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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form
10-Q
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||
For the quarterly period ended March 31, 2020 | ||||
or | ||||
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||
For the transition period from | to |
Commission File Number:
001-14965
The Goldman Sachs Group, Inc.
(Exact name of registrant as specified in its charter)
Delaware | 13-4019460 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
200 West Street, New York, N.Y. | 10282 | |
(Address of principal executive offices) | (Zip Code) |
(212)
902-1000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading symbol | Exchange on which registered | ||
Common stock, par value $.01 per share | GS | NYSE | ||
Depositary Shares, Each Representing 1/1,000th Interest in a Share of Floating Rate Non-Cumulative Preferred Stock, Series A | GS PrA | NYSE | ||
Depositary Shares, Each Representing 1/1,000th Interest in a Share of Floating Rate Non-Cumulative Preferred Stock, Series C | GS PrC | NYSE | ||
Depositary Shares, Each Representing 1/1,000th Interest in a Share of Floating Rate Non-Cumulative Preferred Stock, Series D | GS PrD | NYSE | ||
Depositary Shares, Each Representing 1/1,000th Interest in a Share of 5.50% Fixed-to-Floating Rate Non-Cumulative Preferred Stock, Series J | GS PrJ | NYSE | ||
Depositary Shares, Each Representing 1/1,000th Interest in a Share of 6.375% Fixed-to-Floating RateNon-Cumulative Preferred Stock, Series K | GS PrK | NYSE | ||
Depositary Shares, Each Representing 1/1,000th Interest in a Share of 6.30% Non-Cumulative Preferred Stock, Series N | GS PrN | NYSE | ||
5.793% Fixed-to-Floating Rate Normal Automatic Preferred Enhanced Capital Securities of Goldman Sachs Capital II | GS/43PE | NYSE | ||
Floating Rate Normal Automatic Preferred Enhanced Capital Securities of Goldman Sachs Capital III | GS/43PF | NYSE | ||
Medium-Term Notes, Series A, Index-Linked Notes due 2037 of GS Finance Corp. | GCE | NYSE Arca | ||
Medium-Term Notes, Series B, Index-Linked Notes due 2037 | GSC | NYSE Arca | ||
Medium-Term Notes, Series E, Index-Linked Notes due 2028 of GS Finance Corp. | FRLG | NYSE Arca |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
☒
Yes ☐
NoIndicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation
S-T
(§
232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒
Yes ☐
NoIndicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated
filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2
of the Exchange Act.Large accelerated filer ☒ | Accelerated filer ☐ | Non-accelerated filer ☐ | Smaller reporting company ☐ | Emerging growth company ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule
12b-2
of the Exchange Act). ☐
Yes ☒
NoAs of April 17, 2020, there were 343,886,589 shares of the registrant’s common stock outstanding.
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2020
INDEX
Form 10-Q Item Number | Page No. | |||
PART I | ||||
1 | ||||
Item 1 | ||||
1 | ||||
1 | ||||
1 | ||||
2 | ||||
3 | ||||
4 | ||||
5 | ||||
5 | ||||
5 | ||||
6 | ||||
11 | ||||
16 | ||||
17 | ||||
20 | ||||
29 | ||||
34 | ||||
43 | ||||
47 | ||||
51 | ||||
54 | ||||
55 | ||||
58 | ||||
59 | ||||
61 | ||||
64 | ||||
68 | ||||
70 | ||||
78 | ||||
78 | ||||
79 | ||||
79 | ||||
80 | ||||
82 | ||||
83 |
Page No. | ||||
93 | ||||
94 | ||||
Item 2 | ||||
96 | ||||
96 | ||||
96 | ||||
98 | ||||
98 | ||||
100 | ||||
101 | ||||
101 | ||||
114 | ||||
117 | ||||
122 | ||||
124 | ||||
126 | ||||
126 | ||||
131 | ||||
137 | ||||
142 | ||||
149 | ||||
150 | ||||
151 | ||||
152 | ||||
Item 3 | ||||
154 | ||||
Item 4 | ||||
154 | ||||
PART II | ||||
154 | ||||
Item 1 | ||||
154 | ||||
Item 1A | ||||
154 | ||||
Item 2 | ||||
155 | ||||
Item 6 | ||||
155 | ||||
155 |
Goldman Sachs March 2020 Form 10-Q |
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Earnings
(Unaudited)
Three Months Ended March | ||||||||
in millions, except per share amounts | 2020 | 2019 | ||||||
Revenues | ||||||||
Investment banking | $1,742 | $ 1,618 | ||||||
Investment management | 1,768 | 1,436 | ||||||
Commissions and fees | 1,020 | 745 | ||||||
Market making | 3,682 | 2,723 | ||||||
Other principal transactions | (782 | ) | 1,067 | |||||
Total non-interest revenues | 7,430 | 7,589 | ||||||
Interest income | 4,750 | 5,597 | ||||||
Interest expense | 3,437 | 4,379 | ||||||
Net interest income | 1,313 | 1,218 | ||||||
Total net revenues | 8,743 | 8,807 | ||||||
Provision for credit losses | 937 | 224 | ||||||
Operating expenses | ||||||||
Compensation and benefits | 3,235 | 3,259 | ||||||
Brokerage, clearing, exchange and distribution fees | 975 | 762 | ||||||
Market development | 153 | 184 | ||||||
Communications and technology | 321 | 286 | ||||||
Depreciation and amortization | 437 | 368 | ||||||
Occupancy | 238 | 225 | ||||||
Professional fees | 347 | 298 | ||||||
Other expenses | 752 | 482 | ||||||
Total operating expenses | 6,458 | 5,864 | ||||||
Pre-tax earnings | 1,348 | 2,719 | ||||||
Provision for taxes | 135 | 468 | ||||||
Net earnings | 1,213 | 2,251 | ||||||
Preferred stock dividends | 90 | 69 | ||||||
Net earnings applicable to common shareholders | $1,123 | $ 2,182 | ||||||
Earnings per common share | ||||||||
Basic | $ 3.12 | $ 5.73 | ||||||
Diluted | $ 3.11 | $ 5.71 | ||||||
Average common shares | ||||||||
Basic | 358.0 | 379.8 | ||||||
Diluted | 361.1 | 382.4 |
Consolidated Statements of Comprehensive Income
(Unaudited)
Three Months Ended March | ||||||||
$ in millions | 2020 | 2019 | ||||||
Net earnings | $1,213 | $ 2,251 | ||||||
Other comprehensive income/(loss) adjustments, net of tax: | ||||||||
Currency translation | (17 | ) | 4 | |||||
Debt valuation adjustment | 2,914 | (1,417 | ) | |||||
Pension and postretirement liabilities | 7 | (7 | ) | |||||
Available-for-sale securities | 517 | 114 | ||||||
Other comprehensive income/(loss) | 3,421 | (1,306 | ) | |||||
Comprehensive income | $4,634 | $ 945 |
The accompanying notes are an integral part of these consolidated financial statements.
