in our bank ~~subsidiaries and to support potential outflows, such as draws on unfunded commitments.~~subsidiaries. The table below presents the sourcing of our deposits.


	As of March 2013
	Type of Deposit
in millions		Savings and Demand	¹	Time	²
Private bank deposits ³		$30,022		$ —

Certificates of deposit		—		22,749

Deposit sweep programs		15,431		—

Institutional		302		4,181
Total ⁴		$45,755		$26,930

1.	Represents deposits with no stated maturity.

2.	Weighted average maturity in excess of three years.

3.	Substantially all were from overnight deposit sweep programs related to private wealth management clients.

4.	Deposits insured by the FDIC as of March 2013 were approximately $43.98 billion.

Unsecured Short-Term Borrowings. A significant portion of our short-term borrowings ~~were~~was originally long-term debt that is scheduled to mature within one year of the reporting date. We use short-term borrowings to finance liquid assets and for other cash management purposes. We primarily issue commercial paper, promissory notes, and other hybrid instruments.

As of ~~September 2012,~~March 2013, our unsecured short-term borrowings, including the current portion of unsecured long-term borrowings, were ~~$47.27~~$40.98 billion. See Note 15 to the condensed consolidated financial statements in Part I, Item 1 of this Form 10-Q for further information about our unsecured short-term borrowings.

Equity Capital

Capital adequacy is of critical importance to us. Our objective is to be conservatively capitalized in terms of the amount and composition of our equity base. Accordingly, we have in place a comprehensive capital management policy that serves as a guide to determine the amount and composition of equity capital we maintain.

The level and composition of our equity capital are determined by multiple factors including our current and future consolidated regulatory capital requirements, our ICAAP, CCAR and results of stress tests, and may also be influenced by other factors such as rating agency guidelines, subsidiary capital requirements, the business environment, conditions in the financial markets and assessments of potential future losses due to adverse changes in our business and market environments. In addition, we maintain a capital plan which projects sources and uses of capital given a range of business environments, and a contingency capital plan which provides a framework for analyzing and responding to an actual or perceived capital shortfall.

As part of the Federal Reserve Board’s annual ~~Comprehensive Capital Analysis and Review,~~CCAR, U.S. bank holding companies with total consolidated assets of $50 billion or greater are required to submit annual capital plans for review by the Federal Reserve Board. The purpose of the Federal Reserve Board’s review is to ensure that these institutions have robust, forward-looking capital planning processes that account for their unique risks and that permit continued operations during times of economic and financial stress. The Federal Reserve Board will evaluate a bank holding company based on whether it has the capital necessary to continue operating under the baseline and stressed scenarios provided by the Federal Reserve. As part of the capital plan review, the Federal Reserve Board evaluates an institution’s plan to make capital distributions, such as increasing dividend payments or repurchasing or redeeming stock, across a range of macro-economic and firm-specific assumptions. In addition, the DFAST rules require us to conduct stress tests on a semi-annual basis and publish a summary of certain results. The Federal Reserve Board also conducts its own annual stress tests and publishes a summary of certain results.

We submitted our 2013 CCAR to the Federal Reserve on January 7, 2013 and published a summary of our DFAST results under the Federal Reserve Board’s severely adverse scenario in March 2013. As part of our 2013 CCAR submission, the Federal Reserve informed us that it did not object to our proposed capital actions, ~~through the first quarter of 2013,~~ including the repurchase of outstanding common stock, ~~and the 2012 increases~~a potential increase in ~~the~~our quarterly common stock ~~dividend.~~dividend and the possible issuance, redemption and modification of other capital securities through the first quarter of 2014. However, as required by the Federal Reserve, we will resubmit our capital plan by the end of the third quarter of 2013, incorporating certain enhancements to our stress test processes.


~~146~~140		Goldman Sachs ~~September 2012~~March 2013 Form 10-Q

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management’s Discussion and Analysis

Our consolidated regulatory capital requirements are determined by the Federal Reserve Board, as described below. Our ICAAP incorporates an internal risk-based capital assessment designed to identify and measure material risks associated with our business activities, including market risk, credit risk and operational risk, in a manner that is closely aligned with our risk management practices. Our internal risk-based capital assessment is supplemented with the results of stress tests.

As of ~~September 2012,~~March 2013, our total shareholders’ equity was ~~$73.69~~$77.23 billion (consisting of common shareholders’ equity of ~~$68.34~~$71.03 billion and preferred stock of ~~$5.35~~$6.20 billion). As of December ~~2011,~~2012, our total shareholders’ equity was ~~$70.38~~$75.72 billion (consisting of common shareholders’ equity of ~~$67.28~~$69.52 billion and preferred stock of ~~$3.10~~$6.20 billion). In addition, as of both March 2013 and December 2012, $2.75 billion of our junior subordinated debt issued to trusts ~~qualifies~~qualified as ~~equity~~ capital for regulatory and certain rating agency purposes. See “— Consolidated Regulatory Capital Ratios” below for information regarding the impact of regulatory developments.

Consolidated Regulatory Capital

The Federal Reserve Board is the primary regulator of Group Inc., a bank holding company under the Bank Holding Company Act of 1956 (BHC Act) and a financial holding company under amendments to the BHC Act effected by the U.S. ~~Bank Holding Company~~Gramm-Leach-Bliley Act of ~~1956.~~1999. As a bank holding company, we are subject to consolidated regulatory capital requirements that are computed in accordance with the Federal Reserve Board’s risk-based capital ~~requirements~~regulations (which are based on the ‘Basel 1’ Capital Accord of the Basel ~~Committee~~Committee) reflecting the Federal Reserve Board’s revised market risk regulatory capital requirements which became effective on ~~Banking Supervision (Basel Committee)).~~January 1, 2013. These capital requirements are expressed as capital ratios that compare measures of capital to risk-weighted assets (RWAs). See Note 20 to the condensed consolidated financial statements in Part I, Item 1 of this Form 10-Q for additional information regarding the firm’s RWAs. The firm’s capital levels are also subject to qualitative judgments by its regulators about components, risk weightings and other factors.


		~~Goldman Sachs September 2012 Form 10-Q~~		~~147~~

~~THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES~~

~~Management’s Discussion and Analysis~~

Consolidated Regulatory Capital Ratios

The table below presents information about our regulatory capital ~~ratios.~~ratios, which are based on Basel 1, as implemented by the Federal Reserve Board. The information as of March 2013 reflects the revised market risk regulatory capital requirements, which became effective on January 1, 2013. The information as of December 2012 is prior to the implementation of these revised market risk regulatory capital requirements. In the table below:

As of
$ in millions

September
2012



December
2011


Common shareholders’ equity
$  68,337    $  67,279
Less: Goodwill
(3,763 ) (3,802 )
Less: Disallowable intangible assets
(1,533 ) (1,666 )
Less: Other deductions ¹
(5,911 ) (6,649 )
Tier 1 Common Capital
57,130    55,162
Preferred stock
5,350    3,100
Junior subordinated debt issued to trusts ²
2,750    5,000
Tier 1 Capital
65,230    63,262
Qualifying subordinated debt ³
13,309    13,828
Other adjustments
116    53
Tier 2 Capital
$  13,425    $  13,881
Total Capital
$  78,655    $  77,143
Risk-Weighted Assets ⁴
$435,331    $457,027
Tier 1 Capital Ratio
15.0 % 13.8 %
Total Capital Ratio
18.1 % 16.9 %
Tier 1 Leverage Ratio ⁴
7.2 % 7.0 %
Tier 1 Common Ratio ⁵
13.1 % 12.1 %

1.Ÿ

~~Principally includes~~Equity investments in certain entities primarily represent a portion of our equity investments in non-financial ~~companies and~~companies.

Debt valuation adjustment represents the cumulative change in the fair value of our unsecured borrowings attributable to the impact of changes in our own credit spreads ~~disallowed deferred~~(net of tax ~~assets,~~at the applicable tax rate).

Other adjustments within our Tier 1 common capital include net unrealized gains/(losses) on available-for-sale securities (net of tax at the applicable tax rate), the cumulative change in our pension and postretirement liabilities (net of tax at the applicable tax rate) and investments in certain nonconsolidated entities.

2.Ÿ

Qualifying subordinated debt represents subordinated debt issued by Group Inc. with an original term to maturity of five years or greater. The outstanding amount of subordinated debt qualifying for Tier 2 Capital is reduced, or discounted, upon reaching a remaining maturity of five years. See Note 16 to the condensed consolidated financial statements in Part I, Item 1 of this Form 10-Q for additional information about the subordinated debt.


		Goldman Sachs March 2013 Form 10-Q		141

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management’s Discussion and Analysis


	As of
$ in millions		March 2013		December 2012
Common shareholders’ equity		$ 71,028		$ 69,516

Less: Goodwill		(3,702	)	(3,702	)

Less: Intangible assets		(981	)	(1,397	)

Less: Equity investments in certain entities		(3,959	)	(4,805	)

Less: Disallowed deferred tax assets		(1,002	)	(1,261	)

Less: Debt valuation adjustment		(115	)	(180	)

Less: Other adjustments		(134	)	(124	)
Tier 1 Common Capital		61,135		58,047

Perpetual non-cumulative preferred stock		6,200		6,200

Junior subordinated debt issued to trusts ¹		2,063		2,750

Other adjustments		(27	)	(20	)
Tier 1 Capital		69,371		66,977
Qualifying subordinated debt		12,721		13,342

Junior subordinated debt issued to trusts ¹		687		—

Other adjustments		37		87
Tier 2 Capital		13,445		13,429
Total Capital		$ 82,816		$ 80,406
Risk-Weighted Assets		$480,080		$399,928

Tier 1 Capital Ratio		14.4	%	16.7	%

Total Capital Ratio		17.3	%	20.1	%

Tier 1 Leverage Ratio ²		7.5	%	7.3	%

Tier 1 Common Ratio ³		12.7	%	14.5	%

Beginning on January 1, 2013, we began to incorporate the Dodd-Frank Act’s phase-out of Tier 1 capital treatment for junior subordinated debt issued to trusts. The firm has assumed a phase-out period allowing for only 75% of the capital instrument to be included in Tier 1 capital in calendar year 2013, reflecting the Federal Reserve Board’s proposed capital rules. Phased-out amounts that are no longer eligible as Tier 1 capital treatment are eligible for Tier 2 capital treatment. See Note 16 to the condensed consolidated financial statements in Part I, Item 1 of this Form 10-Q for additional information about the junior subordinated debt issued to trusts.

3.	~~Substantially all of our subordinated debt qualifies as Tier 2 capital for Basel 1 purposes.~~

4.2.	See Note 20 to the condensed consolidated financial statements in Part I, Item 1 of this Form 10-Q for additional information about the firm’s ~~RWAs and~~ Tier 1 leverage ratio.

5.3.

The Tier 1 common ratio equals Tier 1 common capital divided by RWAs. We believe that the Tier 1 common ratio is meaningful because it is one of the measures that we and investors use to assess capital adequacy and ~~while not currently a formal regulatory capital ratio, this measure~~ is of increasing importance to regulators. The Tier 1 common ratio is a non-GAAP measure and may not be comparable to similar non-GAAP measures used by other companies.

Our Tier 1 capital ratio ~~increased~~decreased to ~~15.0%~~14.4% as of ~~September 2012~~March 2013 from ~~13.8%~~16.7% as of December ~~2011~~2012 primarily reflecting an increase in ~~shareholders’ equity~~RWAs. The increase in RWAs was primarily driven by the implementation of the revised market risk regulatory capital requirements which introduced a new methodology for determining RWAs for market risk and are designed to implement the new market risk framework of the Basel Committee, as well as the prohibition on the use of external credit ratings, as required by the Dodd-Frank Act. These revised market risk capital requirements are a ~~decrease~~significant part of the regulatory capital changes that will ultimately be reflected in ~~RWAs.~~our Basel 3 capital ratios.

The table below presents the changes in Tier 1 common capital, Tier 1 capital and Tier 2 capital for the three months ended March 2013.


in millions	Three Months Ended March 2013
Tier 1 Common Capital
Balance, beginning of year		$58,047

Increase in common shareholders’ equity		1,512

Decrease in intangible assets		416

Decrease in equity investments in certain entities		846

Decrease in disallowed deferred tax assets		259

Decrease in debt valuation adjustment		65

Increase in other adjustments		(10	)
Balance, end of period		61,135
Tier 1 Capital
Balance, beginning of year		66,977

Net increase in Tier 1 common capital		3,088

Redesignation of junior subordinated debt issued to trusts		(687	)

Increase in other adjustments		(7	)
Balance, end of period		69,371
Tier 2 Capital
Balance, beginning of year		13,429

Decrease in qualifying subordinated debt		(621	)

Redesignation of junior subordinated debt issued to trusts		687

Decrease in other adjustments		(50	)
Balance, end of period		13,445
Total Capital		$82,816

See “Business — Regulation” in Part I, Item 1 of our Annual Report on Form 10-K and Note 20 to the condensed consolidated financial statements in Part I, Item 1 of this Form 10-Q for additional information about our regulatory capital ratios and the related regulatory requirements, including pending and proposed regulatory changes.


142		Goldman Sachs March 2013 Form 10-Q

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management’s Discussion and Analysis

Risk-Weighted Assets

RWAs under the Federal Reserve Board’s risk-based capital requirements are calculated based on measures of credit risk and market risk.

RWAs for credit risk reflect amounts for on-balance sheet and off–balance sheet exposures. Credit risk requirements for on-balance sheet assets, such as receivables and cash, are generally based on the balance sheet value. Credit risk requirements for securities financing transactions are determined based upon the positive net exposure for each trade, and include the effect of counterparty netting and collateral, as applicable. For off-balance sheet exposures, including commitments and guarantees, a credit equivalent amount is calculated based on the notional amount of each trade. Requirements for OTC derivatives are based on a combination of positive net exposure and a percentage of the notional amount of each trade, and include the effect of counterparty netting and collateral, as applicable. All such assets and exposures are then assigned a risk weight depending on, among other things, whether the counterparty is a sovereign, bank or a qualifying securities firm or other entity (or if collateral is held, depending on the nature of the collateral).

Under Basel 1, prior to the implementation of the revised market risk regulatory capital requirements, RWAs for market risk were determined by reference to the firm’s Value-at-Risk (VaR) model, supplemented by the standardized measurement method used to determine RWAs for specific risk for certain positions.

Under the Federal Reserve Board’s revised market risk regulatory capital requirements, which became effective on January 1, 2013, the methodology for calculating RWAs for market risk was changed. RWAs for market risk are now determined using VaR, stressed VaR, incremental risk, comprehensive risk and a standardized measurement method for specific risk.

VaR is the potential loss in value of inventory positions due to adverse market movements over a defined time horizon with a specified confidence level. For both risk management purposes and regulatory capital calculations we use a single VaR model which captures risks including interest rates, equity prices, currency rates and commodity prices. VaR used for regulatory capital requirements (Regulatory VaR) differs from risk management VaR due to different time horizons (10-day vs. 1-day), confidence levels (99% vs. 95%) and differences in the scope of positions on which VaR is calculated. Stressed VaR is the potential loss in value of inventory positions during a period of significant market

stress. Incremental risk is the potential loss in value of non-securitized inventory positions due to the default or credit migration of issuers of financial instruments over a one-year time horizon. Comprehensive risk is the potential loss in value, due to price risk and defaults, within the firm’s credit correlation positions. The standardized measurement method is used to determine RWAs for specific risk for certain positions by applying supervisory defined risk-weighting factors to such positions after applicable netting is performed.

We will provide additional information on Regulatory VaR, stressed VaR, incremental risk, comprehensive risk and the standardized measurement method for specific risk on our web site as described under “Available Information” below.

The table below presents information on the components of RWAs within our consolidated regulatory capital ratios.


	As of
in millions		March 2013	December 2012
Credit RWAs
OTC derivatives		$ 93,903	$107,269

Commitments and guarantees¹		41,067	46,007

Securities financing transactions ²		38,054	47,069

Other ³		99,791	87,181
Total Credit RWAs		$272,815	$287,526
Total Market RWAs		207,265	112,402
Total RWAs ⁴		$480,080	$399,928

1.	Principally includes certain commitments to extend credit and letters of credit.

2.	Represents resale and repurchase agreements and securities borrowed and loaned transactions.

3.	Principally includes receivables from customers, other assets, cash and cash equivalents and available-for-sale securities.

4.	Under the current regulatory capital framework, there is no explicit requirement for Operational Risk.

The table below presents information on the components of market RWAs within our consolidated regulatory capital ratios as of March 2013.


in millions			As of March 2013
Regulatory VaR			$ 12,600

Stressed VaR			43,875

Incremental risk			23,388

Comprehensive risk			22,700

Specific risk			104,702
Total Market RWAs			$207,265


		Goldman Sachs March 2013 Form 10-Q		143

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management’s Discussion and Analysis

Internal Capital Adequacy Assessment Process

We perform an ICAAP with the objective of ensuring that the firm is appropriately capitalized relative to the risks in our business.

As part of our ICAAP, we perform an internal risk-based capital assessment. This assessment incorporates market risk, credit risk and operational risk. Market risk is calculated by using ~~Value-at-Risk (VaR)~~VaR calculations supplemented by risk-based add-ons which include risks related to rare events (tail risks). Credit risk utilizes assumptions about our counterparties’ probability of default, the size of our losses in the event of a default and the maturity of our counterparties’ contractual obligations to us. Operational risk is calculated based on scenarios incorporating multiple types of operational failures. Backtesting is used to gauge the effectiveness of models at capturing and measuring relevant risks.

We evaluate capital adequacy based on the result of our internal risk-based capital assessment and regulatory capital ratios, supplemented with the results of stress tests which measure the firm’s estimated performance under various market conditions. Our goal is to hold sufficient capital ~~under our internal risk-based capital framework,~~ 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 the overall risk management structure, governance and policy framework of the firm.

We attribute capital usage to each of our businesses based upon our internal risk-based capital and regulatory frameworks and manage the levels of usage based upon the balance sheet and risk limits established.


~~148~~		~~Goldman Sachs September 2012 Form 10-Q~~

~~THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES~~

~~Management’s Discussion and Analysis~~

Rating Agency Guidelines

The credit rating agencies assign credit ratings to the obligations of Group Inc., which directly issues or guarantees substantially all of the firm’s senior unsecured obligations. ~~Goldman, Sachs & Co. (GS~~GS&Co.) and ~~Goldman Sachs International (GSI)~~GSI have been assigned long- and short-term issuer ratings by certain credit rating agencies. GS Bank USA has also been assigned long-term issuer ratings as well as ratings on its long-term 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 “Liquidity Risk Management — Credit Ratings” for further information about credit ratings of Group Inc., GS&Co., GSI and GS Bank USA.

Subsidiary Capital Requirements

Many of our subsidiaries, including GS Bank USA and our broker-dealer subsidiaries, are subject to separate regulation and capital requirements of the jurisdictions in which they operate.

GS Bank USA is subject to minimum capital requirements that are calculated in a manner similar to those applicable to bank holding companies and computes its capital ratios in accordance with the regulatory capital requirements currently applicable to state member banks, which are based on Basel 1, as implemented by the Federal Reserve Board. As of March 2013 and December 2012, GS Bank USA’s Tier 1 capital ratio under Basel 1 as implemented by the Federal Reserve Board was 15.9% and 18.9%, respectively. See Note 20 to the condensed consolidated financial statements in Part I, Item 1 of this Form 10-Q for further information about GS Bank USA’s regulatory capital ratios under Basel 1, as implemented by the Federal Reserve Board. Effective January 1, 2013, GS Bank USA also implemented the revised market risk regulatory capital requirements outlined above. These revised market risk regulatory capital requirements are a significant part of the regulatory capital changes that will ultimately be reflected in GS Bank USA’s Basel 3 capital ratios.