1 | Goldman Sachs March 2020 Form 10-Q |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(Unaudited)
As of | ||||||||
$ in millions | March 2020 | December 2019 | ||||||
Assets | ||||||||
Cash and cash equivalents | $ | $133,546 | ||||||
Collateralized agreements: | ||||||||
Securities purchased under agreements to resell (at fair value) | 132,333 | 85,691 | ||||||
Securities borrowed (includes $29,771 | 121,670 | 136,071 | ||||||
Customer and other receivables (includes $53 | 120,927 | 74,605 | ||||||
Trading assets (at fair value and includes $59,128 | 375,471 | 355,332 | ||||||
Investments (includes $62,655 $10,765 | 68,694 | 63,937 | ||||||
Loans (net of allowance of $2,868 $13,829 | 128,453 | 108,904 | ||||||
Other assets | 36,719 | 34,882 | ||||||
Total assets | $1,089,756 | $992,968 | ||||||
Liabilities and shareholders’ equity | ||||||||
Deposits (includes $24,722 | $ | $190,019 | ||||||
Collateralized financings: | ||||||||
Securities sold under agreements to repurchase (at fair value) | 95,864 | 117,756 | ||||||
Securities loaned (includes $1,148 | 13,869 | 14,985 | ||||||
Other secured financings (includes $29,991 | 37,196 | 19,277 | ||||||
Customer and other payables | 213,178 | 174,817 | ||||||
Trading liabilities (at fair value) | 136,358 | 108,835 | ||||||
Unsecured short-term borrowings (includes $18,983 | 37,148 | 48,287 | ||||||
Unsecured long-term borrowings (includes $43,313 | 225,476 | 207,076 | ||||||
Other liabilities (includes $327 | 18,294 | 21,651 | ||||||
Total liabilities | 997,377 | 902,703 | ||||||
Commitments, contingencies and guarantees | ||||||||
Shareholders’ equity | ||||||||
Preferred stock; aggregate liquidation preference of $11,203 | 11,203 | 11,203 | ||||||
Common stock; 901,409,000 343,856,654 | 9 | 9 | ||||||
Share-based awards | 3,037 | 3,195 | ||||||
Nonvoting common stock; no shares issued and outstanding | – | – | ||||||
Additional paid-in capital | 55,621 | 54,883 | ||||||
Retained earnings | 106,501 | 106,465 | ||||||
Accumulated other comprehensive income/(loss) | 1,937 | (1,484 | ) | |||||
Stock held in treasury, at cost; 557,552,348 | (85,929 | ) | (84,006 | ) | ||||
Total shareholders’ equity | 92,379 | 90,265 | ||||||
Total liabilities and shareholders’ equity | $1,089,756 | $992,968 |
The accompanying notes are an integral part of these consolidated financial statements.
Goldman Sachs March 2020 Form 10-Q | 2 |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Changes in Shareholders’ Equity
(Unaudited)
Three Months Ended March | ||||||||
$ in millions | 2020 | 2019 | ||||||
Preferred stock | ||||||||
Beginning balance | $ 11,203 | $ 11,203 | ||||||
Issued | 350 | – | ||||||
Redeemed | (350 | ) | – | |||||
Ending balance | 11,203 | 11,203 | ||||||
Common stock | ||||||||
Beginning balance | 9 | 9 | ||||||
Issued | – | – | ||||||
Ending balance | 9 | 9 | ||||||
Share-based awards | ||||||||
Beginning balance | 3,195 | 2,845 | ||||||
Issuance and amortization of share-based awards | 1,397 | 1,506 | ||||||
Delivery of common stock underlying share-based awards | (1,547 | ) | (1,596 | ) | ||||
Forfeiture of share-based awards | (8 | ) | (16 | ) | ||||
Ending balance | 3,037 | 2,739 | ||||||
Additional paid-in capital | ||||||||
Beginning balance | 54,883 | 54,005 | ||||||
Delivery of common stock underlying share-based awards | 1,541 | 1,587 | ||||||
Cancellation of share-based awards in satisfaction of withholding tax requirements | (803 | ) | (730 | ) | ||||
Ending balance | 55,621 | 54,862 | ||||||
Retained earnings | ||||||||
Beginning balance, as previously reported | 106,465 | 100,100 | ||||||
Cumulative effect of change in accounting principle for: | ||||||||
Current expected credit losses, net of tax | (638 | ) | – | |||||
Leases, net of tax | – | 12 | ||||||
Beginning balance, adjusted | 105,827 | 100,112 | ||||||
Net earnings | 1,213 | 2,251 | ||||||
Dividends and dividend equivalents declared on common stock and share-based awards | (449 | ) | (306 | ) | ||||
Dividends declared on preferred stock | (89 | ) | (69 | ) | ||||
Preferred stock redemption premium | (1 | ) | – | |||||
Ending balance | 106,501 | 101,988 | ||||||
Accumulated other comprehensive income/(loss) | ||||||||
Beginning balance | (1,484 | ) | 693 | |||||
Other comprehensive income/(loss) | 3,421 | (1,306 | ) | |||||
Ending balance | 1,937 | (613 | ) | |||||
Stock held in treasury, at cost | ||||||||
Beginning balance | (84,006 | ) | (78,670 | ) | ||||
Repurchased | (1,928 | ) | (1,250 | ) | ||||
Reissued | 10 | 11 | ||||||
Other | (5 | ) | (6 | ) | ||||
Ending balance | (85,929 | ) | (79,915 | ) | ||||
Total shareholders’ equity | $ 92,379 | $ 90,273 |
The accompanying notes are an integral part of these consolidated financial statements.
3 | Goldman Sachs March 2020 Form 10-Q |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
Three Months Ended March | ||||||||
$ in millions | 2020 | 2019 | ||||||
Cash flows from operating activities | ||||||||
Net earnings | $ 1,213 | $ 2,251 | ||||||
Adjustments to reconcile net earnings to net cash used for operating activities: | ||||||||
Depreciation and amortization | 437 | 368 | ||||||
Share-based compensation | 1,395 | 1,503 | ||||||
Gain related to extinguishment of unsecured borrowings | (1 | ) | – | |||||
Provision for credit losses | 937 | 224 | ||||||
Changes in operating assets and liabilities: | ||||||||
Customer and other receivables and payables, net | (7,961 | ) | 3,991 | |||||
Collateralized transactions (excluding other secured financings), net | (55,249 | ) | (13,215 | ) | ||||
Trading assets | (20,580 | ) | (26,494 | ) | ||||
Trading liabilities | 27,523 | (7,888 | ) | |||||
Loans held for sale, net | 2,624 | 652 | ||||||
Other, net | (3,369 | ) | (5,760 | ) | ||||
Net cash used for operating activities | (53,031 | ) | (44,368 | ) | ||||
Cash flows from investing activities | ||||||||
Purchase of property, leasehold improvements and equipment | (2,843 | ) | (2,128 | ) | ||||
Proceeds from sales of property, leasehold improvements and equipment | 397 | 2,266 | ||||||
Purchase of investments | (10,214 | ) | (6,848 | ) | ||||
Proceeds from sales and paydowns of investments | 3,889 | 6,207 | ||||||
Loans, net (excluding loans held for sale) | (23,565 | ) | (1,636 | ) | ||||
Net cash used for investing activities | (32,336 | ) | (2,139 | ) | ||||
Cash flows from financing activities | ||||||||
Unsecured short-term borrowings, net | 2,915 | 381 | ||||||
Other secured financings (short-term), net | 16,307 | (2,690 | ) | |||||
Proceeds from issuance of other secured financings (long-term) | 2,969 | 1,442 | ||||||
Repayment of other secured financings (long-term), including the current portion | (445 | ) | (525 | ) | ||||
Purchase of Trust Preferred securities | (11 | ) | – | |||||
Proceeds from issuance of unsecured long-term borrowings | 26,506 | 6,253 | ||||||
Repayment of unsecured long-term borrowings, including the current portion | (16,175 | ) | (7,251 | ) | ||||
Derivative contracts with a financing element, net | 134 | 2,586 | ||||||
Deposits, net | 28,381 | 5,594 | ||||||
Preferred stock redemption | (350 | ) | – | |||||
Common stock repurchased | (1,928 | ) | (1,250 | ) | ||||
Settlement of share-based awards in satisfaction of withholding tax requirements | (804 | ) | (730 | ) | ||||
Dividends and dividend equivalents paid on common stock, preferred stock and share-based awards | (538 | ) | (375 | ) | ||||
Proceeds from issuance of preferred stock, net of issuance costs | 349 | – | ||||||
Other financing, net | – | 409 | ||||||
Net cash provided by financing activities | 57,310 | 3,844 | ||||||
Net decrease in cash and cash equivalents | (28,057 | ) | (42,663 | ) | ||||
Cash and cash equivalents, beginning balance | 133,546 | 130,547 | ||||||
Cash and cash equivalents, ending balance | $105,489 | $ 87,884 | ||||||
Supplemental disclosures: | ||||||||
Cash payments for interest, net of capitalized interest | $ 4,041 | $ 4,372 | ||||||
Cash payments/(refunds) for income taxes, net | $ | $ (109 | ) |
See Notes 12, 14 and 16 for information about
non-cash
activities.The accompanying notes are an integral part of these consolidated financial statements.
Goldman Sachs March 2020 Form 10-Q | 4 |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
Note 1.
Description of Business
The Goldman Sachs Group, Inc. (Group Inc. or parent company), a Delaware corporation, together with its consolidated subsidiaries (collectively, the firm), is a leading global investment banking, securities and investment management firm that provides a wide range of financial services to a substantial and diversified client base that includes corporations, financial institutions, governments and individuals. Founded in 1869, the firm is headquartered in New York and maintains offices in all major financial centers around the world.
The firm reports its activities in the following 4 business segments:
Investment Banking
The firm provides a broad range of investment banking services to a diverse group of corporations, financial institutions, investment funds and governments. Services include strategic advisory assignments with respect to mergers and acquisitions, divestitures, corporate defense activities, restructurings and spin-offs, and equity and debt underwriting of public offerings and private placements. The firm also provides lending to corporate clients, including middle-market lending, relationship lending and acquisition financing.
Global Markets
The firm facilitates client transactions and makes markets in fixed income, equity, currency and commodity products with institutional clients, such as corporations, financial institutions, investment funds and governments. The firm also makes markets in and clears institutional client transactions on major stock, options and futures exchanges worldwide and provides prime brokerage and other equities financing activities, including securities lending, margin lending and swaps. The firm also provides financing to clients through repurchase agreements, as well as through structured credit, warehouse and asset-backed lending.
Asset Management
The firm manages assets 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 clients and a network of third-party distributors around the world. The firm makes equity investments, which include alternative investing activities related to public and private equity investments in corporate, real estate and infrastructure assets, as well as investments through consolidated investment entities, substantially all of which are engaged in real estate investment activities. The firm also invests in corporate debt and provides financing for real estate and other assets.
Consumer & Wealth Management
The firm provides investing and wealth advisory solutions, including financial planning and counseling, executing brokerage transactions and managing assets for individuals in its wealth management business. The firm also provides loans and accepts deposits through its consumer banking digital platform,,
Marcus by Goldman Sachs
and through its private bank, as well as issues credit cards to consumers.
Note 2.
Basis of Presentation
These consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States (U.S. GAAP) and include the accounts of Group Inc. and all other entities in which the firm has a controlling financial interest. Intercompany transactions and balances have been eliminated.
These consolidated financial statements are unaudited and should be read in conjunction with the audited consolidated financial statements included in the firm’s Annual Report on Form
10-K
for the year ended December 31, 2019. References to “the 2019 Form 10-K”
are to the firm’s Annual Report on Form 10-K
for the year ended December 31, 2019. Certain disclosures included in the annual financial statements have been condensed or omitted from these financial statements as they are not required for interim financial statements under U.S. GAAP and the rules of the Securities and Exchange Commission.These unaudited consolidated financial statements reflect all adjustments that are, in the opinion of management, necessary for a fair statement of the results for the interim periods presented. These adjustments are of a normal, recurring nature. Interim period operating results may not be indicative of the operating results for a full year.
All references to March 2020 and March 2019 refer to the firm’s periods ended, or the dates, as the context requires, March 31, 2020 and March 31, 2019, respectively. All references to December 2019 refer to the date December 31, 2019. Any reference to a future year refers to a year ending on December 31 of that year.
Beginning in the fourth quarter of 2019, the firm changed its business segments and balance sheet presentation to better reflect the nature of the firm’s activities. See Note 2 in Part II, Item 8 of the 2019 Form 10-K for further information. Reclassifications have been made to previously reported amounts to conform to the current presentation.
5 | Goldman Sachs March 2020 Form 10-Q |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
Note 3.