144		Goldman Sachs March 2013 Form 10-Q

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management’s Discussion and Analysis

For purposes of assessing the adequacy of its capital, GS Bank USA has established an ICAAP which is similar to that used by Group Inc. In addition, the rules adopted by the Federal Reserve Board under the Dodd-Frank Act require GS Bank USA to conduct stress tests on an annual basis and publish a summary of certain results. GS Bank USA submitted its annual stress results to the Federal Reserve on January 7, 2013 and published a summary of its results in March 2013. GS Bank USA’s capital levels and prompt corrective action classification are subject to qualitative judgments by its regulators about components, risk weightings and other factors.

We expect that the capital requirements of several of our subsidiaries ~~will be impacted~~are likely to increase in the future bydue to the various developments arising from the Basel Committee, the Dodd-Frank Act, and other governmental entities and regulators.

See Note 20 to the condensed consolidated financial statements in Part I, Item 1 of this Form 10-Q for information about ~~GS Bank USA’s capital ratios under Basel 1 as implemented by the Federal Reserve Board, and for further information about~~ the capital requirements of our other regulated subsidiaries and the potential impact of regulatory reform.

Subsidiaries not subject to separate regulatory capital requirements may hold capital to satisfy local tax and legal guidelines, rating agency requirements (for entities with assigned credit ratings) or internal policies, including policies concerning the minimum amount of capital a subsidiary should hold based on its underlying level of risk. In certain instances, Group Inc. may be limited in its ability to access capital held at certain subsidiaries as a result of regulatory, tax or other constraints. As of ~~September 2012~~March 2013 and December ~~2011,~~2012, Group Inc.’s equity investment in subsidiaries was ~~$71.09~~$71.68 billion and ~~$67.70~~$73.32 billion, respectively, compared with its total shareholders’ equity of ~~$73.69~~$77.23 billion and ~~$70.38~~$75.72 billion, respectively.

Group Inc. has guaranteed the payment obligations of GS&Co., GS Bank USA, ~~Goldman Sachs Bank (Europe) plc~~ and Goldman Sachs Execution & Clearing, L.P. (GSEC) subject to certain exceptions. In November 2008, Group Inc. contributed subsidiaries into GS Bank USA, and Group Inc. agreed to guarantee certain losses, including credit-related losses, relating to assets held by the contributed entities. In connection with this guarantee, Group Inc. also agreed to pledge to GS Bank USA certain collateral, including interests in subsidiaries and other illiquid assets.

Our capital invested in non-U.S. subsidiaries is generally exposed to foreign exchange risk, substantially all of which is managed through a combination of derivatives and non-U.S. denominated debt.

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 ensuring timely communication with external stakeholders.


		~~Goldman Sachs September 2012 Form 10-Q~~		~~149~~

~~THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES~~

~~Management’s Discussion and Analysis~~

Equity Capital Management

Our objective is to maintain a sufficient level and optimal composition of equity capital. We principally manage our capital through issuances and repurchases of our common stock. We may also, from time to time, issue or repurchase our preferred stock, junior subordinated debt issued to trusts and other subordinated debt or other forms of capital as business conditions warrant and subject to ~~any regulatory approvals.~~approval of the Federal Reserve Board. We manage our capital requirements principally by setting limits on balance sheet assets and/or limits on risk, in each case both at the consolidated and business levels. We attribute capital usage to each of our businesses based upon our internal risk-based capital and regulatory frameworks and manage the levels of usage based upon the balance sheet and risk limits established.

See Notes 16 and 19 to the condensed consolidated financial statements in Part I, Item 1 of this Form 10-Q for further information about our preferred stock, junior subordinated debt issued to trusts and other subordinated debt.

~~Series G Preferred Stock.~~Berkshire Hathaway Warrant. InOn March ~~2011, we provided notice~~25, 2013, the firm amended its warrant agreement with Berkshire Hathaway Inc. and certain of its subsidiaries (collectively, Berkshire Hathaway) to require net share settlement and to specify the exercise date as October 1, 2013. Under the amended agreement, the firm will deliver to Berkshire Hathaway ~~that we would redeem in full~~ the ~~50,000~~number of shares of our Series G Preferred Stock held by Berkshire Hathaway for the stated redemption price of $5.50 billion ($110,000 per share), plus accrued and unpaid dividends. In connection with this notice, we recognized a preferred dividend of $1.64 billion (calculated ascommon stock equal in value to the difference between the ~~carrying value~~average closing price of the firm’s common stock over the 10 trading days preceding October 1, 2013 and the ~~redemption value~~exercise price of $115.00 multiplied by the ~~preferred stock), which was recorded as a reduction to earnings applicable to common shareholders for the first quarter~~number of 2011. The redemption also resulted in the acceleration of $24 million of preferred dividends related to the period from April 1, 2011 to the redemption date, which was included in our results during the three months ended March 2011. The Series G Preferred Stock was redeemed on April 18, 2011. Berkshire Hathaway continues to hold a five-year warrant, issued in October 2008, to purchase up to 43.5 million shares of common stock ~~at an exercise price of $115.00 per share.~~(43.5 million) covered by the warrant.


		Goldman Sachs March 2013 Form 10-Q		145

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management’s Discussion and Analysis

Share Repurchase Program. We seek to use our share repurchase program to help maintain the appropriate level of common ~~equity and to substantially offset increases in share count over time resulting from employee share-based compensation.~~equity. The repurchase program is effected primarily through regular open-market purchases, the amounts and timing of which are determined primarily by our current and projected capital positions (i.e., comparisons of our desired level and composition of capital to our actual level and composition of capital) ~~and the issuance of shares resulting from employee share-based compensation,~~, but which may also be influenced by general market conditions and the prevailing price and trading volumes of our common stock.

On April 15, 2013, the Board of Directors of Group Inc. (Board), authorized the repurchase of an additional 75.0 million shares of common stock pursuant to the firm’s existing share repurchase program. As of ~~September 2012,~~April 15, 2013, under the share repurchase program approved by the Board, we can repurchase up to ~~34.2~~86.4 million additional shares of common ~~stock;~~stock, including the newly authorized amount; however, any such repurchases are subject to the approval of the Federal Reserve Board. See “Unregistered Sales of Equity Securities and Use of Proceeds” in Part II, Item 2 and Note 19 to the condensed consolidated financial statements in Part I, Item 1 of this Form 10-Q for additional information on our repurchase ~~program.~~


~~150~~		~~Goldman Sachs September 2012 Form 10-Q~~

~~THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES~~

~~Management’s Discussion~~program and ~~Analysis~~see above for information about the annual CCAR.

Other Capital Metrics

The table below presents information on our shareholders’ equity and book value per common share.


	As of			As of
in millions, except per share amounts		September 2012	December 2011		March 2013	December 2012
Total shareholders’ equity		$73,687	$70,379		$77,228	$75,716

Common shareholders’ equity		68,337	67,279		71,028	69,516

Tangible common shareholders’ equity		63,041	61,811		66,345	64,417

Book value per common share		140.58	130.31		148.41	144.67

Tangible book value per common share		129.69	119.72		138.62	134.06

Tangible common shareholders’ equity. Tangible common shareholders’ equity equals 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 similar non-GAAP measures used by other companies.

The table below presents the reconciliation of total shareholders’ equity to tangible common shareholders’ equity.


	As of				As of
in millions		September 2012		December 2011		March 2013		December 2012
Total shareholders’ equity		$73,687		$70,379		$77,228		$75,716

Deduct: Preferred stock		(5,350	)	(3,100)		(6,200	)	(6,200	)
Common shareholders’ equity		68,337		67,279		71,028		69,516

Deduct: Goodwill and identifiable intangible assets		(5,296	)	(5,468)		(4,683	)	(5,099	)
Tangible common shareholders’ equity		$63,041		$61,811		$66,345		$64,417

Book value and tangible book value per common share. Book value and tangible book value per common share are based on common shares outstanding, including restricted stock units granted to employees with no future service requirements, of ~~486.1~~478.6 million and ~~516.3~~480.5 million as of ~~September 2012~~March 2013 and December ~~2011,~~2012, respectively. We believe that tangible book value per common share (tangible common shareholders’ equity divided by common shares outstanding) 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 similar non-GAAP measures used by other companies.


146		Goldman Sachs March 2013 Form 10-Q

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management’s Discussion and Analysis

Off-Balance-Sheet Arrangements

and Contractual Obligations

Off-Balance-Sheet Arrangements

We have various types of off-balance-sheet arrangements that we enter into in the ordinary course of business. 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;

entering into operating leases; and

providing guarantees, indemnifications, loan 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, equity, real estate and other assets; provide investors with credit-linked and asset-repackaged notes; and receive or provide letters of credit to satisfy margin requirements and to facilitate the clearance and settlement process.

Our financial interests in, and derivative transactions with, such nonconsolidated entities are generally accounted for at fair value, in the same manner as our other financial instruments, except in cases where we apply the equity method of accounting.


		~~Goldman Sachs September 2012 Form 10-Q~~		~~151~~

~~THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES~~

~~Management’s Discussion and Analysis~~

The table below presents where a discussion of our various off-balance-sheet arrangements may be found in Part I, Items 1 and 2 of this Form 10-Q. In addition, see Note 3 to

the condensed consolidated financial statements in Part I, Item 1 of this Form 10-Q for a discussion of our consolidation policies.


Type of Off-Balance-Sheet Arrangement				Disclosure in Form 10-Q
Variable interests and other obligations, including contingent obligations, arising from variable interests in nonconsolidated VIEs				See Note 11 to the condensed consolidated financial statements in Part I, Item 1 of this Form 10-Q.

Leases, letters of credit, and lending and other commitments				See “Contractual Obligations” below and Note 18 to the condensed consolidated financial statements in Part I, Item 1 of this Form 10-Q.

Guarantees				See “Contractual Obligations” below and Note 18 to the condensed consolidated financial statements in Part I, Item 1 of this Form 10-Q.

Derivatives				See “Credit Risk Management — Credit Exposures — OTC Derivatives” below and Notes 4, 5, 7 and 18 to the condensed consolidated financial statements in Part I, Item 1 of this Form 10-Q.


~~152~~		Goldman Sachs ~~September 2012~~March 2013 Form 10-Q		147

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management’s Discussion and Analysis

Contractual Obligations

We have certain contractual obligations which require us to make future cash payments. These contractual obligations include our unsecured long-term borrowings, secured long-term financings, time deposits, contractual interest payments and insurance agreements, all of which are included in our condensed consolidated statements of financial condition. Our obligations to make future cash

payments also include certain off-balance-sheet contractual obligations such as purchase obligations, minimum rental payments under noncancelable leases and commitments and guarantees.

The table below presents our contractual obligations, commitments and guarantees as of ~~September 2012.~~March 2013.


in millions	Remainder of 2012	2013-2014	2015-2016	2017- Thereafter	Total	Remainder of 2013	2014- 2015	2016- 2017	2018- Thereafter	Total
Amounts related to on-balance-sheet obligations
Time deposits ¹	$ —	$ 5,848	$ 4,219	$ 6,485	$ 16,552	$ —	$ 6,781	$ 4,421	$ 5,517	$ 16,719

Secured long-term financings ²	—	4,817	1,845	1,681	8,343	—	6,429	1,197	1,345	8,971

Unsecured long-term borrowings ³	—	25,594	41,754	100,530	167,878	—	37,121	42,269	87,618	167,008

Contractual interest payments ⁴	1,619	13,209	10,597	35,803	61,228	4,933	12,974	9,959	33,812	61,678

Insurance liabilities ⁵	502	3,151	2,394	20,562	26,609	355	923	905	13,731	15,914

Subordinated liabilities issued by consolidated VIEs	6	37	36	967	1,046	7	55	30	901	993

Amounts related to off-balance-sheet arrangements
Commitments to extend credit	2,446	17,094	36,668	18,512	74,720	8,163	16,813	39,973	9,152	74,101

Contingent and forward starting resale and securities borrowing agreements	56,275	324	—	—	56,599	72,068	—	—	—	72,068

Forward starting repurchase and secured lending agreements	12,727	—	—	—	12,727	13,268	—	—	—	13,268

Letters of credit	397	468	5	5	875	533	179	—	15	727

Investment commitments	921	4,364	143	2,433	7,861	1,627	1,908	239	3,608	7,382

Other commitments	3,654	234	49	71	4,008	3,483	80	27	69	3,659

Minimum rental payments	110	832	689	1,615	3,246	304	730	558	1,363	2,955

Derivative guarantees	222,571	389,958	86,756	69,552	768,837	318,426	275,467	53,158	58,370	705,421

Securities lending indemnifications	29,932	—	—	—	29,932	30,360	—	—	—	30,360

Other financial guarantees	204	857	1,018	1,246	3,325	751	455	1,268	1,028	3,502

1.	Excludes ~~$5.71~~$10.21 billion of time deposits maturing within one year.

The aggregate contractual principal amount of secured long-term financings for which the fair value option was elected, primarily consisting of transfers of financial assets accounted for as financings rather than sales and certain other nonrecourse financings, exceeded their related fair value by ~~$188~~$134 million.

Includes ~~$11.20~~$9.84 billion related to interest rate hedges on certain unsecured long-term borrowings. In addition, the fair value of unsecured long-term borrowings (principal and non-principal-protected) for which the fair value option was elected exceeded the related aggregate contractual principal amount by ~~$159~~$140 million. Excludes $82 million of unsecured long-term borrowings related to our reinsurance business classified as held for sale as of March 2013. See Note 17 to the condensed consolidated financial statements in Part I, Item 1 of this Form 10-Q for further information.

4.	Represents estimated future interest payments related to unsecured long-term borrowings, secured long-term financings and time deposits based on applicable interest rates as of ~~September 2012.~~March 2013. Includes stated coupons, if any, on structured notes.

Represents estimated undiscounted payments related to future benefits and unpaid claims arising from policies associated with our insurance activities, excluding separate accounts and estimated recoveries under reinsurance contracts. Excludes $13.02 billion of insurance liabilities related to our reinsurance business classified as held for sale as of March 2013. See Note 17 to the condensed consolidated financial statements in Part I, Item 1 of this Form 10-Q for further information.


		~~Goldman Sachs September 2012 Form 10-Q~~		~~153~~

~~THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES~~

~~Management’s Discussion and Analysis~~

In the table above:

Obligations maturing within one year of our financial statement date or redeemable within one year of our financial statement date at the option of the holder are excluded and are treated as short-term obligations.

Obligations that are repayable prior to maturity at our option are reflected at their contractual maturity dates and obligations that are redeemable prior to maturity at the option of the holders are reflected at the dates such options become exercisable.

Amounts included in the table do not necessarily reflect the actual future cash flow requirements for these arrangements because commitments and guarantees represent notional amounts and may expire unused or be reduced or cancelled at the counterparty’s request.

Due to the uncertainty of the timing and amounts that will ultimately be paid, our liability for unrecognized tax benefits has been excluded. See Note 24 to the condensed consolidated financial statements in Part I, Item 1 of this Form 10-Q for further information about our unrecognized tax benefits.


148		Goldman Sachs March 2013 Form 10-Q

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management’s Discussion and Analysis

See Notes 15 and 18 to the condensed consolidated financial statements in Part I, Item 1 of this Form 10-Q for further information about our short-term borrowings and commitments and ~~guarantees.~~guarantees, respectively.

As of ~~September 2012,~~March 2013, our unsecured long-term borrowings were ~~$167.88~~$167.01 billion, with maturities extending to 2061, and consisted principally of senior borrowings. See Note 16 to the condensed consolidated financial statements in Part I, Item 1 of this Form 10-Q for further information about our unsecured long-term borrowings.

As of ~~September 2012,~~March 2013, our future minimum rental payments net of minimum sublease rentals under noncancelable leases were ~~$3.25~~$2.96 billion. These lease commitments, principally for office space, expire on various dates through 2069. Certain agreements are subject to periodic escalation provisions for increases in real estate taxes and other charges. See Note 18 to the condensed consolidated financial statements in Part I, Item 1 of this Form 10-Q for further information about our leases.

Our occupancy expenses include costs associated with office space held in excess of our current requirements. This excess space, the cost of which is charged to earnings as incurred, is being held for potential growth or to replace currently occupied space that we may exit in the future. We regularly evaluate our current and future space capacity in relation to current and projected staffing levels. During the three ~~and nine~~ months ended ~~September 2012,~~March 2013, total occupancy expenses for space held in excess of our current requirements were not material. In addition, during the three ~~and nine~~ months ended ~~September 2012,~~March 2013, we incurred exit costs of $1 million ~~and $4 million, respectively,~~ related to our office space. We may incur exit costs ~~(included in “Depreciation and amortization” and “Occupancy”)~~ in the future to the extent we (i) reduce our space capacity or (ii) commit to, or occupy, new properties in the locations in which we operate and, consequently, dispose of existing space that had been held for potential growth. These exit costs may be material to our results of operations in a given period.

Overview and Structure of Risk Management

~~Management~~

Overview

We believe that effective risk management is of primary importance to the success of the firm. Accordingly, we have comprehensive risk management processes through which we monitor, evaluate and manage the risks we assume in conducting our activities. These include market, credit, liquidity, operational, legal, regulatory and reputational risk exposures. Our risk management framework is built around three core components: governance, processes and people.

Governance. Risk management governance starts with our Board, which plays an important role in reviewing and approving risk management policies and practices, both directly and through its Risk Committee, which consists of all of our independent directors. The Board also receives ~~periodic updates~~regular briefings on firmwide risks, including market risk, liquidity risk, credit risk and operational risk from our independent control and support ~~functions.~~functions, including the chief risk officer. The chief risk officer, as part of the review of the firmwide risk package, regularly advises the Risk Committee of the Board of relevant risk metrics and material exposures. Next, at the most senior levels of the firm, our leaders are experienced risk managers, with a sophisticated and detailed understanding of the risks we take. Our senior managers lead and participate in risk-oriented committees, as do the leaders of our independent control and support functions — including those in ~~internal audit,~~ compliance, controllers, credit risk management, human capital management, legal, market risk management, operations, operational risk management, tax, technology and treasury.


~~154~~		~~Goldman Sachs September 2012 Form 10-Q~~

~~THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES~~

~~Management’s Discussion and Analysis~~

The firm’s governance structure provides the protocol and responsibility for decision-making on risk management issues and ensures implementation of those decisions. We make extensive use of risk-related committees that meet regularly and serve as an important means to facilitate and foster ongoing discussions to identify, manage and mitigate risks.


		Goldman Sachs March 2013 Form 10-Q		149

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management’s Discussion and Analysis

We maintain strong communication about risk and we have a culture of collaboration in decision-making among the revenue-producing units, independent control and support functions, committees and senior management. While we believe that the first line of defense in managing risk rests with the managers in our revenue-producing units, we dedicate extensive resources to independent control and support functions in order to ensure a strong oversight structure and an appropriate segregation of duties. We regularly reinforce the firm’s strong culture of escalation and accountability across all divisions and functions.

Processes. We maintain various processes and procedures that are critical components of our risk management. First and foremost is our daily discipline of marking substantially all of the firm’s inventory to current market levels. Goldman Sachs carries its inventory at fair value, with changes in valuation reflected immediately in our risk management systems and in net revenues. We do so because we believe this discipline is one of the most effective tools for assessing and managing risk and that it provides transparent and realistic insight into our financial exposures.

We also apply a rigorous framework of limits to control risk across multiple transactions, products, businesses and markets. This includes setting credit and market risk limits at a variety of levels and monitoring these limits on a daily basis. Limits are typically set at levels that will be periodically exceeded, rather than at levels which reflect our maximum risk appetite. This fosters an ongoing dialogue on risk among revenue-producing units, independent control and support functions, committees and senior management, as well as rapid escalation of risk-related matters. See “Market Risk Management” and “Credit Risk Management” for further information on our risk limits.