Significant Accounting Policies
The firm’s significant accounting policies include when and how to measure the fair value of assets and liabilities, measuring the allowance for credit losses on loans and lending commitments accounted for at amortized cost, and when to consolidate an entity. See Note 4 for policies on fair value measurements, Note 9 for policies on the allowance for credit losses, and below and Note 17 for policies on consolidation accounting. All other significant accounting policies are either described below or included in the following footnotes:
Fair Value Measurements | Note 4 | |||
Trading Assets and Liabilities | Note 5 | |||
Trading Cash Instruments | Note 6 | |||
Derivatives and Hedging Activities | Note 7 | |||
Investments | Note 8 | |||
Loans | Note 9 | |||
Fair Value Option | Note 10 | |||
Collateralized Agreements and Financings | Note 11 | |||
Other Assets | Note 12 | |||
Deposits | Note 13 | |||
Unsecured Borrowings | Note 14 | |||
Other Liabilities | Note 15 | |||
Securitization Activities | Note 16 | |||
Variable Interest Entities | Note 17 | |||
Commitments, Contingencies and Guarantees | Note 18 | |||
Shareholders’ Equity | Note 19 | |||
Regulation and Capital Adequacy | Note 20 | |||
Earnings Per Common Share | Note 21 | |||
Transactions with Affiliated Funds | Note 22 | |||
Interest Income and Interest Expense | Note 23 | |||
Income Taxes | Note 24 | |||
Business Segments | Note 25 | |||
Credit Concentrations | Note 26 | |||
Legal Proceedings | Note 27 |
Consolidation
The firm consolidates entities in which the firm has a controlling financial interest. The firm determines whether it has a controlling financial interest in an entity by first evaluating whether the entity is a voting interest entity or a variable interest entity (VIE).
Voting Interest Entities.
Variable Interest Entities.
Equity-Method Investments.
in-substance
common stock.In certain cases, the firm applies the equity method of accounting to new investments that are strategic in nature or closely related to the firm’s principal business activities, when the firm has a significant degree of involvement in the cash flows or operations of the investee or when cost-benefit considerations are less significant. See Note 8 for further information about equity-method investments.
Goldman Sachs March 2020 Form 10-Q | 6 |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
Investment Funds.
Use of Estimates
Preparation of these consolidated financial statements requires management to make certain estimates and assumptions, the most important of which relate to fair value measurements, the allowance for credit losses on loans and lending commitments accounted for at amortized cost, discretionary compensation accruals, accounting for goodwill and identifiable intangible assets, provisions for losses that may arise from litigation and regulatory proceedings (including governmental investigations), and provisions for losses that may arise from tax audits. These estimates and assumptions are based on the best available information but actual results could be materially different.
Revenue Recognition
Financial Assets and Liabilities at Fair Value.
Revenue from Contracts with Clients.
,
when the performance obligations related to the underlying transaction are completed.Revenues from these contracts with clients represent approximately 55% of total
non-interest
revenues (including approximately
85% of investment banking revenues, approximately
95% of investment management revenues and all commissions and fees) for the three months ended March 2020, and approximately
50% of total
non-interest
revenues (including approximately
90% of investment banking revenues, approximately
95% of investment management revenues and all commissions and fees) for the three months ended March 2019. See Note 25 for information about net revenues by business segment.
Investment Banking
Advisory.
Non-refundable
deposits and milestone payments in connection with financial advisory assignments are recognized in revenues upon completion of the underlying transaction or when the assignment is otherwise concluded.Expenses associated with financial advisory assignments are recognized when incurred and are included in other expenses. Client reimbursements for such expenses are included in investment banking revenues.
Underwriting.
Expenses associated with underwriting assignments are generally deferred until the related revenue is recognized or the assignment is otherwise concluded. Such expenses are included in other expenses.
7 | Goldman Sachs March 2020 Form 10-Q |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
Investment Management
The firm earns management fees and incentive fees for investment management services, which are included in investment management revenues. The firm makes payments to brokers and advisors related to the placement of the firm’s investment funds (distribution fees), which are included in brokerage, clearing, exchange and distribution fees.
Management Fees.
month-end
net asset value and are generally received quarterly. Management fees for private equity funds are calculated as a percentage of monthly invested capital or committed capital and are received quarterly, semi-annually or annually, depending on the fund. Management fees are recognized over time in the period the services are provided.Distribution fees paid by the firm are calculated based on either a percentage of the management fee, the investment fund’s net asset value or the committed capital. Such fees are included in brokerage, clearing, exchange and distribution fees.
Incentive Fees.
Incentive fees earned from a fund or separately managed account are recognized when it is probable that a significant reversal of such fees will not occur, which is generally when such fees are no longer subject to fluctuations in the market value of investments held by the fund or separately managed account. Therefore, incentive fees recognized during the period may relate to performance obligations satisfied in previous periods.
Commissions and Fees
The firm earns commissions and fees from executing and clearing client transactions on stock, options and futures markets, as well as
over-the-counter
(OTC) transactions. Commissions and fees are recognized on the day the trade is executed. The firm also provides third-party research services to clients in connection with certain soft-dollar arrangements. Third-party research costs incurred by the firm in connection with such arrangements are presented net within commissions and fees.Remaining Performance Obligations
Remaining performance obligations are services that the firm has committed to perform in the future in connection with its contracts with clients. The firm’s remaining performance obligations are generally related to its financial advisory assignments and certain investment management activities. Revenues associated with remaining performance obligations relating to financial advisory assignments cannot be determined until the outcome of the transaction. For the firm’s investment management activities, where fees are calculated based on the net asset value of the fund or separately managed account, future revenues associated with such remaining performance obligations cannot be determined as such fees are subject to fluctuations in the market value of investments held by the fund or separately managed account.
The firm is able to determine the future revenues associated with management fees calculated based on committed capital. As of March 2020, substantially all future net revenues associated with such remaining performance obligations will be recognized through 202
7
. Annual revenues associated with such performance obligations average less than $250 million through 2027
.Transfers of Financial Assets
Transfers of financial assets are accounted for as sales when the firm has relinquished control over the assets transferred. For transfers of financial assets accounted for as sales, any gains or losses are recognized in net revenues. Assets or liabilities that arise from the firm’s continuing involvement with transferred financial assets are initially recognized at fair value. For transfers of financial assets that are not accounted for as sales, the assets are generally included in trading assets and the transfer is accounted for as a collateralized financing, with the related interest expense recognized over the life of the transaction. See Note 11 for further information about transfers of financial assets accounted for as collateralized financings and Note 16 for further information about transfers of financial assets accounted for as sales.
Goldman Sachs March 2020 Form 10-Q | 8 |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
Cash and Cash Equivalents
The firm defines cash equivalents as highly liquid overnight deposits held in the ordinary course of business. Cash and cash equivalents included cash and due from banks of $11.70 billion as of March 2020 and $12.57 billion as of December 2019. Cash and cash equivalents also included interest-bearing deposits with banks of $93.79 billion as of March 2020 and $120.98 billion as of December 2019.
The firm segregates cash for regulatory and other purposes related to client activity. Cash and cash equivalents segregated for regulatory and other purposes were $28.93 billion as of March 2020 and $22.78 billion as of December 2019. In addition, the firm segregates securities for regulatory and other purposes related to client activity. See Note 11 for further information about segregated securities.
Customer and Other Receivables
Customer and other receivables included receivables from customers and counterparties of $72.63 billion as of March 2020 and $50.90 billion as of December 2019, and receivables from brokers, dealers and clearing organizations of $48.30 billion as of March 2020 and $23.71 billion as of December 2019. Such receivables primarily consist of customer margin loans, receivables resulting from unsettled transactions and collateral posted in connection with certain derivative transactions.
Substantially all of these receivables are accounted for at amortized cost net of any allowance for credit losses, which generally approximates fair value. As these receivables are not accounted for at fair value, they are not included in the firm’s fair value hierarchy in Notes 4 through 10. Had these receivables been included in the firm’s fair value hierarchy, substantially all would have been classified in level 2 as of both March 2020 and December 2019. See Note 10 for further information about customer and other receivables accounted for at fair value under the fair value option. Interest on customer and other receivables is recognized over the life of the transaction and included in interest income.
Customer and other receivables includes receivables from contracts with clients and contract assets. Contract assets represent the firm’s right to receive consideration for services provided in connection with its contracts with clients for which collection is conditional and not merely subject to the passage of time. The firm’s receivables from contracts with clients were $2.31 billion as of March 2020 and $2.27 billion as of December 2019. As of both March 2020 and December 2019 contract assets were not material.
Customer and Other Payables
Customer and other payables included payables to customers and counterparties of $201.68 billion as of March 2020 and $170.21 billion as of December 2019, and payables to brokers, dealers and clearing organizations of $11.50 billion as of March 2020 and $4.61 billion as of December 2019. Such payables primarily consist of customer credit balances related to the firm’s prime brokerage activities. Customer and other payables are accounted for at cost plus accrued interest, which generally approximates fair value. As these payables are not accounted for at fair value, they are not included in the firm’s fair value hierarchy in Notes 4 through 10. Had these payables been included in the firm’s fair value hierarchy, substantially all would have been classified in level 2 as of both March 2020 and December 2019. Interest on customer and other payables is recognized over the life of the transaction and included in interest expense.
Offsetting Assets and Liabilities
To reduce credit exposures on derivatives and securities financing transactions, the firm may enter into master netting agreements or similar arrangements (collectively, netting agreements) with counterparties that permit it to offset receivables and payables with such counterparties. A netting agreement is a contract with a counterparty that permits net settlement of multiple transactions with that counterparty, including upon the exercise of termination rights by a
non-defaulting
party. Upon exercise of such termination rights, all transactions governed by the netting agreement are terminated and a net settlement amount is calculated. In addition, the firm receives and posts cash and securities collateral with respect to its derivatives and securities financing transactions, subject to the terms of the related credit support agreements or similar arrangements (collectively, credit support agreements). An enforceable credit support agreement grants thenon-defaulting
party exercising termination rights the right to liquidate the collateral and apply the proceeds to any amounts owed. In order to assess enforceability of the firm’s right of setoff under netting and credit support agreements, the firm evaluates various factors, including applicable bankruptcy laws, local statutes and regulatory provisions in the jurisdiction of the parties to the agreement.9 | Goldman Sachs March 2020 Form 10-Q |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
Derivatives are reported on a
net-by-counterparty
basis (i.e., the net payable or receivable for derivative assets and liabilities for a given counterparty) in the consolidated balance sheets when a legal right of setoff exists under an enforceable netting agreement. Securities purchased under agreements to resell (resale agreements) and securities sold under agreements to repurchase (repurchase agreements) and securities borrowed and loaned transactions with the same term and currency are presented on anet-by-counterparty
basis in the consolidated balance sheets when such transactions meet certain settlement criteria and are subject to netting agreements.In the consolidated balance sheets, derivatives are reported net of cash collateral received and posted under enforceable credit support agreements, when transacted under an enforceable netting agreement. In the consolidated balance sheets, resale and repurchase agreements, and securities borrowed and loaned, are not reported net of the related cash and securities received or posted as collateral. See Note 11 for further information about collateral received and pledged, including rights to deliver or repledge collateral. See Notes 7 and 11 for further information about offsetting assets and liabilities.
Share-based Compensation
The cost of employee services received in exchange for a share-based award is generally measured based on the grant-date fair value of the award. Share-based awards that do not require future service (i.e., vested awards, including awards granted to retirement-eligible employees) are expensed immediately. Share-based awards that require future service are amortized over the relevant service period. Forfeitures are recorded when they occur.
Cash dividend equivalents paid on outstanding restricted stock units (RSUs) are charged to retained earnings. If RSUs that require future service are forfeited, the related dividend equivalents originally charged to retained earnings are reclassified to compensation expense in the period in which forfeiture occurs.
The firm generally issues new shares of common stock upon delivery of share-based awards. In certain cases, primarily related to conflicted employment (as outlined in the applicable award agreements), the firm may cash settle share-based compensation awards accounted for as equity instruments. For these awards, whose terms allow for cash settlement, additional
paid-in
capital is adjusted to the extent of the difference between the value of the award at the time of cash settlement and the grant-date value of the award. The tax effect related to the settlement of share-based awards is recorded in income tax benefit or expense.Foreign Currency Translation
Assets and liabilities denominated in
non-U.S.
currencies are translated at rates of exchange prevailing on the date of the consolidated balance sheets and revenues and expenses are translated at average rates of exchange for the period. Foreign currency remeasurement gains or losses on transactions in nonfunctional currencies are recognized in earnings. Gains or losses on translation of the financial statements of anon-U.S.
operation, when the functional currency is other than the U.S. dollar, are included, net of hedges and taxes, in the consolidated statements of comprehensive income.Recent Accounting Developments
Leases (ASC 842).
2016-02,
“Leases (Topic 842).” This ASU requires that, for leases longer than one year, a lessee recognize in the balance sheet aright-of-use
asset, representing the right to use the underlying asset for the lease term, and a lease liability, representing the liability to make lease payments. It also requires that for finance leases, a lessee recognize interest expense on the lease liability, separately from the amortization of theright-of-use
asset in the statements of earnings, while for operating leases, such amounts should be recognized as a combined expense. It also requires that for qualifying sale-leaseback transactions the seller recognize any gain or loss (based on the estimated fair value of the asset at the time of sale) when control of the asset is transferred instead of amortizing it over the lease period. In addition, this ASU requires expanded disclosures about the nature and terms of lease agreements.The firm adopted this ASU in January 2019 under a modified retrospective approach. Upon adoption, in accordance with the ASU, the firm elected to not reassess the lease classification or initial direct costs of existing leases, and to not reassess whether existing contracts contain a lease. In addition, the firm has elected to account for each contract’s lease and
non-lease
components as a single lease component. The impact of adoption was a gross up of $1.77 billion on the firm’s consolidated balance sheet and an increase to retained earnings of $12 million (net of tax) as of January 1, 2019.Goldman Sachs March 2020 Form 10-Q | 10 |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
Measurement of Credit Losses on Financial Instruments (ASC 326).