Active management of our positions is another important process. Proactive mitigation of our market and credit exposures minimizes the risk that we will be required to take outsized actions during periods of stress.

We also focus on the rigor and effectiveness of the firm’s risk systems. The goal of our risk management technology is to get the right information to the right people at the right time, which requires systems that are comprehensive, reliable and timely. We devote significant time and resources to our risk management technology to ensure that it consistently provides us with complete, accurate and timely information.

People. Even the best technology serves only as a tool for helping to make informed decisions in real time about the risks we are taking. Ultimately, effective risk management requires our people to interpret our risk data on an ongoing and timely basis and adjust risk positions accordingly. In both our revenue-producing units and our independent control and support functions, the experience of our professionals, and their understanding of the nuances and limitations of each risk measure, guide the firm in assessing exposures and maintaining them within prudent levels.

Structure

Ultimate oversight of risk is the responsibility of the firm’s Board. The Board oversees risk both directly and through its Risk Committee. Within the firm, a series of committees with specific risk management mandates have oversight or decision-making responsibilities for risk management activities. Committee membership generally consists of senior managers from both our revenue-producing units and our independent control and support functions. We have established procedures for these committees to ensure that appropriate information barriers are in place. Our primary risk committees, most of which also have additional sub-committees or working groups, are described below. In addition to these committees, we have other risk-oriented committees which provide oversight for different businesses, activities, products, regions and legal entities.

Membership of the firm’s risk committees is reviewed regularly and updated to reflect changes in the responsibilities of the committee members. Accordingly, the length of time that members serve on the respective committees varies as determined by the committee chairs and based on the responsibilities of the members within the firm.

In addition, independent control and support functions, which report to the chief financial officer, the general counsel and the chief administrative officer, or in the case of Internal Audit, to the Audit Committee of the Board, are responsible for day-to-day oversight or monitoring of risk, as discussed in greater detail in the following sections. Internal Audit, which includes professionals with a broad range of audit and industry experience, including risk management expertise, is responsible for independently assessing and validating key controls within the risk management framework.


150		Goldman Sachs ~~September 2012~~March 2013 Form 10-Q		~~155~~

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management’s Discussion and Analysis

The chart below presents an overview of our risk management governance structure, highlighting the

oversight of our Board, our key risk-related committees and the independence of our control and support functions.

LOGO

Management Committee. The Management Committee oversees the global activities of the firm, including all of the firm’s independent control and support functions. It provides this oversight directly and through authority delegated to committees it has established. This committee is comprised of the most senior leaders of the firm, and is chaired by the firm’s chief executive officer. The Management Committee has established various committees with delegated authority and the chairperson of the Management Committee appoints the chairpersons of these committees. Most members of the Management Committee are also members of other firmwide, divisional and regional committees. The following are the committees that are principally involved in firmwide risk management.

Firmwide Client and Business Standards Committee. The Firmwide Client and Business Standards Committee assesses and makes determinations regarding business standards and practices, reputational risk management, client relationships and client service, is chaired by the firm’s president and chief operating officer, and reports to the Management Committee. This committee also has responsibility for overseeing the implementation of the recommendations of the Business Standards Committee. This committee has established the following two risk-related committees that report to it:


~~156~~		Goldman Sachs ~~September 2012~~March 2013 Form 10-Q		151

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management’s Discussion and Analysis

Firmwide New Activity Committee. The Firmwide New Activity Committee is responsible for reviewing new activities and for establishing a process to identify and review previously approved activities that are significant and that have changed in complexity and/or structure or present different reputational and suitability concerns over time to consider whether these activities remain appropriate. This committee is co-chaired by the firm’s head of operations/chief operating officer for Europe, Middle East and Africa and the chief administrative officer of our Investment Management Division who are appointed by the Firmwide Client and Business Standards Committee chairperson.

Firmwide Suitability Committee. The Firmwide Suitability Committee is responsible for setting standards and policies for product, transaction and client suitability and providing a forum for consistency across divisions, regions and products on suitability assessments. This committee also reviews suitability matters escalated from other firm committees. This committee is co-chaired by the firm’s international general counsel and the co-head of our Investment Management Division who are appointed by the Firmwide Client and Business Standards Committee chairperson.

Firmwide Risk Committee.The Firmwide Risk Committee is globally responsible for the ongoing monitoring and ~~control~~management of the firm’s ~~global~~ financial risks. Through both direct and delegated authority, the Firmwide Risk Committee approves firmwide, product, divisional and business-level limits for both market and credit risks, approves sovereign credit risk limits and reviews results of stress tests and scenario analyses. This committee is co-chaired by the firm’s chief financial officer and a senior managing director from the firm’s executive office, and reports to the Management Committee. The following four committees report to the Firmwide Risk Committee. The chairperson of the Securities Division Risk Committee is appointed by the chairpersons of the Firmwide Risk

Committee; the chairpersons of the Credit Policy and Firmwide Operational Risk Committees are appointed by the firm’s chief risk officer; and the chairpersons of the Firmwide Finance Committee are appointed by the Firmwide Risk ~~Committee:~~Committee.

Securities Division Risk Committee. The Securities Division Risk Committee sets market risk limits, subject to overall firmwide risk limits, for ~~our Fixed Income, Currency and Commodities Client Execution and Equities Client Execution businesses~~the Securities Division based on a number of risk measures, including but not limited to VaR, stress tests, scenario analyses and ~~inventory~~balance sheet levels. This committee is chaired by the chief risk officer of our Securities Division.

Credit Policy Committee. The Credit Policy Committee establishes and reviews broad firmwide credit policies and parameters that are implemented by our Credit Risk Management department (Credit Risk Management). This committee is chaired by the firm’s chief credit officer.

Firmwide Operational Risk Committee. The Firmwide Operational Risk Committee provides oversight of the ongoing development and implementation of our operational risk policies, framework and methodologies, and monitors the effectiveness of operational risk management. This committee is chaired by a managing director in Credit Risk Management.

Firmwide Finance Committee. The Firmwide Finance Committee has oversight ~~of firmwide~~responsibility for liquidity risk, the size and composition of our balance sheet and capital base, and ~~our~~ credit ratings. This committee regularly reviews our liquidity, balance sheet, funding position and capitalization, approves related policies, and makes recommendations as to any adjustments to be made in light of current events, risks, ~~and~~ exposures and regulatory requirements. ~~This~~As a part of such oversight, this committee ~~is also responsible for reviewing~~reviews and ~~approving~~approves balance sheet limits and the size of our GCE. This committee is co-chaired by the firm’s chief financial officer and the firm’s global treasurer.


152		Goldman Sachs ~~September 2012~~March 2013 Form 10-Q		~~157~~

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management’s Discussion and Analysis

The following committees report jointly to the Firmwide Risk Committee and the Firmwide Client and Business Standards Committee:

Firmwide Commitments Committee. The Firmwide Commitments Committee reviews the firm’s underwriting and distribution activities with respect to equity and equity-related product offerings, and sets and maintains policies and procedures designed to ensure that legal, reputational, regulatory and business standards are maintained on a global basis. In addition to reviewing specific transactions, this committee periodically conducts general strategic reviews of sectors and products and establishes policies in connection with transaction practices. This committee is co-chaired by the firm’s senior strategy officer and the ~~head~~co-head of Global Mergers & Acquisitions ~~for Europe, Middle East, Africa and Asia Pacific for Investment Banking~~ who are appointed by the Firmwide Client and Business Standards Committee chairperson.

Firmwide Capital Committee. The Firmwide Capital Committee provides approval and oversight of debt-related transactions, including principal commitments of the firm’s capital. This committee aims to ensure that business and reputational standards for underwritings and capital commitments are maintained on a global basis. This committee is co-chaired by the firm’s global treasurer and the head of credit finance for Europe, Middle East and Africa who are appointed by the Firmwide Risk Committee chairpersons.

Investment Management Division Risk Committee. The Investment Management Division Risk Committee is responsible for the ongoing monitoring and control of global market, counterparty credit and liquidity risks associated with the activities of our investment management businesses. The head of Investment Management Division risk management is the chair of this committee. The Investment Management Division Risk Committee reports to the firm’s chief risk officer.

Conflicts Management

Conflicts of interest and the firm’s approach to dealing with them are fundamental to our client relationships, our reputation and our long-term success. The term “conflict of interest” does not have a universally accepted meaning, and conflicts can arise in many forms within a business or between businesses. The responsibility for identifying potential conflicts, as well as complying with the firm’s policies and procedures, is shared by the entire firm.

We have a multilayered approach to resolving conflicts and addressing reputational risk. The firm’s senior management oversees policies related to conflicts resolution. The firm’s senior management, the Business Selection and Conflicts Resolution Group, the Legal Department and Compliance Division, the Firmwide Client and Business Standards Committee and other internal committees all play roles in the formulation of policies, standards and principles and assist in making judgments regarding the appropriate resolution of particular conflicts. Resolving potential conflicts necessarily depends on the facts and circumstances of a particular situation and the application of experienced and informed judgment.

At the transaction level, various people and groups have roles. As a general matter, ~~prior to businesses accepting mandates, or making new loans or investments,~~ the Business Selection and Conflicts Resolution Group ~~reviews the potential transaction. It~~ reviews all financing and advisory assignments in Investment Banking and certain investing, lending and other activities of the firm. Various transaction oversight committees, such as the Firmwide Capital, Commitments and Suitability Committees and other committees across the firm, also review new underwritings, loans, investments and structured products. These committees work with internal and external lawyers and the Compliance Division to evaluate and address any actual or potential conflicts.

We regularly assess our policies and procedures that address conflicts of interest in an effort to conduct our business in accordance with the highest ethical standards and in compliance with all applicable laws, rules, and regulations.


~~158~~		Goldman Sachs ~~September 2012~~March 2013 Form 10-Q		153

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management’s Discussion and Analysis

Liquidity Risk Management

Liquidity is of critical importance to financial institutions. Most of the recent failures of financial institutions have occurred in large part due to insufficient liquidity. Accordingly, the firm has in place a comprehensive and conservative set of liquidity and funding policies to address both firm-specific and broader industry or market liquidity events. Our principal objective is to be able to fund the firm and to enable our core businesses to continue to serve clients and generate revenues, even under adverse circumstances.

We manage liquidity risk according to the following principles:

Excess Liquidity.We maintain substantial excess liquidity to meet a broad range of potential cash outflows and collateral needs in a stressed environment.

Asset-Liability Management.We assess anticipated holding periods for our assets and their expected liquidity in a stressed environment. We manage the maturities and diversity of our funding across markets, products and counterparties, and seek to maintain liabilities of appropriate tenor relative to our asset base.

Contingency Funding Plan.We maintain a contingency funding plan to provide a framework for analyzing and responding to a liquidity crisis situation or periods of market stress. This framework sets forth the plan of action to fund normal business activity in emergency and stress situations. These principles are discussed in more detail below.

Excess Liquidity

Our most important liquidity policy is to pre-fund our estimated potential cash and collateral needs during a liquidity crisis and hold this excess liquidity in the form of unencumbered, highly liquid securities and cash. We believe that the securities held in our global core excess would be readily convertible to cash in a matter of days, through liquidation, by entering into repurchase agreements or from maturities of ~~reverse repurchase~~resale agreements, and that this cash would allow us to meet immediate obligations without needing to sell other assets or depend on additional funding from credit-sensitive markets.

As of ~~September 2012~~March 2013 and December ~~2011,~~2012, the fair value of the securities and certain overnight cash deposits included in our GCE totaled ~~$170.21~~$174.44 billion and ~~$171.58~~$174.62 billion, respectively. Based on the results of our internal liquidity risk model, discussed below, as well as our consideration of other factors including, but not limited to, an assessment of our potential intraday liquidity needs and a qualitative assessment of the condition of the financial markets and the firm, we believe our liquidity position as of ~~September 2012~~March 2013 was appropriate.

The table below presents the fair value of the securities and certain overnight cash deposits that are included in our GCE.

Average for the
in millions

Three Months Ended
September 2012



Year Ended
December 2011
U.S. dollar-denominated
$126,873       $125,668
Non-U.S. dollar-denominated
47,989       40,291
Total
$174,862       $165,959


		~~Goldman Sachs September 2012 Form 10-Q~~		~~159~~

~~THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES~~

~~Management’s Discussion and Analysis~~


	Average for the
in millions		Three Months Ended March 2013	Year Ended December 2012
U.S. dollar-denominated		$136,228	$125,111

Non-U.S. dollar-denominated		44,278	46,984
Total		$180,506	$172,095

The U.S. dollar-denominated excess is composed of (i) unencumbered U.S. government and federal agency obligations (including highly liquid U.S. federal agency mortgage-backed obligations), all of which are eligible as collateral in Federal Reserve open market operations and (ii) certain overnight U.S. dollar cash deposits. The non-U.S. dollar-denominated excess is composed of only unencumbered German, French, Japanese and United Kingdom government obligations and certain overnight cash deposits in highly liquid currencies. We strictly limit our excess liquidity to this narrowly defined list of securities and cash because they are highly liquid, even in a difficult funding environment. We do not include other potential sources of excess liquidity, such as less liquid unencumbered securities or committed credit facilities, in our GCE.


154		Goldman Sachs March 2013 Form 10-Q

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management’s Discussion and Analysis

The table below presents the fair value of our GCE by asset class.


	Average for the			Average for the
in millions		Three Months Ended September 2012	Year Ended December 2011		Three Months Ended March 2013	Year Ended December 2012
Overnight cash deposits		$ 53,115	$ 34,622		$ 63,045	$ 52,233

U.S. government obligations		72,791	88,528		73,106	72,379

U.S. federal agency obligations, including highly liquid U.S. federal agency mortgage-backed obligations		2,834	5,018		1,580	2,313

German, French, Japanese and United Kingdom government obligations		46,122	37,791		42,775	45,170
Total		$174,862	$165,959		$180,506	$172,095

The GCE is held at Group Inc. and our major broker-dealer and bank subsidiaries, as presented in the table below.


	Average for the			Average for the
in millions		Three Months Ended September 2012	Year Ended December 2011		Three Months Ended March 2013	Year Ended December 2012
Group Inc.		$ 37,063	$ 49,548		$ 25,656	$ 37,405

Major broker-dealer subsidiaries		79,336	75,086		87,895	78,229

Major bank subsidiaries		58,463	41,325		66,955	56,461
Total		$174,862	$165,959		$180,506	$172,095

Our GCE reflects the following principles:

The first days or weeks of a liquidity crisis are the most critical to a company’s survival.

Focus must be maintained on all potential cash and collateral outflows, not just disruptions to financing flows. Our businesses are diverse, and our liquidity needs are determined by many factors, including market movements, collateral requirements and client commitments, all of which can change dramatically in a difficult funding environment.

During a liquidity crisis, credit-sensitive funding, including unsecured debt and some types of secured financing agreements, may be unavailable, and the terms (e.g., interest rates, collateral provisions and tenor) or availability of other types of secured financing may change.

As a result of our policy to pre-fund liquidity that we estimate may be needed in a crisis, we hold more unencumbered securities and have larger debt balances than our businesses would otherwise require. We believe that our liquidity is stronger with greater balances of highly liquid unencumbered securities, even though it increases our total assets and our funding costs.

We believe that our GCE provides us with a resilient source of funds that would be available in advance of potential cash and collateral outflows and gives us significant flexibility in managing through a difficult funding environment.

In order to determine the appropriate size of our GCE, we use an internal liquidity model, referred to as the Modeled Liquidity Outflow, which captures and quantifies the firm’s liquidity risks. We also consider other factors including, but not limited to, an assessment of our potential intraday liquidity needs and a qualitative assessment of the condition of the financial markets and the firm.

We distribute our GCE across entities, asset types, and clearing agents to provide us with sufficient operating liquidity to ensure timely settlement in all major markets, even in a difficult funding environment.

We maintain our GCE to enable us to meet current and potential liquidity requirements of our parent company, Group Inc., and our major broker-dealer and bank subsidiaries. The Modeled Liquidity Outflow incorporates a consolidated requirement as well as a standalone requirement for each of our major broker-dealer and bank subsidiaries. Liquidity held directly in each of these subsidiaries is intended for use only by that subsidiary to meet its liquidity requirements and is assumed not to be available to Group Inc. unless (i) legally provided for and (ii) there are no additional regulatory, tax or other restrictions. We hold a portion of our GCE directly at Group Inc. to support consolidated requirements not accounted for in the major subsidiaries. In addition to the GCE, we maintain operating cash balances in several of our other operating entities, primarily for use in specific currencies, entities, or jurisdictions where we do not have immediate access to parent company liquidity.


~~160~~		~~Goldman Sachs September 2012 Form 10-Q~~

~~THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES~~

~~Management’s Discussion and Analysis~~

In addition to our GCE, we have a significant amount of other unencumbered cash and financial instruments, including other government obligations, high-grade money market securities, corporate obligations, marginable equities, loans and cash deposits not included in our GCE. The fair value of these assets averaged ~~$87.71~~$92.03 billion and ~~$83.32~~$87.09 billion for the three months ended ~~September 2012~~March 2013 and year ended December ~~2011,~~2012, respectively. We do not consider these assets liquid enough to be eligible for our GCE liquidity pool and therefore conservatively do not assume we will generate liquidity from these assets in our Modeled Liquidity Outflow.


		Goldman Sachs March 2013 Form 10-Q		155

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management’s Discussion and Analysis

Modeled Liquidity Outflow.Our Modeled Liquidity Outflow is based on a scenario that includes both a market-wide stress and a firm-specific stress, characterized by ~~some or all of~~ the following qualitative elements:

~~Global recession, default by a medium-sized sovereign,~~Severely challenged market environments, including low consumer and corporate confidence, financial and ~~general financial instability.~~

~~Severely challenged~~political instability, adverse changes in market ~~environment with material~~values, including potential declines in equity markets and widening of credit spreads.

~~Damaging follow-on impacts to financial institutions leading to the failure of a large bank.~~

A firm-specific crisis potentially triggered by material losses, reputational damage, litigation, executive departure, and/or a ratings downgrade.

The following are the critical modeling parameters of the Modeled Liquidity Outflow:

Liquidity needs over a 30-day scenario.

A two-notch downgrade of the firm’s long-term senior unsecured credit ratings.

A combination of contractual outflows, such as upcoming maturities of unsecured debt, and contingent outflows (e.g., actions though not contractually required, we may deem necessary in a crisis). We assume that most contingent outflows will occur within the initial days and weeks of a crisis.

No issuance of equity or unsecured debt.

No support from government funding facilities. Although we have access to various central bank funding programs, we do not assume reliance on them as a source of funding in a liquidity crisis.

~~No diversification benefit across liquidity risks. We assume that liquidity risks are additive.~~

~~Maintenance of our normal business levels.~~ We do not assume asset liquidation, other than the GCE.

The Modeled Liquidity Outflow is calculated and reported to senior management on a daily basis. We regularly refine our model to reflect changes in market or economic conditions and the firm’s business mix.

The potential contractual and contingent cash and collateral outflows covered in our Modeled Liquidity Outflow include:

Unsecured Funding

Contractual: All upcoming maturities of unsecured long-term debt, commercial paper, promissory notes and other unsecured funding products. We assume that we will be unable to issue new unsecured debt or rollover any maturing debt.

Contingent: Repurchases of our outstanding long-term debt, commercial paper and hybrid financial instruments in the ordinary course of business as a market maker.

Deposits

Contractual: All upcoming maturities of term deposits. We assume that we will be unable to raise new term deposits or rollover any maturing term deposits.

Contingent: Withdrawals of bank deposits that have no contractual maturity. The withdrawal assumptions reflect, among other factors, the type of deposit, whether the deposit is insured or uninsured, and the firm’s relationship with the depositor.

Secured Funding

Contractual: A portion of upcoming contractual maturities of secured funding due to either the inability to refinance or the ability to refinance only at wider haircuts (i.e., on terms which require us to post additional collateral). Our assumptions reflect, among other factors, the quality of the underlying collateral, counterparty roll probabilities (our assessment of the counterparty’s likelihood of continuing to provide funding on a secured basis at the maturity of the trade) and counterparty concentration.

Contingent: ~~A decline~~Adverse changes in value of financial assets pledged as collateral for financing transactions, which would necessitate additional collateral postings under those transactions.


156		Goldman Sachs ~~September 2012~~March 2013 Form 10-Q		~~161~~

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management’s Discussion and Analysis

OTC Derivatives

Contingent: Collateral postings to counterparties due to adverse changes in the value of our OTC ~~derivatives.~~derivatives, excluding those that are cleared and settled through central counterparties (OTC-cleared).

Contingent: Other outflows of cash or collateral related to OTC derivatives, excluding OTC-cleared, including the impact of trade terminations, collateral substitutions, collateral disputes, collateral calls or termination payments required by a two-notch downgrade in our credit ratings, and collateral that has not been called by counterparties, but is available to them.

Exchange-Traded and OTC-cleared Derivatives

Contingent: Variation margin postings required due to adverse changes in the value of our outstanding exchange-traded and OTC-cleared derivatives.

Contingent: An increase in initial margin and guaranty fund requirements by derivative clearing houses.

Customer Cash and Securities

Contingent: Liquidity outflows associated with our prime brokerage business, including withdrawals of customer credit balances, and a reduction in customer short positions, which serve as a funding source for long positions.

Unfunded Commitments

Contingent: Draws on our unfunded commitments. Draw assumptions reflect, among other things, the type of commitment and counterparty.

Other

Other upcoming large cash outflows, such as tax payments.

Asset-Liability Management

Our liquidity risk management policies are designed to ensure we have a sufficient amount of financing, even when funding markets experience persistent stress. We seek to maintain a long-dated and diversified funding profile, taking into consideration the characteristics and liquidity profile of our assets.

Our approach to asset-liability management includes:

Conservatively managing the overall characteristics of our funding book, with a focus on maintaining long-term, diversified sources of funding in excess of our current requirements. See “Balance Sheet and Funding Sources — Funding Sources” for additional details.

Actively managing and monitoring our asset base, with particular focus on the liquidity, holding period and our ability to fund assets on a secured basis. This enables us to determine the most appropriate funding products and tenors. See “Balance Sheet and Funding Sources — Balance Sheet Management” for more detail on our balance sheet management ~~process.~~process and “— Funding Sources — Secured Funding” for more detail on asset classes that may be harder to fund on a secured basis.

Raising secured and unsecured financing that has a long tenor relative to the liquidity profile of our assets. This reduces the risk that our liabilities will come due in advance of our ability to generate liquidity from the sale of our assets. Because we maintain a highly liquid balance sheet, the holding period of certain of our assets may be materially shorter than their contractual maturity dates.

Our goal is to ensure that the firm maintains sufficient liquidity to fund its assets and meet its contractual and contingent obligations in normal times as well as during periods of market stress. Through our dynamic balance sheet management process (see “Balance Sheet and Funding Sources — Balance Sheet Management”), we use actual and projected asset balances to determine secured and unsecured funding requirements. Funding plans are reviewed and approved by the Firmwide Finance Committee on a quarterly basis. In addition, senior managers in our independent control and support functions regularly analyze, and the Firmwide Finance Committee reviews, our consolidated total capital position (unsecured long-term borrowings plus total shareholders’ equity) so that we maintain a level of long-term funding that is sufficient to meet our long-term financing requirements. In a liquidity crisis, we would first use our GCE in order to avoid reliance on asset sales (other than our GCE). However, we recognize that orderly asset sales may be prudent or necessary in a severe or persistent liquidity crisis.


~~162~~		Goldman Sachs ~~September 2012~~March 2013 Form 10-Q		157

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management’s Discussion and Analysis

Subsidiary Funding Policies.The majority of our unsecured funding is raised by Group Inc. which lends the necessary funds to its subsidiaries, some of which are regulated, to meet their asset financing, liquidity and capital requirements. In addition, Group Inc. provides its regulated subsidiaries with the necessary capital to meet their regulatory requirements. The benefits of this approach to subsidiary funding are enhanced control and greater flexibility to meet the funding requirements of our subsidiaries. Funding is also raised at the subsidiary level through a variety of products, including secured funding, unsecured borrowings and deposits.

Our intercompany funding policies assume that, unless legally provided for, a subsidiary’s funds or securities are not freely available to its parent company or other subsidiaries. In particular, many of our subsidiaries are subject to laws that authorize regulatory bodies to block or reduce the flow of funds from those subsidiaries to Group Inc. Regulatory action of that kind could impede access to funds that Group Inc. needs to make payments on its obligations. Accordingly, we assume that the capital provided to our regulated subsidiaries is not available to Group Inc. or other subsidiaries and any other financing provided to our regulated subsidiaries is not available until the maturity of such financing.

Group Inc. has provided substantial amounts of equity and subordinated indebtedness, directly or indirectly, to its regulated subsidiaries. For example, as of ~~September 2012,~~March 2013, Group Inc. had ~~$29.42~~$30.03 billion of equity and subordinated indebtedness invested in GS&Co., its principal U.S. registered broker-dealer; ~~$29.12~~$29.77 billion invested in GSI, a regulated U.K. broker-dealer; ~~$2.65~~$2.63 billion invested in GSEC, a U.S. registered broker-dealer; ~~$4.21~~$3.50 billion invested in Goldman Sachs Japan Co., Ltd., a regulated Japanese broker-dealer; and ~~$20.32~~$19.06 billion invested in GS Bank USA, a regulated New York State-chartered bank. Group Inc. also provided, directly or indirectly, ~~$70.97~~$74.24 billion of unsubordinated loans and ~~$12.10~~$10.28 billion of collateral to these entities, substantially all of which was to GS&Co., GSI and GS Bank USA, as of ~~September 2012.~~March 2013. In addition, as of ~~September 2012,~~March 2013, Group Inc. had significant amounts of capital invested in and loans to its other regulated subsidiaries.

Contingency Funding Plan

The Goldman Sachs contingency funding plan sets out the plan of action we would use to fund business activity in crisis situations and periods of market stress. The contingency funding plan outlines a list of potential risk factors, key reports and metrics that are reviewed on an ongoing basis to assist in assessing the severity of, and managing through, a liquidity crisis and/or market dislocation. The contingency funding plan also describes in detail the firm’s potential responses if our assessments indicate that the firm has entered a liquidity crisis, which include pre-funding for what we estimate will be our potential cash and collateral needs as well as utilizing secondary sources of liquidity. Mitigants and action items to address specific risks which may arise are also described and assigned to individuals responsible for execution.

The contingency funding plan identifies key groups of individuals to foster effective coordination, control and distribution of information, all of which are critical in the management of a crisis or period of market stress. The contingency funding plan also details the responsibilities of these groups and individuals, which include making and disseminating key decisions, coordinating all contingency activities throughout the duration of the crisis or period of market stress, implementing liquidity maintenance activities and managing internal and external communication.

Proposed Liquidity Framework

The Basel Committee on Banking Supervision’s international framework for liquidity risk measurement, standards and monitoring calls for imposition of a liquidity coverage ratio, designed to ensure that ~~the banking entity maintains~~banks and bank holding companies maintain an adequate level of unencumbered high-quality liquid assets based on expected cash outflows under an acute liquidity stress scenario, and a net stable funding ratio, designed to promote more medium- and long-term funding of the assets and activities of ~~banking~~these entities over a one-year time horizon. The liquidity coverage ratio is not expected to be introduced as a requirement until January 1, 2015, and the net stable funding ratio is not expected to be introduced as a requirement until January 1, 2018. While the principles behind the new framework are broadly consistent with our current liquidity management framework, it is possible that the implementation of these standards could impact our liquidity and funding requirements and practices. Under the Basel Committee framework, the liquidity coverage ratio would be introduced on January 1, 2015; however, there would be a phase-in period whereby firms would have a 60% minimum in 2015 which would be raised 10% per year until it reaches 100% in 2019. The net stable funding ratio is not expected to be introduced as a requirement until January 1, 2018.


158		Goldman Sachs ~~September 2012~~March 2013 Form 10-Q		~~163~~

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management’s Discussion and Analysis

Credit Ratings

The table below presents the unsecured credit ratings and outlook of Group Inc.

As of ~~September 2012~~March 2013

Short-Term

Debt

Long-Term

Debt

Subordinated

Debt

Trust
Preferred

Preferred

Stock

Ratings

Outlook

DBRS, Inc.

R-1 (middle

)

A (high

)

BBB

Stable

Fitch, Inc.

A-

BBB-

BB+

⁴³

Stable

Moody’s Investors Service (Moody’s)

P-2

Baa1

Baa3

Ba2

Negative

⁵⁴

Standard & Poor’s Ratings Services (S&P)

A-2

A-

BBB+

BB+

BB+

Negative

Rating and Investment Information, Inc.

a-1

A+

N/A

Negative

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

2.	Includes the senior guaranteed trust securities issued by Murray Street Investment Trust I and Vesey Street Investment Trust I.

3.	Includes Group Inc.’s non-cumulative preferred stock and the APEX issued by Goldman Sachs Capital II and Goldman Sachs Capital III.

4.	Includes Group Inc.’s non-cumulative preferred stock and the APEX issued by Goldman Sachs Capital II. The APEX issued by Goldman Sachs Capital III has been assigned a rating of BBB-. On October 3, 2012, Fitch, Inc. lowered the rating on the APEX issued by Goldman Sachs Capital III from BBB- to BB+.

5.	The ratings outlook for trust preferred and preferred stock is stable.

The table below presents the unsecured credit ratings of GS Bank USA, GS&Co. and GSI.

As of ~~September 2012~~March 2013

Short-Term

Debt

Long-Term
Debt

Short-Term

Bank Deposits

Long-Term

Bank Deposits

Fitch, Inc.

GS Bank USA

A+

GS&Co.

N/A

GSI

N/A

Moody’s

GS Bank USA

P-1

S&P

GS Bank USA

A-1

N/A

GS&Co.

A-1

N/A

GSI

A-1

N/A

We rely on the short-term and long-term debt capital markets to fund a significant portion of our day-to-day operations and the cost and availability of debt financing is influenced by our credit ratings. Credit ratings are also important when we are competing in certain markets, such as OTC derivatives, and when we seek to engage in

longer-term transactions. See “Certain Risk Factors That May Affect Our Businesses” below and “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K for a discussion of the risks associated with a reduction in our credit ratings.


~~164~~		Goldman Sachs ~~September 2012~~March 2013 Form 10-Q		159

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management’s Discussion and Analysis

We believe our credit ratings are primarily based on the credit rating agencies’ assessment of:

our liquidity, market, credit and operational risk management practices;

the level and variability of our earnings;

our capital base;

our franchise, reputation and management;

our corporate governance; and

the external operating environment, including the assumed level of government support.

Certain of the firm’s derivatives have been transacted under bilateral agreements with counterparties who may require us to post collateral or terminate the transactions based on changes in our credit ratings. We assess the impact of these bilateral agreements by determining the collateral or termination payments that would occur assuming a downgrade by all rating agencies. A downgrade by any one rating agency, depending on the agency’s relative ratings of the firm at the time of the downgrade, may have an impact which is comparable to the impact of a downgrade by all rating agencies. We allocate a portion of our GCE to ensure we would be able to make the additional collateral or termination payments that may be required in the event of a two-notch reduction in our long-term credit ratings, as well as collateral that has not been called by counterparties, but is available to them. The table below presents the additional collateral or termination payments that could have been called at the reporting date by counterparties in the event of a one-notch and two-notch downgrade in our credit ratings.

As of
in millions

September
2012



December
2011
Additional collateral or termination payments for a one-notch downgrade
$1,397       $1,303
Additional collateral or termination payments for a two-notch downgrade
2,698       2,183


	As of
in millions		March 2013	December 2012
Additional collateral or termination payments for a one-notch downgrade		$1,597	$1,534

Additional collateral or termination payments for a two-notch downgrade		2,476	2,500

Cash Flows

As a global financial institution, our cash flows are complex and bear little relation to our net earnings and net assets. Consequently, we believe that traditional cash flow analysis is less meaningful in evaluating our liquidity position than the excess liquidity and asset-liability management policies described above. Cash flow analysis may, however, be helpful in highlighting certain macro trends and strategic initiatives in our businesses.

~~Nine~~Three Months Ended ~~September 2012.~~March 2013.Our cash and cash equivalents ~~increased~~decreased by ~~$7.63~~$9.34 billion to ~~$63.64~~$63.33 billion at the end of the ~~third~~first quarter of ~~2012. We generated $9.92 billion in net cash from operating activities.~~2013. We used net cash of ~~$2.29~~$5.70 billion for operating activities. We used $3.64 billion in net cash for investing and financing activities ~~primarily~~ for net repayments of unsecured and secured ~~and unsecured~~short-term borrowings and repurchases of common stock, partially offset by an increase in bank ~~deposits and proceeds from preferred stock issuances.~~deposits.

~~Nine~~Three Months Ended ~~September 2011.~~March 2012.Our cash and cash equivalents increased by ~~$4.42~~$1.13 billion to ~~$44.20~~$57.14 billion at the end of the ~~third~~first quarter of ~~2011.~~2012. We generated ~~$2.43~~$3.78 billion in net cash from operating activities. We ~~generated~~used net cash of ~~$1.99~~$2.65 billion ~~from~~in investing and financing activities, primarily from the net ~~issuances~~repayments of ~~unsecured~~secured and ~~secured long-term~~unsecured borrowings, partially offset by ~~repurchases of our Series G Preferred Stock and common stock.~~a net increase in bank deposits.


160		Goldman Sachs ~~September 2012~~March 2013 Form 10-Q		~~165~~

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management’s Discussion and Analysis

Market Risk Management

Overview

Market risk is the risk of loss in the value of our inventory due to changes in market prices. We hold inventory primarily for market making for our clients and for our investing and lending activities. Our inventory therefore changes based on client demands and our investment opportunities. Our inventory is accounted for at fair value and therefore fluctuates on a daily ~~basis.~~basis, with the related gains and losses included in “Market making,” and “Other principal transactions.” Categories of market risk include the following:

Interest rate risk: results from exposures to changes in the level, slope and curvature of yield curves, the volatilities of interest rates, mortgage prepayment speeds and credit spreads.

Equity price risk: results from exposures to changes in prices and volatilities of individual equities, baskets of equities and equity indices.

Currency rate risk: results from exposures to changes in spot prices, forward prices and volatilities of currency rates.

Commodity price risk: results from exposures to changes in spot prices, forward prices and volatilities of commodities, such as electricity, natural gas, crude oil, petroleum products, and precious and base metals.

Market Risk Management Process

We manage our market risk by diversifying exposures, controlling position sizes and establishing economic hedges in related securities or derivatives. This includes:

accurate and timely exposure information incorporating multiple risk metrics;

a dynamic limit setting framework; and

constant communication among revenue-producing units, risk managers and senior management.

Market Risk Management, which is independent of the revenue-producing units and reports to the firm’s chief risk officer, has primary responsibility for assessing, monitoring and managing market risk at the firm. We monitor and control risks through strong firmwide oversight and independent control and support functions across the firm’s global businesses.

Managers in revenue-producing units are accountable for managing risk within prescribed limits. These managers have in-depth knowledge of their positions, markets and the instruments available to hedge their exposures.

Managers in revenue-producing units and Market Risk Management discuss market information, positions and estimated risk and loss scenarios on an ongoing basis.

Risk Measures

Market Risk Management produces risk measures and monitors them against market risk limits set by our firm’s risk committees. These measures reflect an extensive range of scenarios and the results are aggregated at trading desk, business and firmwide levels.

We use a variety of risk measures to estimate the size of potential losses for both moderate and more extreme market moves over both short-term and long-term time horizons. ~~Risk~~Our primary risk measures are VaR, which is used for shorter-term periods, ~~include VaR~~ and ~~sensitivity metrics. For longer-term horizons, our primary risk measures are~~ stress tests. Our risk reports detail key risks, drivers and changes for each desk and business, and are distributed daily to senior management of both our revenue-producing units and our independent control and support functions.

~~Systems~~

~~We have made a significant investment in technology to monitor market risk including:~~

~~an independent calculation of VaR and stress measures;~~

~~risk measures calculated at individual position levels;~~

~~attribution of risk measures to individual risk factors of each position;~~

~~the ability to report many different views of the risk measures (e.g., by desk, business, product type or legal entity); and~~

~~the ability to produce ad hoc analyses in a timely manner.~~


~~166~~		~~Goldman Sachs September 2012 Form 10-Q~~

~~THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES~~

~~Management’s Discussion and Analysis~~

Value-at-Risk

VaR is the potential loss in value of inventory positions due to adverse market movements over a defined time horizon with a specified confidence level. We typically employ a one-day time horizon with a 95% confidence level. We use a single VaR model which captures risks including interest rates, equity prices, currency rates and commodity prices. As such, VaR facilitates comparison across portfolios of different risk characteristics. VaR also captures the diversification of aggregated risk at the firmwide level.

We are aware of the inherent limitations to VaR and therefore use a variety of risk measures in our market risk management process. Inherent limitations to VaR include:

VaR does not estimate potential losses over longer time horizons where moves may be extreme.

VaR does not take account of the relative liquidity of different risk positions.

Previous moves in market risk factors may not produce accurate predictions of all future market moves.


		Goldman Sachs March 2013 Form 10-Q		161

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management’s Discussion and Analysis

When calculating VaR, we use historical simulations with full valuation of approximately 70,000 market factors. VaR is calculated at a position level based on simultaneously shocking the relevant market risk factors for that position. We sample from 5 years of historical data to generate the scenarios for our VaR calculation. The historical data ~~used in our VaR calculation~~ is weighted ~~to give~~so that the relative importance of the data reduces over time. This gives greater importance to more recent observations and ~~reflect~~reflects current asset ~~volatilities. This~~volatilities, which improves the accuracy of our estimates of potential loss. As a result, even if our inventory positions were unchanged, our VaR would increase with increasing market volatility and vice versa.

Given its reliance on historical data, VaR is most effective in estimating risk exposures in markets in which there are no sudden fundamental changes or shifts in market conditions.

We evaluate the accuracy of our VaR model through daily backtesting (i.e., comparing daily trading net revenues to the VaR measure calculated as of the prior business day) at the firmwide level and for each of our businesses and major regulated subsidiaries. Our VaR model is regularly reviewed and enhanced in order to incorporate changes in the composition of inventory positions, as well as variations in market conditions. Prior to implementing significant changes to our VaR assumptions and/or model, we perform model validation and test runs. Significant changes to our VaR model are reviewed with the firm’s chief risk officer and chief financial officer, and approved by the Firmwide Risk Committee.

Our VaR measure does not include:

positions that are best measured and monitored using ~~sensitivity measures;~~stress testing; and

the impact of changes in counterparty and our own credit spreads on derivatives, as well as changes in our own credit spreads on unsecured borrowings for which the fair value option was elected.

Stress Testing

Stress testing is a method of determining the effect on the firm of various hypothetical stress scenarios. We use stress testing to examine risks of specific portfolios as well as the potential impact of significant risk exposures across the firm. We use a variety of ~~scenarios~~stress testing techniques to calculate the potential loss from a wide range of market moves on the firm’s ~~portfolios. These scenarios include the default~~portfolios, including sensitivity analysis, scenario analysis and firmwide stress tests. The results of ~~single corporate or sovereign entities,~~our various stress tests are analyzed together for risk management purposes.