2016-13,
“Financial Instruments — Credit Losses (Topic 326) — Measurement of Credit Losses on Financial Instruments.” This ASU amends several aspects of the measurement of credit losses on certain financial instruments, including replacing the existing incurred credit loss model and other models with the Current Expected Credit Losses (CECL) model and amending certain aspects of accounting for purchased financial assets with deterioration in credit quality since origination.The firm adopted this ASU in January 2020 under a modified retrospective approach. As a result of adopting this ASU, the firm’s allowance for credit losses on financial assets and commitments that are measured at amortized cost reflects management’s estimate of credit losses over the remaining expected life of such assets. Expected credit losses for newly recognized financial assets and commitments, as well as changes to expected credit losses during the period, are recognized in earnings. These expected credit losses are measured based on historical experience, current conditions and forecasts that affect the collectability of the reported amount.
The cumulative effect of measuring the allowance under CECL as a result of adopting this ASU as of January 1, 2020 was an increase in the allowance for credit losses of $848 million. The increase in the allowance is driven by the fact that the allowance under CECL covers expected credit losses over the full expected life of the loan portfolios and also takes into account forecasts of expected future economic conditions. In addition, in accordance with the ASU, the firm elected the fair value option for loans that were previously accounted for as Purchased Credit Impaired (PCI), which resulted in a decrease to the allowance for PCI loans of $169 million. The cumulative effect of adopting this ASU was a decrease to retained earnings of $638 million (net of tax).
Facilitation of the Effects of(ASC 848).
Reference Rate Reform on Financial Reporting
Note 4.
Fair Value Measurements
The fair value of a financial instrument is the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Financial assets are marked to bid prices and financial liabilities are marked to offer prices. Fair value measurements do not include transaction costs. The firm measures certain financial assets and liabilities as a portfolio (i.e., based on its net exposure to market and/or credit risks).
The best evidence of fair value is a quoted price in an active market. If quoted prices in active markets are not available, fair value is determined by reference to prices for similar instruments, quoted prices or recent transactions in less active markets, or internally developed models that primarily use market-based or independently sourced inputs, including, but not limited to, interest rates, volatilities, equity or debt prices, foreign exchange rates, commodity prices, credit spreads and funding spreads (i.e., the spread or difference between the interest rate at which a borrower could finance a given financial instrument relative to a benchmark interest rate).
U.S. GAAP has a three-level hierarchy for disclosure of fair value measurements. This hierarchy prioritizes inputs to the valuation techniques used to measure fair value, giving the highest priority to level 1 inputs and the lowest priority to level 3 inputs. A financial instrument’s level in this hierarchy is based on the lowest level of input that is significant to its fair value measurement. In evaluating the significance of a valuation input, the firm considers, among other factors, a portfolio’s net risk exposure to that input. The fair value hierarchy is as follows:
Level 1.
Level 2.
Level 3.
The fair values for substantially all of the firm’s financial assets and liabilities are based on observable prices and inputs and are classified in levels 1 and 2 of the fair value hierarchy. Certain level 2 and level 3 financial assets and liabilities may require 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.
11 | Goldman Sachs March 2020 Form 10-Q |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
The valuation techniques and nature of significant inputs used to determine the fair value of the firm’s financial instruments are described below. See Notes 5 through 10 for further information about significant unobservable inputs used to value level 3 financial instruments.
Valuation Techniques and Significant Inputs for Trading Cash Instruments, Investments and Loans
Level 1.
non-U.S.
government obligations, certain agency obligations, certain corporate debt instruments, certain money market instruments and actively traded listed equities. These instruments are valued using quoted prices for identical unrestricted instruments in active markets. The firm defines active markets for equity instruments based on the average daily trading volume both in absolute terms and relative to the market capitalization for the instrument. The firm defines active markets for debt instruments based on both the average daily trading volume and the number of days with trading activity.Level 2.
non-U.S.
government obligations, most agency obligations, most mortgage-backed loans and securities, most corporate debt instruments, most state and municipal obligations, most money market instruments, most other debt obligations, restricted or less liquid listed equities, certain private equities, commodities and certain lending commitments.Valuations of level 2 instruments can be verified to quoted prices, recent trading activity for identical or similar instruments, broker or dealer quotations or alternative pricing sources with reasonable levels of price transparency. Consideration is given to the nature of the quotations (e.g., indicative or firm) and the relationship of recent market activity to the prices provided from alternative pricing sources.
Valuation adjustments are typically made to level 2 instruments (i) if the instrument is subject to transfer restrictions and/or (ii) for other premiums and liquidity discounts that a market participant would require to arrive at fair value. Valuation adjustments are generally based on market evidence.
Level 3.
Valuation techniques of level 3 instruments vary by instrument, but are generally based on discounted cash flow techniques. The valuation techniques and the nature of significant inputs used to determine the fair values of each type of level 3 instrument are described below:
Loans and Securities Backed by Commercial Real Estate
Loans and securities backed by commercial real estate are directly or indirectly collateralized by a single property or a portfolio of properties, and may include tranches of varying levels of subordination. Significant inputs are generally determined based on relative value analyses and include:
• | Market yields implied by transactions of similar or related assets and/or current levels and changes in market indices, such as the CMBX (an index that tracks the performance of commercial mortgage bonds); |
• | Transaction prices in both the underlying collateral and instruments with the same or similar underlying collateral; |
• | A measure of expected future cash flows in a default scenario (recovery rates) implied by the value of the underlying collateral, which is mainly driven by current performance of the underlying collateral and capitalization rates. Recovery rates are expressed as a percentage of notional or face value of the instrument and reflect the benefit of credit enhancements on certain instruments; and |
• | Timing of expected future cash flows (duration) which, in certain cases, may incorporate the impact of other unobservable inputs (e.g., prepayment speeds). |
Loans and Securities Backed by Residential Real Estate
Loans and securities backed by residential real estate are directly or indirectly collateralized by portfolios of residential real estate and may include tranches of varying levels of subordination. Significant inputs are generally determined based on relative value analyses, which incorporate comparisons to instruments with similar collateral and risk profiles. Significant inputs include:
• | Market yields implied by transactions of similar or related assets; |
• | Transaction prices in both the underlying collateral and instruments with the same or similar underlying collateral; |
• | Cumulative loss expectations, driven by default rates, home price projections, residential property liquidation timelines, related costs and subsequent recoveries; and |
• | Duration, driven by underlying loan prepayment speeds and residential property liquidation timelines. |
Goldman Sachs March 2020 Form 10-Q | 12 |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
Corporate Debt Instruments
Corporate debt instruments includes corporate loans, debt securities and convertible debentures. Significant inputs for corporate debt instruments are generally determined based on relative value analyses, which incorporate comparisons both to prices of credit default swaps that reference the same or similar underlying instrument or entity and to other debt instruments for the same or similar issuer for which observable prices or broker quotations are available. Significant inputs include:
• | Market yields implied by transactions of similar or related assets and/or current levels and trends of market indices, such as the CDX (an index that tracks the performance of corporate credit); |
• | Current performance and recovery assumptions and, where the firm uses credit default swaps to value the related instrument, the cost of borrowing the underlying reference obligation; |
• | Duration; and |
• | Market and transaction multiples for corporate debt instruments with convertibility or participation options. |
Equity Securities
Equity securities consists of private equities. Recent third-party completed or pending transactions (e.g., merger proposals, debt restructurings, tender offers) are considered the best evidence for any change in fair value. When these are not available, the following valuation methodologies are used, as appropriate:
• | Industry multiples (primarily EBITDA and revenue multiples) and public comparables; |
• | Transactions in similar instruments; |
• | Discounted cash flow techniques; and |
• | Third-party appraisals. |
The firm also considers changes in the outlook for the relevant industry and financial performance of the issuer as compared to projected performance. Significant inputs include:
• | Market and transaction multiples; |
• | Discount rates and capitalization rates; and |
• | For equity securities with debt-like features, market yields implied by transactions of similar or related assets, current performance and recovery assumptions, and duration. |
Other Trading Cash Instruments, Investments and Loans
The significant inputs to the valuation of other instruments, such as U.S. and
non-U.S.