Sensitivity analysis is used to quantify the impact of a market move in a single risk factor across all positions (e.g., equity prices or credit spreads) using a variety of defined market shocks, ranging from those that could be expected over a one-day time horizon up to those that could take many months to occur. We also use sensitivity analysis to quantify the impact of the default of a single corporate entity, which captures the risk of large or concentrated exposures.

Scenario analysis is used to quantify the impact of a ~~combination of two or more~~specified event, including how the event impacts multiple risk ~~factors.~~factors simultaneously. For example, for sovereign stress testing we calculate potential direct exposure associated with our sovereign inventory as well as the corresponding debt, equity and currency exposures associated with our non-sovereign inventory that may be impacted by the sovereign distress. When conducting scenario analysis, we typically consider a number of possible outcomes for each scenario, ranging from moderate to severely adverse market impacts. In addition, these stress tests are constructed using both historical events and forward-looking hypothetical scenarios.

Firmwide stress testing combines market, credit, operational and liquidity risks into a single combined scenario. Firmwide stress tests are primarily used to assess capital adequacy as part of the ICAAP process; however, we also ensure that firmwide stress testing is integrated into our risk governance framework. This includes selecting appropriate scenarios to use for the ICAAP process. See “Equity Capital — Internal Capital Adequacy Assessment Process” above for further information about our ICAAP process.

Unlike VaR measures, which have an implied probability because they are calculated at a specified confidence level, there is generally no implied probability that our stress test scenarios will occur. Instead, stress tests are used to model both moderate and more extreme moves in underlying market factors. When estimating potential loss, we generally assume that our positions cannot be reduced or hedged (although experience demonstrates that we are generally able to do so).

Stress test scenarios are conducted on a regular basis as part of the firm’s routine risk management process and on an ad hoc basis in response to market events or concerns. Stress testing is an important part of the firm’s risk management process because it allows us to quantify our exposure to tail risks, highlight potential loss concentrations, undertake risk/reward analysis, and assess and mitigate our risk positions.


162		Goldman Sachs ~~September 2012~~March 2013 Form 10-Q		~~167~~

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management’s Discussion and Analysis

Limits

We use risk limits at various levels in the firm (including firmwide, product and business) to govern risk appetite by controlling the size of our exposures to market risk. Limits are set based on VaR and on a range of stress tests relevant to the firm’s exposures. Limits are reviewed frequently and amended on a permanent or temporary basis to reflect changing market conditions, business conditions or tolerance for risk.

The Firmwide Risk Committee sets market risk limits at firmwide and product levels and our Securities Division Risk Committee sets sub-limits for market-making and investing activities at a business level. The purpose of the firmwide limits is to assist senior management in controlling the firm’s overall risk profile. Sub-limits set the desired maximum amount of exposure that may be managed by any particular business on a day-to-day basis without additional levels of senior management approval, effectively leaving day-to-day trading decisions to individual desk managers and traders. Accordingly, sub-limits are a management tool designed to ensure appropriate escalation rather than to establish maximum risk tolerance. Sub-limits also distribute risk among various businesses in a manner that is consistent with their level of activity and client demand, taking into account the relative performance of each area.

Our market risk limits are monitored daily by Market Risk Management, which is responsible for identifying and escalating, on a timely basis, instances where limits have been exceeded. The business-level limits that are set by the Securities Division Risk Committee are subject to the same scrutiny and limit escalation policy as the firmwide limits.

When a risk limit has been exceeded (e.g., due to changes in market conditions, such as increased volatilities or changes in correlations), it is reported to the appropriate risk committee and a discussion takes place with the relevant desk managers, after which either the risk position is reduced or the risk limit is temporarily or permanently increased.

Model Review and Validation

Our VaR and stress testing models are subject to review and validation by our independent model validation group at least annually. This review includes:

a critical evaluation of the model, its theoretical soundness and adequacy for intended use;

verification of the testing strategy utilized by the model developers to ensure that the model functions as intended; and

verification of the suitability of the calculation techniques incorporated in the model.

Our VaR and stress testing models are regularly reviewed and enhanced in order to incorporate changes in the composition of inventory positions, as well as variations in market conditions. Prior to implementing significant changes to our assumptions and/or models, we perform model validation and test runs. Significant changes to our VaR and stress testing models are reviewed with the firm’s chief risk officer and chief financial officer, and approved by the Firmwide Risk Committee.

Systems

We have made a significant investment in technology to monitor market risk including:

an independent calculation of VaR and stress measures;

risk measures calculated at individual position levels;

attribution of risk measures to individual risk factors of each position;

the ability to report many different views of the risk measures (e.g., by desk, business, product type or legal entity); and

the ability to produce ad hoc analyses in a timely manner.


		Goldman Sachs March 2013 Form 10-Q		163

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management’s Discussion and Analysis

Metrics

We analyze VaR at the firmwide level and a variety of more detailed levels, including by risk category, business, and region. The tables below present, by risk category, average daily VaR and period-end VaR, as well as the high and low VaR for the period. Diversification effect in the tables below represents the difference between total VaR and the sum of the VaRs for the four risk categories. This effect arises because the four market risk categories are not perfectly correlated.

Average Daily VaR


in millions Risk Categories	Three Months Ended September					Nine Months Ended September				Three Months Ended March
in millions Risk Categories		2012		2011			2012		2011		2013		2012
Interest rates		$ 73		$ 90			$ 82		$ 84		$ 62		$ 90

Equity prices		21		24			24		36		30		29

Currency rates		12		15			15		20		14		15

Commodity prices		22		25			22		34		21		26

Diversification effect		(47	)	(52	)		(54	)	(69)		(51	)	(65	)
Total		$ 81		$102			$ 89		$105		$ 76		$ 95

Our average daily VaR decreased to ~~$81~~$76 million for the ~~third~~first quarter of ~~2012~~2013 from ~~$102~~$95 million for the ~~third~~first quarter of ~~2011,~~2012, primarily reflecting a decrease in the interest rates category ~~principally~~ due to lower levels of ~~volatility.~~

Our average daily VaR decreased to $89 million for the nine months ended September 2012 from $105 million for the nine months ended September 2011, primarily reflecting decreases in the equity prices, commodity prices and currency rates categories, principally due to reduced exposures. These decreases werevolatility, partially offset by a decrease in the diversification benefit across risk categories.

Quarter-End VaR and High and Low VaR


in millions Risk Categories	As of					Three Months Ended September 2012			As of						Three Months Ended March 2013
in millions Risk Categories		September 2012		June 2012			High	Low	March			December			Three Months Ended March 2013
in millions Risk Categories										2013			2012			High		Low
		$ 71		$ 79			$ 80	$64		$ 67			$ 64			$ 70		$55

Equity prices		19		17			92	14		24			22			90	¹	20

Currency rates		10		15			19	9		18			9			22		9

Commodity prices		24		19			25	18		17			18			25		16

Diversification effect		(43	)	(45	)					(43	)		(42	)
Total		$ 81		$ 85			$122	$72		$ 83			$ 71			$127		$64

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

Our daily VaR ~~decreased~~increased to ~~$81~~$83 million as of ~~September 2012~~March 2013 from ~~$85~~$71 million as of ~~June~~December 2012, primarily reflecting a decrease in the interest rates category, principally due to lower levels of volatility, and a decrease in the currency rates category due to reduced exposures. These decreases were partially offset by an increase in the ~~commodity prices~~currency rates category, principally due to increased exposures.

During the ~~third~~first quarter of ~~2012,~~2013, the firmwide VaR risk limit was not exceeded, ~~and was reduced on one occasion due to lower levels of volatility.~~raised or reduced.


~~168~~164		Goldman Sachs ~~September 2012~~March 2013 Form 10-Q

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management’s Discussion and Analysis

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

LOGO

The chart below presents the frequency distribution of our daily trading net revenues for substantially all inventory

positions included in VaR for the quarter ended ~~September 2012.~~March 2013.

LOGO

Daily trading net revenues are compared with VaR calculated as of the end of the prior business day. Trading losses incurred on a single day did not exceed our 95% one-day VaR during the ~~third~~first quarter of ~~2012.~~2013 (i.e., a VaR exception).

During periods in which the firm has significantly more positive net revenue days than net revenue loss days, we expect to have fewer VaR exceptions because, under

normal conditions, our business model generally produces positive net revenues. In periods in which our franchise revenues are adversely affected, we generally have more loss days, resulting in more VaR exceptions. In addition, VaR backtesting is performed against total daily market-making revenues, including bid/offer net revenues, which are more likely than not to be positive by their nature.


		Goldman Sachs ~~September 2012~~March 2013 Form 10-Q		~~169~~165

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management’s Discussion and Analysis

Sensitivity Measures

Certain portfolios and individual positions are not included in VaR because VaR is not the most appropriate risk measure. The market risk of these positions is determined by estimating the potential reduction in net revenues of a 10% decline in the underlying asset value.

The table below presents market risk for positions that are not included in VaR. These measures do not reflect diversification benefits across asset categories and therefore have not been aggregated.


Asset Categories	10% Sensitivity		10% Sensitivity
Asset Categories	Amount as of
			Amount as of
in millions	September 2012	June 2012		March 2013	December 2012
ICBC	$ 173	$ 162		$ 111	$ 208

Equity (excluding ICBC) ¹	2,404	2,413		2,235	2,263

Debt ²	1,700	1,522		1,568	1,676

1.	Relates to private and restricted public equity securities, including interests in firm-sponsored funds that invest in corporate equities and real estate and interests in firm-sponsored hedge funds.

2.	Primarily relates to interests in our firm-sponsored funds that invest in corporate mezzanine and senior debt instruments. Also includes loans backed by commercial and residential real estate, corporate bank loans and other corporate debt, including acquired portfolios of distressed loans.

The ~~increase~~decrease in our 10% sensitivity measure for ICBC as of ~~September~~March 2013 from December 2012 ~~from June 2012 for debt positions~~ was ~~primarily~~ due to ~~new investments.~~the sale of approximately 45% of the ordinary shares in January 2013.

VaR excludes the impact of changes in counterparty and our own credit spreads on derivatives as well as changes in our own credit spreads on unsecured borrowings for which the fair value option was elected. The estimated sensitivity to a one basis point increase in credit spreads (counterparty and our own) on derivatives was a $4$3 million gain (including hedges) as of ~~September 2012.~~March 2013. In addition, the estimated sensitivity to a one basis point increase in our own credit spreads on unsecured borrowings for which the fair value option was elected was ~~a $7~~an $8 million gain (including hedges) as of ~~September 2012.~~March 2013. However, the actual net impact of a change in our own credit spreads is also affected by the liquidity, duration and convexity (as the sensitivity is not linear to changes in yields) of those unsecured borrowings for which the fair value option was elected, as well as the relative performance of any hedges undertaken.

The firm engages in insurance activities where we reinsure and purchase portfolios of insurance risk and pension liabilities. The risks associated with these activities include, but are not limited to: equity price, interest rate, reinvestment and mortality risk. The firm mitigates risks

associated with insurance activities through the use of reinsurance and hedging. Certain of the assets associated with the firm’s insurance activities are included in VaR. In addition to the positions included in VaR, we held ~~$9.08~~$8.90 billion of securities accounted for as available-for-sale as of ~~September 2012, substantially all of~~March 2013, which support the firm’s ~~insurance subsidiaries.~~reinsurance business. As of ~~September 2012,~~March 2013, our available-for-sale securities primarily consisted of ~~$4.15~~$3.38 billion of corporate debt securities with an average yield of 4%, the majority of which will mature after five years, $3.50 billion of mortgage and other asset-backed loans and securities with an average yield of 7%, the majority of which will mature after ten years, $682 million of state and municipal obligations with an average yield of 6%, the majority of which will mature after ten years, and $637 million of U.S. government and federal agency obligations with an average yield of 3%, the majority of which will mature after ten years. As of December 2012, we held $9.07 billion of securities accounted for as available-for-sale, primarily consisting of $3.63 billion of corporate debt securities with an average yield of 4%, the majority of which will mature after five years, ~~$2.83~~$3.38 billion of mortgage and other asset-backed loans and securities with an average yield of 6%, the majority of which will mature after ten years, and ~~$883~~$856 million of U.S. government and federal agency obligations with an average yield of 2%3%, the majority of which will mature after five years. As of ~~June~~March 2013 and December 2012, wesuch assets were classified as held ~~$6.96 billion~~for sale and were included in “Other assets.” See Note 12 to the condensed consolidated financial statements in Part I, Item 1 of ~~securities accounted~~this Form 10-Q for as available-for-sale, primarily consisting of $2.95 billion of corporate debt securities with an average yield of 4%, the majority of which will mature after five years, $2.08 billion of mortgage and other asset-backed loans and securities with an average yield of 7%, the majority of which will mature after ten years, and $1.01 billion of U.S. government and federal agency obligations with an average yield of 2%, the majority of which will mature after five years.further information about assets held for sale.

In addition, as of ~~September 2012~~March 2013 and ~~June~~December 2012, we had commitments and held loans for which we have obtained credit loss protection from Sumitomo Mitsui Financial Group, Inc. See Note 18 to the condensed consolidated financial statements in Part I, Item 1 of this Form 10-Q for further information about such lending commitments. As of March 2013, the firm also had $7.88 billion of loans held for investment which were accounted for at amortized cost and included in “Receivables from customers and counterparties,” substantially all of which had floating interest rates. The estimated sensitivity to a 100 basis point increase in interest rates on such loans was $74 million of additional interest income over a 12-month period, which does not take into account the potential impact of an increase in costs to fund such loans. See Note 8 to the condensed consolidated financial statements in Part I, Item 1 of this Form 10-Q for further information about loans held for investment.


166		Goldman Sachs March 2013 Form 10-Q

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management’s Discussion and Analysis

Additionally, we make investments accounted for under the equity method and we also make direct investments in real estate, both of which are included in “Other assets” in the condensed consolidated statements of financial condition. Direct investments in real estate are accounted for at cost less accumulated depreciation. See Note 12 to the condensed consolidated financial statements in Part I, Item 1 of this Form 10-Q for information on “Other assets.”


~~170~~		~~Goldman Sachs September 2012 Form 10-Q~~

~~THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES~~

~~Management’s Discussion and Analysis~~

Credit Risk Management

Overview

Credit risk represents the potential for loss due to the default or deterioration in credit quality of a counterparty (e.g., an OTC derivatives counterparty or a borrower) or an issuer of securities or other instruments we hold. Our exposure to credit risk comes mostly from client transactions in OTC derivatives and loans and lending commitments. Credit risk also comes from cash placed with banks, securities financing transactions (i.e., resale and repurchase agreements and securities borrowing and lending activities) and receivables from brokers, dealers, clearing organizations, customers and counterparties.

Credit Risk Management, which is independent of the revenue-producing units and reports to the firm’s chief risk officer, has primary responsibility for assessing, monitoring and managing credit risk at the firm. The Credit Policy Committee and the Firmwide Risk Committee establish and review credit policies and parameters. In addition, we hold other positions that give rise to credit risk (e.g., bonds held in our inventory and secondary bank loans). These credit risks are captured as a component of market risk measures, which are monitored and managed by Market Risk Management, consistent with other inventory positions.

Policies authorized by the Firmwide Risk Committee and the Credit Policy Committee prescribe the level of formal approval required for the firm to assume credit exposure to a counterparty across all product areas, taking into account any ~~enforceable~~applicable netting provisions, collateral or other credit risk mitigants.

Credit Risk Management Process

Effective management of credit risk requires accurate and timely information, a high level of communication and knowledge of customers, countries, industries and products. Our process for managing credit risk includes:

approving transactions and setting and communicating credit exposure limits;

monitoring compliance with established credit exposure limits;

assessing the likelihood that a counterparty will default on its payment obligations;

measuring the firm’s current and potential credit exposure and losses resulting from counterparty default;

reporting of credit exposures to senior management, the Board and regulators;

use of credit risk mitigants, including collateral and hedging; and

communication and collaboration with other independent control and support functions such as operations, legal and compliance.

As part of the risk assessment process, Credit Risk Management performs credit reviews which include initial and ongoing analyses of our counterparties. A credit review is an independent judgment about the capacity and willingness of a counterparty to meet its financial obligations. For substantially all of our credit exposures, the core of our process is an annual counterparty review. A counterparty review is a written analysis of a counterparty’s business profile and financial strength resulting in an internal credit rating which represents the probability of default on financial obligations to the firm. The determination of internal credit ratings incorporates assumptions with respect to the counterparty’s future business performance, the nature and outlook for the counterparty’s industry, and the economic environment. Senior personnel within Credit Risk Management, with expertise in specific industries, inspect and approve credit reviews and internal credit ratings.

Our global credit risk management systems capture credit exposure to individual counterparties and on an aggregate basis to counterparties and their subsidiaries (economic groups). These systems also provide management with comprehensive information on our aggregate credit risk by product, internal credit rating, industry, country and region.


		Goldman Sachs ~~September 2012~~March 2013 Form 10-Q		~~171~~167

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management’s Discussion and Analysis

Risk Measures and Limits

We measure our credit risk based on the potential loss in an event of non-payment by a counterparty. For derivatives and securities financing transactions, the primary measure is potential exposure, which is our estimate of the future exposure that could arise over the life of a transaction based on market movements within a specified confidence level. Potential exposure takes into account netting and collateral arrangements. For loans and lending commitments, the primary measure is a function of the notional amount of the position. We also monitor credit risk in terms of current exposure, which is the amount presently owed to the firm after taking into account applicable netting and collateral.

We use credit limits at various levels (counterparty, economic group, industry, country) to control the size of our credit exposures. Limits for counterparties and economic groups are reviewed regularly and revised to reflect changing appetites for a given counterparty or group of counterparties. Limits for industries and countries are based on the firm’s risk tolerance and are designed to allow for regular monitoring, review, escalation and management of credit risk concentrations.

Stress Tests/Scenario Analysis

We use regular stress tests to calculate the credit exposures, including potential concentrations that would result from applying shocks to counterparty credit ratings or credit risk factors (e.g., currency rates, interest rates, equity prices). These shocks include a wide range of moderate and more extreme market movements. Some of our stress tests include shocks to multiple risk factors, consistent with the occurrence of a severe market or economic event. In the case of sovereign default, we estimate the direct impact of the default on our sovereign credit exposures, changes to our credit exposures arising from potential market moves in response to the default, and the impact of credit market deterioration on corporate borrowers and counterparties that may result from the sovereign default. Unlike potential exposure, which is calculated within a specified confidence level, with a stress test there is generally no assumed probability of these events occurring.

We run stress tests on a regular basis as part of our routine risk management processes and conduct tailored stress tests on an ad hoc basis in response to market developments. Stress tests are regularly conducted jointly with the firm’s market and liquidity risk functions.

Risk Mitigants

To reduce our credit exposures on derivatives and securities financing transactions, we may enter into netting agreements with counterparties that permit us to offset receivables and payables with such counterparties. We may also reduce credit risk with counterparties by entering into agreements that enable us to obtain collateral from them on an upfront or contingent basis and/or to terminate transactions if the counterparty’s credit rating falls below a specified level.

For loans and lending commitments, ~~we typically employ a variety of potential risk mitigants,~~ depending on the credit quality of the borrower and other characteristics of the ~~transaction.~~transaction, we employ a variety of potential risk mitigants. Risk mitigants include: collateral provisions, guarantees, covenants, structural seniority of the bank loan claims and, for certain lending commitments, provisions in the legal documentation that allow the firm to adjust loan amounts, pricing, structure and other terms as market conditions change. The type and structure of risk mitigants employed can significantly influence the degree of credit risk involved in a loan.

When we do not have sufficient visibility into a counterparty’s financial strength or when we believe a counterparty requires support from its parent company, we may obtain third-party guarantees of the counterparty’s obligations. We may also mitigate our credit risk using credit derivatives or participation agreements.


~~172~~168		Goldman Sachs ~~September 2012~~March 2013 Form 10-Q

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management’s Discussion and Analysis

Credit Exposures

The firm’s credit exposures are described further below.

Cash and Cash Equivalents. Cash and cash equivalents include both interest-bearing and non-interest-bearing deposits. To mitigate the risk of credit loss, we place substantially all of our deposits with highly rated banks and central banks.

OTC Derivatives. Derivatives are accounted for at fair value, net of cash collateral received or posted under enforceable credit support agreements. Derivatives are reported on a net-by-counterparty basis (i.e., the net payable or receivable for derivative assets and liabilities for a given counterparty) when a legal right of setoff exists under an enforceable netting agreement.

~~Derivatives are accounted for at fair value net of cash collateral received or posted under credit support agreements.~~ As credit risk is an essential component of fair value, the firm includes a credit valuation adjustment (CVA) in the fair value of derivatives to reflect counterparty credit risk, as described in Note 7 to the condensed consolidated financial statements in Part I, Item 1 of this Form 10-Q. CVA is a function of the present value of expected exposure, the probability of counterparty default and the assumed recovery upon default.

The tables below present the distribution of our exposure to OTC derivatives by tenor, based on expected duration for mortgage-related credit derivatives and generally on remaining contractual maturity for other derivatives, both before and after the effect of collateral and netting agreements. Receivable and payable balances for the same counterparty across tenor categories are netted under enforceable netting agreements, and cash collateral received is netted under enforceable credit support agreements. Receivable and payable balances with the same counterparty in the same tenor category are netted within such tenor category. Net credit exposure in the tables below represents OTC derivative assets included in “Financial instruments owned, at fair value” less the fair value of securities collateral and cash collateral received under credit support agreements, which management considers when determining credit risk, but such collateral is not eligible for netting under U.S. GAAP. The categories shown reflect our internally determined public rating agency equivalents.


	As of September 2012									As of March 2013
in millions Credit Rating Equivalent		0 - 12 Months	1 - 5 Years	5 Years or Greater	Total	Netting		Exposure	Exposure Net of Collateral		0 - 12 Months	1 - 5 Years	5 Years or Greater	Total	Netting		OTC Derivative Assets	Net Credit Exposure
AAA/Aaa		$ 398	$ 1,883	$ 2,682	$ 4,963	$ (1,305	)	$ 3,658	$ 3,365		$ 650	$ 1,655	$ 2,798	$ 5,103	$ (1,505	)	$ 3,598	$ 3,243

AA/Aa2		3,780	8,189	21,748	33,717	(16,032	)	17,685	11,486		4,990	6,706	21,383	33,079	(16,128	)	16,951	10,039

A/A2		13,113	29,163	42,296	84,572	(62,262	)	22,310	14,241		12,439	25,669	37,078	75,186	(52,356	)	22,830	13,592

BBB/Baa2		7,493	13,392	29,169	50,054	(35,236	)	14,818	5,099		7,316	11,174	24,935	43,425	(31,695	)	11,730	4,061

BB/Ba2 or lower		2,970	4,665	9,837	17,472	(9,269	)	8,203	5,335		2,941	5,183	4,214	12,338	(5,782	)	6,556	4,830

Unrated		456	815	262	1,533	(6	)	1,527	1,141		676	953	321	1,950	(30	)	1,920	1,509
Total		$28,210	$58,107	$105,994	$192,311	$(124,110	)	$68,201	$40,667		$29,012	$51,340	$ 90,729	$171,081	$(107,496	)	$63,585	$37,274

	As of December 2011									As of December 2012
in millions Credit Rating Equivalent		0 - 12 Months	1 - 5 Years	5 Years or Greater	Total	Netting		Exposure	Exposure Net of Collateral		0 - 12 Months	1 - 5 Years	5 Years or Greater	Total	Netting		OTC Derivative Assets	Net Credit Exposure
AAA/Aaa		$ 727	$ 786	$ 2,297	$ 3,810	$ (729	)	$ 3,081	$ 2,770		$ 494	$ 1,934	$ 2,778	$ 5,206	$ (1,476	)	$ 3,730	$ 3,443

AA/Aa2		4,661	10,198	28,094	42,953	(22,972	)	19,981	12,954		4,631	7,483	20,357	32,471	(16,026	)	16,445	10,467

A/A2		17,704	36,553	50,787	105,044	(73,873	)	31,171	17,109		13,422	26,550	42,797	82,769	(57,868	)	24,901	16,326

BBB/Baa2		7,376	14,222	25,612	47,210	(36,214	)	10,996	6,895		7,032	12,173	27,676	46,881	(32,962	)	13,919	4,577

BB/Ba2 or lower		2,896	4,497	6,597	13,990	(6,729	)	7,261	4,527		2,489	5,762	7,676	15,927	(9,116	)	6,811	4,544

Unrated		752	664	391	1,807	(149	)	1,658	1,064		326	927	358	1,611	(13	)	1,598	1,259
Total		$34,116	$66,920	$113,778	$214,814	$(140,666	)	$74,148	$45,319		$28,394	$54,829	$101,642	$184,865	$(117,461	)	$67,404	$40,616


		Goldman Sachs ~~September 2012~~March 2013 Form 10-Q		~~173~~169

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management’s Discussion and Analysis

Lending Activities.We manage the firm’s traditional credit origination activities, including funded loans and lending commitments (both fair value and held for investment loans and lending commitments), using the credit risk process, measures and limits described above. Other lending positions, including secondary trading positions, are risk-managed as a component of market risk.

Other Credit Exposures.The firm is exposed to credit risk from its receivables from brokers, dealers and clearing organizations and customers and counterparties. Receivables from brokers, dealers and clearing organizations are primarily comprised of initial margin placed with clearing organizations and receivables related to sales of securities which have traded, but not yet settled. These receivables have minimal credit risk due to the low probability of clearing organization default and the short-term nature of receivables related to securities settlements. Receivables from customers and counterparties are generally comprised of collateralized receivables related ~~tocustomer~~to customer securities transactions and have minimal credit risk due to both the value of the collateral received and the short-term nature of these receivables.

Credit Exposures

As of ~~September 2012,~~March 2013, our credit exposures ~~increased~~decreased as compared with December ~~2011,~~2012, reflecting a decrease in cash and OTC derivative exposures, partially offset by an increase in ~~cash and~~ loans and lending ~~commitments, partially offset by a decrease in OTC derivative exposures.~~commitments. The percentage of our credit exposure arising from non-investment-grade counterparties (based on our internally determined public rating agency equivalents) ~~was essentially unchanged~~increased from December ~~2011. Counterparty defaults rose slightly during~~2012 reflecting an increase in loans and lending commitments. During the ~~nine~~three months ended ~~September 2012; however,~~March 2013, counterparty defaults and the estimated losses associated ~~credit losses~~with these counterparty defaults were lower as compared with the same prior year period.

The tables below present the firm’s credit exposures related to cash, OTC derivatives, and loans and lending commitments associated with traditional credit origination activities broken down by industry, region and internal credit rating.


~~174~~170		Goldman Sachs ~~September 2012~~March 2013 Form 10-Q

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management’s Discussion and Analysis

Credit Exposure by Industry


	Cash			OTC Derivatives			Loans and Lending Commitments ¹		Cash			OTC Derivatives			Loans and Lending Commitments ¹
	As of			As of			As of		As of			As of			As of
in millions		September 2012	December 2011		September 2012	December 2011	September 2012	December 2011		March 2013	December 2012		March 2013	December 2012		March 2013	December 2012
Asset Managers & Funds		$ —	$ 64		$10,691	$10,582	$ 1,895	$ 1,290		$ —	$ —		$ 9,836	$10,552		$ 2,111	$ 1,673

Banks, Brokers & Other Financial Institutions		11,175	12,535		23,072	25,041	6,162	3,591		10,398	10,507		17,397	21,310		8,474	6,192

Consumer Products, Non-Durables & Retail		—	11		1,296	1,031	14,412	12,685		—	—		2,156	1,516		14,139	13,304

Government & Central Banks		52,464	43,389		13,733	16,642	1,490	1,828		52,935	62,162		15,178	14,729		1,695	1,782

Healthcare & Education		—	—		3,852	2,962	7,476	7,158		—	—		3,952	3,764		8,220	7,717

Insurance		—	—		3,200	2,828	3,456	2,891		—	—		3,628	4,214		3,224	3,199

Natural Resources & Utilities		—	—		4,901	4,803	15,633	14,795		—	—		4,830	4,383		16,972	16,360

Real Estate		—	—		383	327	2,918	2,695		—	—		330	381		4,332	3,796

Technology, Media, Telecommunications & Services		—	2		1,893	2,124	14,421	12,646		—	—		1,744	2,016		16,403	17,674

Transportation		—	—		1,078	1,104	6,348	5,753		—	—		904	1,207		6,415	6,557

Other		—	7		4,102	6,704	4,932	5,759		—	—		3,630	3,332		5,373	4,650
Total ²		$63,639	$56,008		$68,201	$74,148	$79,143	$71,091		$63,333	$72,669		$63,585	$67,404		$87,358	$82,904

Credit Exposure by Region


	Cash			OTC Derivatives			Loans and Lending Commitments ¹			Cash			OTC Derivatives			Loans and Lending Commitments ¹
	As of			As of			As of			As of			As of			As of
in millions		September 2012	December 2011		September 2012	December 2011		September 2012	December 2011		March 2013	December 2012		March 2013	December 2012		March 2013	December 2012
Americas		$56,182	$48,543		$34,484	$36,591		$58,698	$52,755		$55,124	$65,193		$28,793	$32,968		$60,433	$59,792

EMEA ³		1,277	1,800		26,625	29,549		18,841	16,989		2,486	1,683		27,858	26,739		24,485	21,104

Asia		6,180	5,665		7,092	8,008		1,604	1,347		5,723	5,793		6,934	7,697		2,440	2,008
Total ²		$63,639	$56,008		$68,201	$74,148		$79,143	$71,091		$63,333	$72,669		$63,585	$67,404		$87,358	$82,904

Credit Exposure by Credit Quality


	Cash			OTC Derivatives			Loans and Lending Commitments ¹			Cash			OTC Derivatives			Loans and Lending Commitments ¹
	As of			As of			As of			As of			As of			As of
in millions Credit Rating Equivalent		September 2012	December 2011		September 2012	December 2011		September 2012	December 2011		March 2013	December 2012		March 2013	December 2012		March 2013	December 2012
AAA/Aaa		$49,827	$40,559		$ 3,658	$ 3,081		$ 2,170	$ 2,192		$50,679	$59,825		$ 3,598	$ 3,730		$ 2,164	$ 2,179

AA/Aa2		5,467	7,463		17,685	19,981		7,551	7,026		5,580	6,356		16,951	16,445		6,996	7,220

A/A2		6,995	6,464		22,310	31,171		22,202	21,055		5,850	5,068		22,830	24,901		21,887	21,901

BBB/Baa2		217	195		14,818	10,996		26,136	22,937		228	326		11,730	13,919		27,903	26,313

BB/Ba2 or lower		1,133	1,209		8,203	7,261		21,084	17,820		996	1,094		6,556	6,811		28,243	25,291

Unrated		—	118		1,527	1,658		—	61		—	—		1,920	1,598		165	—
Total ²		$63,639	$56,008		$68,201	$74,148		$79,143	$71,091		$63,333	$72,669		$63,585	$67,404		$87,358	$82,904

Includes approximately ~~$11~~$17 billion and ~~$10~~$12 billion of loans as of ~~September 2012~~March 2013 and December ~~2011,~~2012, respectively, and approximately ~~$68~~$70 billion and ~~$61~~$71 billion of lending commitments as of ~~September 2012~~March 2013 and December ~~2011,~~2012, respectively. Excludes ~~approximately $10 billion of~~certain bank loans ~~as of both September 2012~~ and ~~December 2011,~~bridge loans and certain lending commitments ~~with a total notional value of approximately $7 billion and $5 billion as of September 2012 and December 2011, respectively,~~ that are risk managed as part of market risk using VaR and sensitivity measures.

The firm bears credit risk related to resale agreements and securities borrowed only to the extent that cash advanced or the value of securities pledged or delivered to the counterparty exceeds the value of the collateral received. The firm also has credit exposure on repurchase agreements and securities loaned to the extent that the value of securities pledged or delivered to the counterparty for these transactions exceeds the amount of cash or collateral received. We had approximately ~~$39~~$40 billion and ~~$41~~$37 billion as of ~~September 2012~~March 2013 and December ~~2011,~~2012, respectively, in credit exposure related to securities financing transactions reflecting ~~enforceable~~both netting ~~agreements.~~agreements and collateral that management considers when determining credit risk.

3.	EMEA (Europe, Middle East and Africa).


		Goldman Sachs ~~September 2012~~March 2013 Form 10-Q		~~175~~171

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management’s Discussion and Analysis

Selected Country Exposures

~~During 2011 and continuing into 2012, there~~There have been continuing concerns about European sovereign debt risk and its impact on the European banking system and a number of European member states have been experiencing significant credit deterioration. The most pronounced market concerns relate to Greece, Ireland, Italy, Portugal and Spain. The tables below present our credit exposure (both gross and net of hedges) to all sovereigns, financial institutions and corporate counterparties or borrowers in these countries. Credit exposure represents the potential for loss due to the default or deterioration in credit quality of a counterparty or borrower. In addition, the tables include the market

exposure of our long and short inventory for which the issuer or underlier is located in these countries. Market exposure represents the potential for loss in value of our inventory due to changes in market prices. There is no overlap between the credit and market exposures in the tables below.

The country of risk is determined by the location of the counterparty, issuer or underlier’s assets, where they generate revenue, the country in which they are headquartered, and/or the government whose policies affect their ability to repay their obligations.


	As of September 2012																					As of March 2013
	Credit Exposure												Market Exposure									Credit Exposure												Market Exposure
in millions		Loans		OTC Derivatives		Other	Gross Funded	Hedges		Total Net Funded Credit Exposure	Unfunded Credit Exposure	Total Credit Exposure		Debt		Equities and Other		Credit Derivatives		Total Market Exposure			Loans		OTC Derivatives		Other	Gross Funded	Hedges		Total Net Funded Credit Exposure	Unfunded Credit Exposure	Total Credit Exposure		Debt		Equities and Other		Credit Derivatives		Total Market Exposure
Greece
Sovereign		$ —		$ —		$ —	$ —	$ —		$ —	$ —	$ —		$ 43		$ —		$ —		$ 43			$ —		$ 92		$ —	$ 92	$ —		$ 92	$ —	$ 92		$ 36		$ —		$ —		$ 36

Non-Sovereign		—		33		—	33	—		33	—	33		69		—		11		80			—		18		6	24	—		24	—	24		60		32		(28	)	64
Total Greece		—		33		—	33	—		33	—	33		112		—		11		123			—		110		6	116	—		116	—	116		96		32		(28	)	100

Ireland
Sovereign		—		1		107	108	—		108	—	108		92		—		(420	)	(328	)		—		1		—	1	—		1	—	1		(11	)	—		(240	)	(251	)

Non-Sovereign		—		326		82	408	(22	)	386	—	386		480		74		178		732			454		281		83	818	(13	)	805	28	833		210		60		149		419
Total Ireland		—		327		189	516	(22	)	494	—	494		572		74		(242	)	404			454		282		83	819	(13	)	806	28	834		199		60		(91	)	168

Italy
Sovereign		—		1,282		19	1,301	(1,235	)	66	—	66		(325	)	—		(338	)	(663	)		—		1,809		64	1,873	(1,717	)	156	—	156		(566	)	—		(418	)	(984	)

Non-Sovereign		32		499		105	636	(35	)	601	505	1,106		247		78		(1,104	)	(779	)		100		611		114	825	(29	)	796	439	1,235		167		1		(1,492	)	(1,324	)
Total Italy		32		1,781		124	1,937	(1,270	)	667	505	1,172		(78	)	78		(1,442	)	(1,442	)		100		2,420		178	2,698	(1,746	)	952	439	1,391		(399	)	1		(1,910	)	(2,308	)

Portugal
Sovereign		—		127		96	223	—		223	—	223		9		—		(326	)	(317	)		—		128		53	181	—		181	—	181		257		—		(188	)	69

Non-Sovereign		—		34		3	37	—		37	—	37		164		(3	)	(266	)	(105	)		—		22		2	24	—		24	—	24		167		(8	)	(322	)	(163	)
Total Portugal		—		161		99	260	—		260	—	260		173		(3	)	(592	)	(422	)		—		150		55	205	—		205	—	205		424		(8	)	(510	)	(94	)

Spain
Sovereign		—		71		—	71	—		71	—	71		481		—		(651	)	(170	)		—		54		—	54	—		54	—	54		(23	)	—		6		(17	)

Non-Sovereign		974		124		45	1,143	(83	)	1,060	681	1,741		1,190		270		(490	)	970			1,173		182		80	1,435	(65	)	1,370	735	2,105		1,465		61		(278	)	1,248
Total Spain		974		195		45	1,214	(83	)	1,131	681	1,812		1,671		270		(1,141	)	800			1,173		236		80	1,489	(65	)	1,424	735	2,159		1,442		61		(272	)	1,231
Subtotal		$1,006	¹	$2,497	²	$457	$3,960	$(1,375	)³	$2,585	$1,186	$3,771		$2,450		$419		$(3,406	) ³	$(537	)
Total																							$1,727	¹	$3,198	²	$402	$5,327	$(1,824	)³	$3,503	$1,202	$4,705		$1,762		$146		$(2,811	) ³	$ (903	)

1.	Principally consists of collateralized loans.

2.	Includes the benefit of ~~$7.2~~$6.6 billion of cash and U.S. Treasury securities collateral and excludes non-U.S. government and agency obligations and corporate securities collateral of $393 million.

3.	Includes written and purchased credit derivative notionals reduced by the fair values of such credit derivatives.

In addition, during the first quarter of 2013, Cyprus experienced significant credit deterioration and there are market concerns about its sovereign debt risk. Our total

credit and market exposure to Cyprus was not material as of March 2013.


172		Goldman Sachs March 2013 Form 10-Q

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management’s Discussion and Analysis


	As of December 2012
	Credit Exposure												Market Exposure
in millions		Loans		OTC Derivatives		Other	Gross Funded	Hedges		Total Net Funded Credit Exposure	Unfunded Credit Exposure	Total Credit Exposure		Debt		Equities and Other		Credit Derivatives		Total Market Exposure
Greece
Sovereign		$ —		$ —		$ —	$ —	$ —		$ —	$ —	$ —		$ 30		$ —		$ —		$ 30

Non-Sovereign		—		5		1	6	—		6	—	6		65		15		(5	)	75
Total Greece		—		5		1	6	—		6	—	6		95		15		(5	)	105

Ireland
Sovereign		—		1		103	104	—		104	—	104		8		—		(150	)	(142	)

Non-Sovereign		—		126		36	162	—		162	—	162		801		74		155		1,030
Total Ireland		—		127		139	266	—		266	—	266		809		74		5		888

Italy
Sovereign		—		1,756		1	1,757	(1,714	)	43	—	43		(415	)	—		(603	)	(1,018	)

Non-Sovereign		43		560		129	732	(33	)	699	587	1,286		434		65		(996	)	(497	)
Total Italy		43		2,316		130	2,489	(1,747	)	742	587	1,329		19		65		(1,599	)	(1,515	)

Portugal
Sovereign		—		141		61	202	—		202	—	202		155		—		(226	)	(71	)

Non-Sovereign		—		44		2	46	—		46	—	46		168		(6	)	(133	)	29
Total Portugal		—		185		63	248	—		248	—	248		323		(6	)	(359	)	(42	)

Spain
Sovereign		—		75		—	75	—		75	—	75		986		—		(268	)	718

Non-Sovereign		1,048		259		23	1,330	(95	)	1,235	733	1,968		1,268		83		(186	)	1,165
Total Spain		1,048		334		23	1,405	(95	)	1,310	733	2,043		2,254		83		(454	)	1,883
Total		$1,091	¹	$2,967	²	$356	$4,414	$(1,842	) ³	$2,572	$1,320	$3,892		$3,500		$231		$(2,412	) ³	$1,319

1.	Principally consists of collateralized loans.

2.	Includes the benefit of $6.6 billion of cash and U.S. Treasury securities collateral and excludes non-U.S. government and agency obligations and corporate securities collateral of $357 million.