government and agency obligations, state and municipal obligations, and other loans and debt obligations are generally determined based on relative value analyses, which incorporate comparisons both to prices of credit default swaps that reference the same or similar underlying instrument or entity and to other debt instruments for the same issuer for which observable prices or broker quotations are available. Significant inputs include:• | Market yields implied by transactions of similar or related assets and/or current levels and trends of market indices; |
• | Current performance and recovery assumptions and, where the firm uses credit default swaps to value the related instrument, the cost of borrowing the underlying reference obligation; and |
• | Duration. |
Valuation Techniques and Significant Inputs for Derivatives
The firm’s level 2 and level 3 derivatives are valued using derivative pricing models (e.g., discounted cash flow models, correlation models and models that incorporate option pricing methodologies, such as Monte Carlo simulations). Price transparency of derivatives can generally be characterized by product type, as described below.
• | Interest Rate. 10-year swap rate vs.2-year swap rate) are more complex, but the key inputs are generally observable. |
• | Credit. |
13 | Goldman Sachs March 2020 Form 10-Q |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
• | Currency. |
• | Commodity. |
• | Equity. |
Liquidity is essential to observability of all product types. If transaction volumes decline, previously transparent prices and other inputs may become unobservable. Conversely, even highly structured products may at times have trading volumes large enough to provide observability of prices and other inputs.
Level 1.
Level 2.
The selection of a particular model to value a derivative depends on the contractual terms of and specific risks inherent in the instrument, as well as the availability of pricing information in the market. For derivatives that trade in liquid markets, model selection does not involve significant management judgment because outputs of models can be calibrated to market-clearing levels.
Valuation models require a variety of inputs, such as contractual terms, market prices, yield curves, discount rates (including those derived from interest rates on collateral received and posted as specified in credit support agreements for collateralized derivatives), credit curves, measures of volatility, prepayment rates, loss severity rates and correlations of such inputs. Significant inputs to the valuations of level 2 derivatives can be verified to market transactions, broker or dealer quotations or other alternative pricing sources with reasonable levels of price transparency. Consideration is given to the nature of the quotations (e.g., indicative or firm) and the relationship of recent market activity to the prices provided from alternative pricing sources.
Level 3.
• | For level 3 interest rate and currency derivatives, significant unobservable inputs include correlations of certain currencies and interest rates (e.g., the correlation between Euro inflation and Euro interest rates). In addition, for level 3 interest rate derivatives, significant unobservable inputs include specific interest rate volatilities. |
• | For level 3 credit derivatives, significant unobservable inputs include illiquid credit spreads and upfront credit points, which are unique to specific reference obligations and reference entities, recovery rates and certain correlations required to value credit derivatives (e.g., the likelihood of default of the underlying reference obligation relative to one another). |
• | For level 3 commodity derivatives, significant unobservable inputs include volatilities for options with strike prices that differ significantly from current market prices and prices or spreads for certain products for which the product quality or physical location of the commodity is not aligned with benchmark indices. |
• | For level 3 equity derivatives, significant unobservable inputs generally include equity volatility inputs for options that are long-dated and/or have strike prices that differ significantly from current market prices. In addition, the valuation of certain structured trades requires the use of level 3 correlation inputs, such as the correlation of the price performance of two or more individual stocks or the correlation of the price performance for a basket of stocks to another asset class, such as commodities. |
Goldman Sachs March 2020 Form 10-Q | 14 |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
Subsequent to the initial valuation of a level 3 derivative, the firm updates the level 1 and level 2 inputs to reflect observable market changes and any resulting gains and losses are classified in level 3. Level 3 inputs are changed when corroborated by evidence, such as similar market transactions, third-party pricing services and/or broker or dealer quotations or other empirical market data. In circumstances where the firm cannot verify the model value by reference to market transactions, it is possible that a different valuation model could produce a materially different estimate of fair value. See Note 7 for further information about significant unobservable inputs used in the valuation of level 3 derivatives.
Valuation Adjustments.
mid-market
valuations produced by derivative pricing models to the exit price valuation. These adjustments incorporate bid/offer spreads, the cost of liquidity, credit valuation adjustments and funding valuation adjustments, which account for the credit and funding risk inherent in the uncollateralized portion of derivative portfolios. The firm also makes funding valuation adjustments to collateralized derivatives where the terms of the agreement do not permit the firm to deliver or repledge collateral received. Market-based inputs are generally used when calibrating valuation adjustments to market-clearing levels.In addition, for derivatives that include significant unobservable inputs, the firm makes model or exit price adjustments to account for the valuation uncertainty present in the transaction.
Valuation Techniques and Significant Inputs for Other Financial Instruments at Fair Value
In addition to trading cash instruments, derivatives, and certain investments and loans, the firm accounts for certain of its other financial assets and liabilities at fair value under the fair value option. Such instruments include repurchase agreements and substantially all resale agreements; securities borrowed and loaned in Fixed Income, Currency and Commodities (FICC) financing; certain customer and other receivables, including certain margin loans; certain time deposits, including structured certificates of deposit, which are hybrid financial instruments; substantially all other secured financings, including transfers of assets accounted for as financings and collateralized central bank financings; certain unsecured short- and long-term borrowings, substantially all of which are hybrid financial instruments; and other liabilities. These instruments are generally valued based on discounted cash flow techniques, which incorporate inputs with reasonable levels of price transparency, and are generally classified in level 2 because the inputs are observable. Valuation adjustments may be made for liquidity and for counterparty and the firm’s credit quality. The significant inputs used to value the firm’s other financial instruments are described below.
Resale and Repurchase Agreements and Securities Borrowed and Loaned.
Customer and Other Receivables.
Deposits.
Other Secured Financings.
Unsecured Short- and Long-Term Borrowings.
Other Liabilities.
15 | Goldman Sachs March 2020 Form 10-Q |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
Financial Assets and Liabilities at Fair Value
The table below presents financial assets and liabilities accounted for at fair value.