3.	~~Includes written and purchased credit derivative notionals reduced by the fair values of such credit derivatives.~~


~~176~~		~~Goldman Sachs September 2012 Form 10-Q~~

~~THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES~~

~~Management’s Discussion and Analysis~~

As of December 2011
Credit Exposure Market Exposure
in millions Loans
OTC
Derivatives
   Other
Gross
Funded
   Hedges

Total Net
Funded
Credit
Exposure





Unfunded
Credit
Exposure




Total
Credit
Exposure

   Debt

Equities
and
Other




Credit
Derivatives


Total
Market
Exposure


Greece

Sovereign
$   —    $      —    $   —    $      —    $       —    $      —    $   —    $      —    $    329    $   —    $     (22 ) $307
Non-Sovereign
20    53    —    73    —    73    —    73    32    11    18    61
Total Greece
20    53    —    73    —    73    —    73    361    11    (4 ) 368
Ireland

Sovereign
—    1    256    257    —    257    —    257    411    —    (352 ) 59
Non-Sovereign
—    542    66    608    (8 ) 600    57    657    412    85    115    612
Total Ireland
—    543    322    865    (8 ) 857    57    914    823    85    (237 ) 671
Italy

Sovereign
—    1,666    3    1,669    (1,410 ) 259    —    259    210    —    200    410
Non-Sovereign
126    457    —    583    (25 ) 558    408    966    190    297    (896 ) (409 )
Total Italy
126    2,123    3    2,252    (1,435 ) 817    408    1,225    400    297    (696 ) 1
Portugal

Sovereign
—    151    —    151    —    151    —    151    (98 ) —    23    (75 )
Non-Sovereign
—    53    2    55    —    55    —    55    230    13    (179 ) 64
Total Portugal
—    204    2    206    —    206    —    206    132    13    (156 ) (11 )
Spain

Sovereign
—    88    —    88    —    88    —    88    151    —    (550 ) (399 )
Non-Sovereign
153    254    11    418    (141 ) 277    146    423    345    239    (629 ) (45 )
Total Spain
153    342    11    506    (141 ) 365    146    511    496    239    (1,179 ) (444 )
Subtotal
$299    $3,265 ¹ $338    $3,902    $(1,584 ) $2,318    $611    $2,929    $2,212    $645    $(2,272 )² $585

1.	~~Includes the benefit of $6.5 billion of cash and U.S. Treasury securities collateral and excludes non-U.S. government and agency obligations and corporate securities collateral of $341 million.~~

2.	Includes written and purchased credit derivative notionals reduced by the fair values of such credit derivatives.

We economically hedge our exposure to written credit derivatives by entering into offsetting purchased credit derivatives with identical underlyings. Where possible, we endeavor to match the tenor and credit default terms of such hedges to that of our written credit derivatives. Substantially all purchased credit derivatives included above are bought from investment-grade counterparties domiciled outside of these countries and are collateralized with cash or U.S. Treasury securities. The gross purchased and written credit derivative notionals across the above countries for single-name and index credit default swaps (included in ~~Hedges~~‘Hedges’ and ~~Credit Derivatives~~‘Credit Derivatives’ in the tables above) were ~~$173.5~~$178.1 billion and ~~$162.6~~$167.6 billion, respectively, as of ~~September 2012,~~March 2013, and ~~$177.8~~$179.4 billion and ~~$167.3~~$168.6 billion, respectively, as of December ~~2011.~~2012. Including netting under legally enforceable netting agreements, within each and across all of the countries above, the purchased and written credit derivative notionals for single-name and index credit default swaps were $25.8 billion and $15.1 billion,

~~were $25.0 billion and $14.1 billion,~~ respectively, as of ~~September 2012,~~March 2013, and ~~$28.2~~$26.0 billion and ~~$17.7~~$15.3 billion, respectively, as of December ~~2011.~~2012. These notionals are not representative of our exposure because they exclude available netting under legally enforceable netting agreements on other derivatives outside of these countries and collateral received or posted under credit support agreements.

In credit exposure above, ‘Other’ principally consists of deposits, secured lending transactions and other secured ~~receivables.~~receivables, net of applicable collateral. As of ~~September 2012~~March 2013 and December ~~2011, $4.9~~2012, $8.3 billion and ~~$7.0~~$4.8 billion, respectively, of secured lending transactions and other secured receivables were fully collateralized.

For information about the nature of or payout under trigger events related to written and purchased credit protection contracts see Note 7 to the condensed consolidated financial statements in Part I, Item 1 of this Form 10-Q.


		Goldman Sachs ~~September 2012~~March 2013 Form 10-Q		~~177~~173

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management’s Discussion and Analysis

We conduct stress tests intended to estimate the direct and indirect impact that might result from a variety of possible events involving the above countries, including sovereign defaults and the exit of one or more countries from the Euro area. In the stress tests, described in “Market Risk Management — Stress Testing” and “Credit Risk Management — Stress Tests/Scenario Analysis,” we estimate the direct impact of the event on our credit and market exposures resulting from shocks to risk factors including, but not limited to, currency rates, interest rates, and equity prices. The parameters of these shocks vary based on the scenario reflected in each stress test. We also estimate the indirect impact on our exposures arising from potential market moves in response to the event, such as the impact of credit market deterioration on corporate borrowers and counterparties along with the shocks to the risk factors described above. We review estimated losses produced by the stress tests in order to understand their magnitude, highlight potential loss concentrations, and assess and mitigate our exposures where necessary.

Euro area exit scenarios include analysis of the impacts on exposure that might result from the redenomination of assets in the exiting country or countries. Constructing stress tests for these scenarios requires many assumptions about how exposures might be directly impacted and how resulting secondary market moves would indirectly impact such exposures. Given the multiple parameters involved in such scenarios, losses from such events are inherently difficult to quantify and may materially differ from our estimates. In order to prepare for any market disruption that might result from a Euro area exit, we test our operational and risk management readiness and capability to respond to a redenomination event.

See “Liquidity Risk Management — Modeled Liquidity Outflow,” “Market Risk Management — Stress Testing” and “Credit Risk Management — Stress Tests/Scenario Analysis” for further discussion.

Credit events which occurred subsequent to ~~September 2012~~March 2013 related to these countries did not have a material effect on our financial condition, results of operations, liquidity or capital resources.

Operational Risk Management

Overview

Operational risk is the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events. Our exposure to operational risk arises from routine processing errors as well as extraordinary incidents, such as major systems failures. Potential types of loss events related to internal and external operational risk include:

clients, products and business practices;

execution, delivery and process management;

business disruption and system failures;

employment practices and workplace safety;

damage to physical assets;

internal fraud; and

external fraud.

The firm maintains a comprehensive control framework designed to provide a well-controlled environment to minimize operational risks. The Firmwide Operational Risk Committee, along with the support of regional or entity-specific working groups or committees, provides oversight of the ongoing development and implementation of our operational risk policies and framework. Our Operational Risk Management department (Operational Risk Management) is a risk management function independent of our revenue-producing units, reports to the firm’s chief risk officer, and is responsible for developing and implementing policies, methodologies and a formalized framework for operational risk management with the goal of minimizing our exposure to operational risk.


~~178~~174		Goldman Sachs ~~September 2012~~March 2013 Form 10-Q

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management’s Discussion and Analysis

Operational Risk Management Process

Managing operational risk requires timely and accurate information as well as a strong control culture. We seek to manage our operational risk through:

the training, supervision and development of our people;

the active participation of senior management in identifying and mitigating key operational risks across the firm;

independent control and support functions that monitor operational risk on a daily basis and have instituted extensive policies and procedures and implemented controls designed to prevent the occurrence of operational risk events;

proactive communication between our revenue-producing units and our independent control and support functions; and

a network of systems throughout the firm to facilitate the collection of data used to analyze and assess our operational risk exposure.

We combine top-down and bottom-up approaches to manage and measure operational risk. From a top-down perspective, the firm’s senior management assesses firmwide and business level operational risk profiles. From a bottom-up perspective, revenue-producing units and independent control and support functions are responsible for risk management on a day-to-day basis, including identifying, mitigating, and escalating operational risks to senior management.

Our operational risk framework is in part designed to comply with the operational risk measurement rules under Basel 2 and has evolved based on the changing needs of our businesses and regulatory guidance. Our framework ~~includes~~comprises the following practices:

Risk identification and reporting;

Risk measurement; and

Risk monitoring.

Internal Audit performs aan independent review of our operational risk framework, including our key controls, processes and applications, on an annual basis to ~~ensure~~assess the effectiveness of our framework.

Risk Identification and Reporting

The core of our operational risk management framework is risk identification and reporting. We have a comprehensive data collection process, including firmwide policies and procedures, for operational risk events.

We have established policies that require managers in our revenue-producing units and our independent control and support functions to escalate operational risk events. When operational risk events are identified, our policies require that the events be documented and analyzed to determine whether changes are required in the firm’s systems and/or processes to further mitigate the risk of future events.

In addition, our firmwide systems capture internal operational risk event data, key metrics such as transaction volumes, and statistical information such as performance trends. We use an internally-developed operational risk management application to aggregate and organize this information. Managers from both revenue-producing units and independent control and support functions analyze the information to evaluate operational risk exposures and identify businesses, activities or products with heightened levels of operational risk. We also provide periodic operational risk reports to senior management, risk committees and the ~~Board periodically.~~Board.


		Goldman Sachs ~~September 2012~~March 2013 Form 10-Q		~~179~~175

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management’s Discussion and Analysis

Risk Measurement

We measure the firm’s operational risk exposure over a twelve-month time horizon using both statistical modeling and scenario analyses, which involve qualitative assessments of the potential frequency and extent of potential operational risk losses, for each of the firm’s businesses. Operational risk measurement incorporates qualitative and quantitative assessments of factors including:

internal and external operational risk event data;

assessments of the firm’s internal controls;

evaluations of the complexity of the firm’s business activities;

the degree of and potential for automation in the firm’s processes;

new product information;

the legal and regulatory environment;

changes in the markets for the firm’s products and services, including the diversity and sophistication of the firm’s customers and counterparties; and

the liquidity of the capital markets and the reliability of the infrastructure that supports the capital markets.

The results from these scenario analyses are used to monitor changes in operational risk and to determine business lines that may have heightened exposure to operational risk. These analyses ultimately are used ~~to determine~~in the determination of the appropriate level of operational risk capital to hold.

Risk Monitoring

We evaluate changes in the operational risk profile of the firm and its businesses, including changes in business mix or jurisdictions in which the firm operates, by monitoring ~~these~~the factors noted above at a firmwide ~~entity and business~~ level. The firm has both detective and preventive internal controls, which are designed to reduce the frequency and severity of operational risk losses and the probability of operational risk events. We monitor the results of assessments and independent internal audits of these internal controls.

Recent Accounting Developments

See Note 3 to the condensed consolidated financial statements in Part I, Item 1 of this Form 10-Q for information about Recent Accounting Developments.


~~180~~176		Goldman Sachs ~~September 2012~~March 2013 Form 10-Q

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management’s Discussion and Analysis

Certain Risk Factors That May Affect Our Businesses

~~Businesses~~

We face a variety of risks that are substantial and inherent in our businesses, including market, liquidity, credit, operational, legal, regulatory and reputational risks. For a discussion of how management seeks to manage some of these risks, see “Overview and Structure of Risk Management.” A summary of the more important factors that could affect our businesses follows. For a further discussion of these and other important factors that could affect our businesses, financial condition, results of operations, cash flows and liquidity, see “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K.

Our businesses have been and may continue to be adversely affected by conditions in the global financial markets and economic conditions generally.

Our businesses have been and may be adversely affected by declining asset values. This is particularly true for those businesses in which we have net “long” positions, receive fees based on the value of assets managed, or receive or post collateral.

Our businesses have been and may be adversely affected by disruptions in the credit markets, including reduced access to credit and higher costs of obtaining credit.

Our market-making activities have been and may be affected by changes in the levels of market volatility.

Our investment banking, client execution and investment management businesses have been adversely affected and may continue to be adversely affected by market uncertainty or lack of confidence among investors and CEOs due to general declines in economic activity and other unfavorable economic, geopolitical or market conditions.

Our investment management business may be affected by the poor investment performance of our investment products.

We may incur losses as a result of ineffective risk management processes and strategies.

Our liquidity, profitability and businesses may be adversely affected by an inability to access the debt capital markets or to sell assets or by a reduction in our credit ratings or by an increase in our credit spreads.

Conflicts of interest are increasing and a failure to appropriately identify and address conflicts of interest could adversely affect our businesses.

Group Inc. is a holding company and is dependent for liquidity on payments from its subsidiaries, many of which are subject to restrictions.

Our businesses, profitability and liquidity may be adversely affected by deterioration in the credit quality of, or defaults by, third parties who owe us money, securities or other assets or whose securities or obligations we hold.

Concentration of risk increases the potential for significant losses in our market-making, underwriting, investing and lending activities.

The financial services industry is highly competitive.

We face enhanced risks as new business initiatives lead us to transact with a broader array of clients and counterparties and expose us to new asset classes and new markets.

Derivative transactions and delayed settlements may expose us to unexpected risk and potential losses.

Our businesses may be adversely affected if we are unable to hire and retain ~~qualified��~~qualified employees.

Our businesses and those of our clients are subject to extensive and pervasive regulation around the world.

We may be adversely affected by increased governmental and regulatory scrutiny or negative publicity.

A failure in our operational systems or infrastructure, or those of third parties, could impair our liquidity, disrupt our businesses, result in the disclosure of confidential information, damage our reputation and cause losses.

Substantial legal 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.

The growth of electronic trading and the introduction of new trading technology may adversely affect our business and may increase competition.

Our commodities activities, particularly our power generation interests and our physical commodities activities, subject us to extensive regulation, potential catastrophic events and environmental, reputational and other risks that may expose us to significant liabilities and costs.

In conducting our businesses around the world, we are subject to political, economic, legal, operational and other risks that are inherent in operating in many countries.

We may incur losses as a result of unforeseen or catastrophic events, including the emergence of a pandemic, terrorist attacks, extreme weather events or other natural disasters.


		Goldman Sachs ~~September 2012~~March 2013 Form 10-Q		~~181~~177

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management’s Discussion and Analysis

Available Information

Our internet address iswww.gs.com and the investor relations section of our web site is located atwww.gs.com/shareholders. We make available free of charge through the investor relations section of our web site, annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the U.S. Securities Exchange Act of 1934 (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 web site, and available in print upon request of any shareholder to our Investor Relations Department, are our certificate of incorporation and by-laws, charters for our Audit Committee, Risk Committee, Compensation Committee, and Corporate Governance, Nominating and Public Responsibilities Committee, 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 employees. Within the time period required by the SEC, we will post on our web site any amendment to the Code of Business Conduct and Ethics and any waiver applicable to any executive officer, director or senior financial officer.

In addition, our web site includes information concerning purchases and sales of our equity securities by our executive officers and directors, as well as disclosure relating to certain non-GAAP financial measures (as defined in the SEC’s Regulation G) that we may make public orally, telephonically, by webcast, by broadcast or by similar means from time to time. In addition, we make available on the Investor Relations section of our web site information regarding DFAST results and intend to make available, on a quarterly basis, information on the firm’s risk management practices and regulatory capital ratios, as required under the disclosure-related provisions of the Federal Reserve Board’s market risk capital rules.

Our Investor Relations Department can be contacted at The Goldman Sachs Group, Inc., 200 West Street, 29th Floor, New York, New York 10282, Attn: Investor Relations, telephone: 212-902-0300, e-mail:gs-investor-relations@gs.com.

Cautionary Statement Pursuant to the U.S. Private Securities Litigation Reform Act of 1995

We have included or incorporated by reference in this Form 10-Q, and from time to time 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, but instead represent only our beliefs regarding future events, many of which, by their nature, are inherently uncertain and outside our control. It is possible that our actual results and financial condition may differ, possibly materially, from the anticipated results and financial condition indicated in these forward-looking statements. For a discussion of some of the risks and important factors that could affect our future results and financial condition, see “Certain Risk Factors That May Affect Our Businesses” above, as well as “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K.

Statements about our investment banking transaction backlog also may constitute forward-looking statements. Such statements are subject to the risk that the terms of these transactions may be modified or that they may not be completed at all; therefore, the net revenues, if any, that we actually earn from these transactions may differ, possibly materially, from those currently expected. Important factors that could result in a modification of the terms of a transaction or a transaction not being completed include, in the case of underwriting transactions, a decline or continued weakness in general economic conditions, outbreak of hostilities, volatility in the securities markets generally or an adverse development with respect to the issuer of the securities and, in the case of 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 a discussion of other important factors that could adversely affect our investment banking transactions, see “Certain Risk Factors That May Affect Our Businesses” above, as well as “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K.


~~182~~178		Goldman Sachs ~~September 2012~~March 2013 Form 10-Q

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Quantitative and qualitative disclosures about market risk are set forth under “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Market Risk Management” in Part I, Item 2 above.

Item 4. Controls and Procedures

As of the end of the period covered by this report, an evaluation was carried out by Goldman Sachs’ management, with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (Exchange Act)). Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that these disclosure controls and procedures were effective as of the end of the period covered by this report. In addition, no change in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) occurred during our most recent quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

We are involved in a number of judicial, regulatory and arbitration proceedings concerning matters arising in connection with the conduct of our businesses. Many of these proceedings are ~~at preliminary~~in early stages, and many of these cases seek an indeterminate amount of damages. However, we believe, based on currently available information, that the results of such proceedings, in the aggregate, will not have a material adverse effect on our financial condition, but may be material to our operating results for any particular period, depending, in part, upon the operating results for such period. Given the range of litigation and investigations presently under way, our litigation expenses can be expected to remain high. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Use of Estimates” in Part I, Item 2 of this Form 10-Q. See Note 27 to the condensed consolidated financial statements in Part I, Item 1 of this Form 10-Q for information on certain judicial, regulatory and legal proceedings.


		Goldman Sachs ~~September 2012~~March 2013 Form 10-Q		~~183~~179

~~Item 2. Unregistered Sales of Equity Securities and Use of Proceeds~~


Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

The table below sets forth the information with respect to purchases made by or on behalf of The Goldman Sachs Group, Inc. (Group Inc.) or any “affiliated purchaser” (as

defined in Rule 10b-18(a)(3) under the Securities Exchange Act of 1934) of our common stock during the three months ended ~~September 30, 2012.~~March 31, 2013.

Period

Total Number
of Shares
Purchased





Average Price
Paid per
Share





Total Number of Shares
Purchased as Part of
Publicly Announced
Plans or Programs


¹

Maximum Number of
Shares That May Yet Be
Purchased Under the
Plans or Programs


¹
Month #1
(July 1, 2012 to July 31, 2012)
   2,522,545       $ 96.91       2,522,545    43,436,443
Month #2
(August 1, 2012 to August 31, 2012)
   5,240,777       103.62       5,240,777    38,195,666
Month #3
(September 1, 2012 to September 30, 2012)
   4,010,475       115.32       4,010,475    34,185,191
Total
   11,773,797          11,773,797


Period	Total Number of Shares Purchased		Average Price Paid per Share	Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	¹	Maximum Number of Shares That May Yet Be Purchased Under the Plans or Programs	¹
Month #1 (January 1, 2013 to January 31, 2013)	2,701,284	²	$144.82	2,630,530		18,858,321

Month #2 (February 1, 2013 to February 28, 2013)	4,761,527		152.15	4,761,527		14,096,794

Month #3 (March 1, 2013 to March 31, 2013)	2,738,346		153.11	2,738,346		11,358,448	³
Total	10,201,157			10,130,403

On March 21, 2000, we announced that the Board of Directors of Group Inc. (Board) had approved a repurchase program, pursuant to which up to 15 million shares of our common stock may be repurchased. This repurchase program was increased by an aggregate of ~~325~~355 million shares by resolutions of our Board adopted onfrom June ~~18,~~ 2001 ~~March 18, 2002, November 20, 2002, January 30, 2004, January 25, 2005, September 16, 2005, September 11, 2006, December 17, 2007 and~~through July ~~18,~~ 2011. We use our share repurchase program to help maintain the appropriate level of common ~~equity and to substantially offset increases in share count over time resulting from employee share-based compensation.~~equity. The repurchase program is effected primarily through regular open-market purchases, the amounts and timing of which are determined primarily by the firm’s current and projected capital position (i.e., comparisons of our desired level and composition of capital to our actual level and composition of capital) ~~and its issuance of shares resulting from employee share-based compensation,~~, 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. Any repurchase of our common stock requires approval by the Federal Reserve Board.

2.	Includes 70,754 shares remitted by employees to satisfy minimum statutory withholding taxes on equity-based awards that were delivered to employees during the period.

On April 15, 2013, the Board authorized the repurchase of an additional 75.0 million shares of common stock pursuant to the firm’s existing share repurchase program. As of April 15, 2013, under the share repurchase program approved by the Board, we can repurchase up to 86.4 million additional shares of common stock, including the newly authorized amount; however, any such repurchases are subject to the approval of the Federal Reserve Board.


~~184~~180		Goldman Sachs ~~September 2012~~March 2013 Form 10-Q

Item 6. Exhibits

Exhibits



3.1 ~~and 4.1~~		Restated Certificate of ~~Designations~~Incorporation of ~~the Registrant relating to the Series I Preferred Stock, incorporated herein by reference to Exhibit 3 to the Registrant’s Registration Statement on Form 8-A, filed on October 24, 2012.~~The Goldman Sachs Group, Inc., amended as of May 6, 2013.

~~4.2~~ 4.1		Form of ~~Certificate representing the Series I Preferred Stock, incorporated herein~~Amendment to Warrant (originally issued on October 1, 2008), dated as of March 25, 2013, between The Goldman Sachs Group, Inc. and each Warrantholder named therein (incorporated by reference to Exhibit 54.1 to the Registrant’s ~~Registration Statement~~Current Report on Form ~~8-A,~~8-K, filed ~~on October 24, 2012.~~March 26, 2013).

12.1		Statement re: Computation of Ratios of Earnings to Fixed Charges and Ratios of Earnings to Combined Fixed Charges and Preferred Stock Dividends.

15.1		Letter re: Unaudited Interim Financial Information.

31.1		Rule 13a-14(a) Certifications.

32.1		Section 1350 Certifications.*

101		Interactive data files pursuant to Rule 405 of Regulation S-T: (i) the Condensed Consolidated Statements of Earnings for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2013 and March 31, 2012, ~~and September 30, 2011,~~ (ii) the Condensed Consolidated Statements of Comprehensive Income for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2013 and March 31, 2012, ~~and September 30, 2011,~~ (iii) the Condensed Consolidated Statements of Financial Condition as of ~~September 30, 2012~~March 31, 2013 and December 31, ~~2011,~~2012, (iv) the Condensed Consolidated Statements of Changes in Shareholders’ Equity for the ~~nine~~three months ended ~~September 30, 2012~~March 31, 2013 and year ended December 31, ~~2011,~~2012, (v) the Condensed Consolidated Statements of Cash Flows for the ~~nine~~three months ended ~~September 30,~~March 31, 2013 and March 31, 2012, ~~and September 30, 2011,~~ and (vi) the notes to the Condensed Consolidated Financial Statements.

		* This information is furnished and not filed for purposes of Sections 11 and 12 of the Securities Act of 1933 and Section 18 of the Securities Exchange Act of 1934.


		Goldman Sachs ~~September 2012~~March 2013 Form 10-Q		~~185~~181

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


		THE GOLDMAN SACHS GROUP, INC.
THE G~~OLDMAN~~ S~~ACHS~~ G~~ROUP, I~~NC.

By:	/s/		~~David A. Viniar~~ Harvey M. Schwartz
	Name: Harvey M. Schwartz
	~~Name:~~		~~David A. Viniar~~
	Title:		Chief Financial Officer



By:	/s/	Sarah E. Smith

	Name:	Sarah E. Smith
	Title:	Principal Accounting Officer

Date: ~~November~~May 8, ~~2012~~2013


~~186~~182		Goldman Sachs ~~September 2012~~March 2013 Form 10-Q


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)


	Nine Months Ended	Year Ended
in millions	September 2012	December 2011
Preferred stock
Balance, beginning of year	$ 3,100	$ 6,957
Issued	2,250	—
Repurchased	—	(3,857)
Balance, end of period	5,350	3,100
Common stock
Balance, beginning of year	8	8
Issued	—	—
Balance, end of period	8	8
Restricted stock units and employee stock options
Balance, beginning of year	5,681	7,706
Issuance and amortization of restricted stock units and employee stock options	1,134	2,863
Delivery of common stock underlying restricted stock units	(2,624)	(4,791)
Forfeiture of restricted stock units and employee stock options	(81)	(93)
Exercise of employee stock options	(1)	(4)
Balance, end of period	4,109	5,681
Additional paid-in capital
Balance, beginning of year	45,553	42,103
Issuance of common stock	—	103
Delivery of common stock underlying share-based awards	2,741	5,160
Cancellation of restricted stock units in satisfaction of withholding tax requirements	(947)	(1,911)
Excess net tax benefit/(provision) related to share-based awards	(48)	138
Cash settlement of share-based compensation	(1)	(40)
Balance, end of period	47,298	45,553
Retained earnings
Balance, beginning of year	58,834	57,163
Net earnings	4,583	4,442
Dividends and dividend equivalents declared on common stock and restricted stock units	(655)	(769)
Dividends on preferred stock	(124)	(2,002)
Balance, end of period	62,638	58,834
Accumulated other comprehensive income/(loss)
Balance, beginning of year	(516)	(286)
Other comprehensive income/(loss)	134	(230)
Balance, end of period	(382)	(516)
Stock held in treasury, at cost
Balance, beginning of year	(42,281)	(36,295)
Repurchased	(3,119)	(6,051)
Reissued	66	65
Balance, end of period	(45,334)	(42,281)
Total shareholders’ equity	$ 73,687	$ 70,379


	Nine Months Ended September		Three Months Ended March
in millions	2012	2011		2013		2012
Cash flows from operating activities
Net earnings	$ 4,583	$ 3,429		$ 2,260		$ 2,109
Non-cash items included in net earnings

Adjustments to reconcile net earnings to net cash provided by/(used for) operating activities
Depreciation and amortization	1,238	1,355		302		433

Share-based compensation	1,088	2,431		1,509		643

Changes in operating assets and liabilities
Cash and securities segregated for regulatory and other purposes	10,616	(23,691)		8,527		11,165

Net receivables from brokers, dealers and clearing organizations	1,617	(9,839)		(339	)	(2,671	)

Net payables to customers and counterparties	(244)	26,241		3,356		7,290

Securities borrowed, net of securities loaned	(5,451)	6,859		(28,245	)	(14,813	)

Securities sold under agreements to repurchase, net of securities purchased under agreements to resell and federal funds sold	42,112	(18,948)		(33,576	)	15,328

Financial instruments owned, at fair value	(47,787)	(2,961)		20,028		(22,023	)

Financial instruments sold, but not yet purchased, at fair value	(831)	21,367		27,227		6,304

Other, net	2,977	(3,813)		(6,747	)	11
Net cash provided by operating activities	9,918	2,430
Net cash provided by/(used for) operating activities				(5,698	)	3,776

Cash flows from investing activities
Purchase of property, leasehold improvements and equipment	(707)	(979)		(171	)	(390	)

Proceeds from sales of property, leasehold improvements and equipment	38	53		17		13

Business acquisitions, net of cash acquired	(439)	(265)		(160	)	(39	)

Proceeds from sales of investments	424	1,985		526		130

Purchase of available-for-sale securities	(3,671)	(2,352)		(501	)	(653	)

Proceeds from sales of available-for-sale securities	2,838	2,546		709		699
Net cash provided by/(used for) investing activities	(1,517)	988

Loans held for investment, net				(1,373	)	(238	)
Net cash used for investing activities				(953	)	(478	)

Cash flows from financing activities
Unsecured short-term borrowings, net	(1,691)	(190)		(435	)	(869	)

Other secured financings (short-term), net	(2,045)	2,657		(4,824	)	(483	)

Proceeds from issuance of other secured financings (long-term)	4,004	9,505		1,829		798

Repayment of other secured financings (long-term), including the current portion	(10,333)	(8,285)		(969	)	(4,334	)

Proceeds from issuance of unsecured long-term borrowings	22,020	23,908		13,069		9,358

Repayment of unsecured long-term borrowings, including the current portion	(27,873)	(19,438)		(12,530	)	(11,134	)

Derivative contracts with a financing element, net	1,145	661		380		208

Deposits, net	15,417	3,230		2,562		4,765
Preferred stock repurchased	—	(3,857)

Common stock repurchased	(3,116)	(5,140)		(1,525	)	(365	)

Dividends and dividend equivalents paid on common stock, preferred stock and restricted stock units	(779)	(2,549)		(319	)	(220	)
Proceeds from issuance of preferred stock, net of issuance costs	2,250	—

Proceeds from issuance of common stock, including stock option exercises	148	182		14		39

Excess tax benefit related to share-based compensation	84	353		63		70

Cash settlement of share-based compensation	(1)	(40)		—		(1	)
Net cash provided by/(used for) financing activities	(770)	997
Net increase in cash and cash equivalents	7,631	4,415
Net cash used for financing activities				(2,685	)	(2,168	)
Net increase/(decrease) in cash and cash equivalents				(9,336	)	1,130

Cash and cash equivalents, beginning of year	56,008	39,788		72,669		56,008
Cash and cash equivalents, end of period	$ 63,639	$ 44,203		$ 63,333		$ 57,138


Large accelerated filer x Accelerated filer ¨

Non-accelerated filer ¨ (Do not check if a smaller reporting company) Smaller reporting company ¨


Form 10-Q Item Number		Page No.

PART I	FINANCIAL INFORMATION		2

Item 1	Financial Statements (Unaudited)		2
	Condensed Consolidated Statements of Earnings for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2013 and March 31, 2012 ~~and September 30, 2011~~		2

	Condensed Consolidated Statements of Comprehensive Income for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2013 and March 31, 2012 ~~and September 30, 2011~~		3

	Condensed Consolidated Statements of Financial Condition as of ~~September 30, 2012~~March 31, 2013 and December 31, ~~2011~~2012		4

	Condensed Consolidated Statements of Changes in Shareholders’ Equity for the ~~nine~~three months ended ~~September 30, 2012~~March 31, 2013 and year ended December 31, ~~2011~~2012		5

	Condensed Consolidated Statements of Cash Flows for the ~~nine~~three months ended ~~September 30,~~March 31, 2013 and March 31, 2012 ~~and September 30, 2011~~		6

	Notes to Condensed Consolidated Financial Statements		7

	Note 1. Description of Business		7

	Note 2. Basis of Presentation		7

	Note 3. Significant Accounting Policies		8

	Note 4. Financial Instruments Owned, at Fair Value and Financial Instruments Sold, But Not Yet Purchased, at Fair Value	13	12

	Note 5. Fair Value Measurements	14	13

	Note 6. Cash Instruments	16	15

	Note 7. Derivatives and Hedging Activities		25

	Note 8. Fair Value Option		41

	Note 9. Collateralized Agreements and Financings	50	51

	Note 10. Securitization Activities	56	54

	Note 11. Variable Interest Entities	59	57

	Note 12. Other Assets	64	62

	Note 13. Goodwill and Identifiable Intangible Assets	65	63

	Note 14. Deposits	67	65

	Note 15. Short-Term Borrowings	68	66

	Note 16. Long-Term Borrowings	69	67

	Note 17. Other Liabilities and Accrued Expenses	72	71

	Note 18. Commitments, Contingencies and Guarantees	73	72

	Note 19. Shareholders’ Equity	79	78

	Note 20. Regulation and Capital Adequacy	82	81

	Note 21. Earnings Per Common Share	87	86

	Note 22. Transactions with Affiliated Funds	88	87

	Note 23. Interest Income and Interest Expense	89	88

	Note 24. Income Taxes	89	88

	Note 25. Business Segments	90	89

	Note 26. Credit Concentrations	94	93

	Note 27. Legal Proceedings	95	94

	~~Note 28. Subsequent Event~~		~~107~~
	Report of Independent Registered Public Accounting Firm		108

	Statistical Disclosures		109

Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations		~~113~~111

Item 3	Quantitative and Qualitative Disclosures About Market Risk		~~183~~179

Item 4	Controls and Procedures		~~183~~179

PART II	OTHER INFORMATION		~~183~~179

Item 1	Legal Proceedings		~~183~~179

Item 2	Unregistered Sales of Equity Securities and Use of Proceeds		~~184~~180

Item 6	Exhibits		~~185~~181

SIGNATURES			~~186~~182


	As of
in millions, except share and per share amounts	September 2012	December 2011
Assets
Cash and cash equivalents	$ 63,639	$ 56,008
Cash and securities segregated for regulatory and other purposes (includes $34,087 and $42,014 at fair value as of September 2012 and December 2011, respectively)	53,597	64,264
Collateralized agreements:
Securities purchased under agreements to resell and federal funds sold (includes $147,361 and $187,789 at fair value as of September 2012 and December 2011, respectively)	147,361	187,789
Securities borrowed (includes $47,986 and $47,621 at fair value as of September 2012 and December 2011, respectively)	165,250	153,341
Receivables from brokers, dealers and clearing organizations	15,556	14,204
Receivables from customers and counterparties (includes $6,920 and $9,682 at fair value as of September 2012 and December 2011, respectively)	64,787	60,261
Financial instruments owned, at fair value (includes $66,753 and $53,989 pledged as collateral as of September 2012 and December 2011, respectively)	415,293	364,206
Other assets	23,724	23,152
Total assets	$949,207	$923,225
Liabilities and shareholders’ equity
Deposits (includes $5,674 and $4,526 at fair value as of September 2012 and December 2011, respectively)	$ 61,526	$ 46,109
Collateralized financings:
Securities sold under agreements to repurchase, at fair value	166,186	164,502
Securities loaned (includes $243 and $107 at fair value as of September 2012 and December 2011, respectively)	13,640	7,182
Other secured financings (includes $25,179 and $30,019 at fair value as of September 2012 and December 2011, respectively)	29,393	37,364
Payables to brokers, dealers and clearing organizations	6,635	3,667
Payables to customers and counterparties	198,816	194,625
Financial instruments sold, but not yet purchased, at fair value	144,179	145,013
Unsecured short-term borrowings, including the current portion of unsecured long-term borrowings (includes $17,620 and $17,854 at fair value as of September 2012 and December 2011, respectively)	47,271	49,038
Unsecured long-term borrowings (includes $12,878 and $17,162 at fair value as of September 2012 and December 2011, respectively)	167,878	173,545
Other liabilities and accrued expenses (includes $9,975 and $9,486 at fair value as of September 2012 and December 2011, respectively)	39,996	31,801
Total liabilities	875,520	852,846

Commitments, contingencies and guarantees

Shareholders’ equity
Preferred stock, par value $0.01 per share; aggregate liquidation preference of $5,350 and $3,100 as of September 2012 and December 2011, respectively	5,350	3,100
Common stock, par value $0.01 per share; 4,000,000,000 shares authorized, 810,459,443 and 795,555,310 shares issued as of September 2012 and December 2011, respectively, and 471,430,795 and 485,467,565 shares outstanding as of September 2012 and December 2011, respectively	8	8
Restricted stock units and employee stock options	4,109	5,681
Nonvoting common stock, par value $0.01 per share; 200,000,000 shares authorized, no shares issued and outstanding	—	—
Additional paid-in capital	47,298	45,553
Retained earnings	62,638	58,834
Accumulated other comprehensive loss	(382)	(516)
Stock held in treasury, at cost, par value $0.01 per share; 339,028,650 and 310,087,747 shares as of September 2012 and December 2011, respectively	(45,334)	(42,281)
Total shareholders’ equity	73,687	70,379
Total liabilities and shareholders’ equity	$949,207	$923,225


	Three Months Ended			Year Ended
in millions		March 2013			December 2012
Preferred stock
Balance, beginning of year		$ 6,200			$ 3,100

Issued		—			3,100
Balance, end of period		6,200			6,200

Common stock
Balance, beginning of year		8			8

Issued		—			—
Balance, end of period		8			8

Restricted stock units and employee stock options
Balance, beginning of year		3,298			5,681

Issuance and amortization of restricted stock units and employee stock options		1,502			1,368

Delivery of common stock underlying restricted stock units		(1,099	)		(3,659	)

Forfeiture of restricted stock units and employee stock options		(18	)		(90	)

Exercise of employee stock options		(4	)		(2	)
Balance, end of period		3,679			3,298

Additional paid-in capital
Balance, beginning of year		48,030			45,553

Delivery of common stock underlying share-based awards		1,102			3,939

Cancellation of restricted stock units in satisfaction of withholding tax requirements		(458	)		(1,437	)

Preferred stock issuance costs		—			(13	)

Excess net tax benefit/(provision) related to share-based awards		58			(11	)

Cash settlement of share-based compensation		—			(1	)
Balance, end of period		48,732			48,030

Retained earnings
Balance, beginning of year		65,223			58,834

Net earnings		2,260			7,475

Dividends and dividend equivalents declared on common stock and restricted stock units		(247	)		(903	)

Dividends declared on preferred stock		(72	)		(183	)
Balance, end of period		67,164			65,223

Accumulated other comprehensive loss
Balance, beginning of year		(193	)		(516	)

Other comprehensive income/(loss)		(15	)		323
Balance, end of period		(208	)		(193	)

Stock held in treasury, at cost
Balance, beginning of year		(46,850	)		(42,281	)

Repurchased		(1,525	)		(4,637	)

Reissued		38			77

Other		(10	)		(9	)
Balance, end of period		(48,347	)		(46,850	)
Total shareholders’ equity		$ 77,228			$ 75,716



Financial Instruments Owned, at Fair Value and Financial Instruments Sold, But Not Yet Purchased, at Fair Value			Note 4

Fair Value Measurements			Note 5

Cash Instruments			Note 6

Derivatives and Hedging Activities			Note 7

Fair Value Option			Note 8

Collateralized Agreements and Financings			Note 9

Securitization Activities			Note 10

Variable Interest Entities			Note 11

Other Assets			Note 12

Goodwill and Identifiable Intangible Assets			Note 13

Deposits			Note 14

Short-Term Borrowings			Note 15

Long-Term Borrowings			Note 16

Other Liabilities and Accrued Expenses			Note 17

Commitments, Contingencies and Guarantees			Note 18

Shareholders’ Equity			Note 19

Regulation and Capital Adequacy			Note 20

Earnings Per Common Share			Note 21

Transactions with Affiliated Funds			Note 22

Interest Income and Interest Expense			Note 23

Income Taxes			Note 24

Business Segments			Note 25

Credit Concentrations			Note 26

Legal Proceedings			Note 27

~~Subsequent Event~~			~~Note 28~~