As of | ||||||||
$ in millions | March 2020 | December 2019 | ||||||
Total level 1 financial assets | $ | $242,562 | ||||||
Total level 2 financial assets | 440,469 | 325,259 | ||||||
Total level 3 financial assets | 30,776 | 23,068 | ||||||
Investments in funds at NAV | 3,545 | 4,206 | ||||||
Counterparty and cash collateral netting | (78,612 | ) | (55,527 | ) | ||||
Total financial assets at fair value | $ | $539,568 | ||||||
Total assets | $1,089,756 | $992,968 | ||||||
Total level 3 financial assets divided by: | ||||||||
Total assets | 2.8% | 2.3% | ||||||
Total financial assets at fair value | 5.0% | 4.3% | ||||||
Total level 1 financial liabilities | $ | $ 54,790 | ||||||
Total level 2 financial liabilities | 320,820 | 293,902 | ||||||
Total level 3 financial liabilities | 27,565 | 25,938 | ||||||
Counterparty and cash collateral netting | (60,796 | ) | (41,671 | ) | ||||
Total financial liabilities at fair value | $ | $332,959 | ||||||
Total level 3 financial liabilities divided by total financial liabilities at fair value | 7.9% | 7.8% |
In the table above:
• | Counterparty netting among positions classified in the same level is included in that level. |
• | Counterparty and cash collateral netting represents the impact on derivatives of netting across levels of the fair value hierarchy. |
The table below presents a summary of level 3 financial assets.
As of | ||||||||
$ in millions | March 2020 | December 2019 | ||||||
Trading assets: | ||||||||
Trading cash instruments | $ | $ 1,242 | ||||||
Derivatives | 7,381 | 4,654 | ||||||
Investments | 19,408 | 15,282 | ||||||
Loans | 2,753 | 1,890 | ||||||
Total | $ | $ 23,068 |
Level 3 financial assets as of March 2020 increased compared with December 2019, primarily reflecting an increase in level 3 investments. See Notes 5 through 10 for further information about level 3 financial assets (including information about unrealized gains and losses related to level 3 financial assets and transfers in and out of level 3).
Note 5.
Trading Assets and Liabilities
Trading assets and liabilities include trading cash instruments and derivatives held in connection with the firm’s market-making or risk management activities. These assets and liabilities are accounted for at fair value either under the fair value option or in accordance with other U.S. GAAP, and the related fair value gains and losses are generally recognized in the consolidated statements of earnings.
The table below presents a summary of trading assets and liabilities.
$ in millions | Trading Assets | Trading Liabilities | ||||||
As of March 2020 | ||||||||
Trading cash instruments | $300,900 | $ 74,319 | ||||||
Derivatives | 74,571 | 62,039 | ||||||
Total | $375,471 | $136,358 | ||||||
As of December 2019 | ||||||||
Trading cash instruments | $310,080 | $ 65,033 | ||||||
Derivatives | 45,252 | 43,802 | ||||||
Total | $355,332 | $108,835 |
See Note 6 for further information about trading cash instruments and Note 7 for further information about derivatives.
Gains and Losses from Market Making
The table below presents market making revenues by major product type.
Three Months Ended March | ||||||||
$ in millions | 2020 | 2019 | ||||||
Interest rates | $ | $1,260 | ||||||
Credit | 1,842 | 242 | ||||||
Currencies | (735 | ) | 718 | |||||
Equities | 1,700 | 390 | ||||||
Commodities | 138 | 113 | ||||||
Total | $3,682 | $2,723 |
In the table above:
• | Gains/(losses) include both realized and unrealized gains and losses. Gains/(losses) exclude related interest income and interest expense. See Note 23 for further information about interest income and interest expense. |
• | Gains and losses included in market making are primarily related to the firm’s trading assets and liabilities, including both derivative and non-derivative financial instruments. |
• | Gains/(losses) are not representative of the manner in which the firm manages its business activities because many of the firm’s market-making and client facilitation strategies utilize financial instruments across various product types. Accordingly, gains or losses in one product type frequently offset gains or losses in other product types. For example, most of the firm’s longer-term derivatives across product types are sensitive to changes in interest rates and may be economically hedged with interest rate swaps. Similarly, a significant portion of the firm’s trading cash instruments and derivatives across product types has exposure to foreign currencies and may be economically hedged with foreign currency contracts. |
Goldman Sachs March 2020 Form 10-Q | 16 |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
Note 6.
Trading Cash Instruments
Trading cash instruments consists of instruments held in connection with the firm’s market-making or risk management activities. These instruments are accounted for at fair value and the related fair value gains and losses are recognized in the consolidated statements of earnings.
Fair Value of Trading Cash Instruments by Level
The table below presents trading cash instruments by level within the fair value hierarchy.
$ in millions | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
As of March 2020 | ||||||||||||||||
Assets | ||||||||||||||||
Government and agency obligations: | ||||||||||||||||
U.S. | $ 89,564 | $ 49,771 | $ 11 | $139,346 | ||||||||||||
Non-U.S. | 37,925 | 9,493 | 16 | 47,434 | ||||||||||||
Loans and securities backed by: | ||||||||||||||||
Commercial real estate | – | 2,411 | 130 | 2,541 | ||||||||||||
Residential real estate | – | 6,906 | 251 | 7,157 | ||||||||||||
Corporate debt instruments | 683 | 24,804 | 719 | 26,206 | ||||||||||||
State and municipal obligations | – | 347 | – | 347 | ||||||||||||
Other debt obligations | 328 | 3,206 | 34 | 3,568 | ||||||||||||
Equity securities | 70,795 | 1,191 | 73 | 72,059 | ||||||||||||
Commodities | – | 2,242 | – | 2,242 | ||||||||||||
Total | $199,295 | $100,371 | $1,234 | $300,900 | ||||||||||||
Liabilities | ||||||||||||||||
Government and agency obligations: | ||||||||||||||||
U.S. | $ | ) | $ | ) | $ – | $ | ) | |||||||||
Non-U.S. | (23,065 | ) | (2,445 | ) | (1 | ) | (25,511 | ) | ||||||||
Loans and securities backed by: | ||||||||||||||||
Commercial real estate | – | (26 | ) | (1 | ) | (27 | ) | |||||||||
Residential real estate | – | (2 | ) | – | (2 | ) | ||||||||||
Corporate debt instruments | (7 | ) | (8,160 | ) | (177 | ) | (8,344 | ) | ||||||||
Other debt obligations | – | (5 | ) | – | (5 | ) | ||||||||||
Equity securities | (29,037 | ) | (379 | ) | (15 | ) | (29,431 | ) | ||||||||
Commodities | – | (29 | ) | – | (29 | ) | ||||||||||
Total | $ | ) | $ | ) | $ | ) | $ | ) | ||||||||
As of December 2019 | ||||||||||||||||
Assets | ||||||||||||||||
Government and agency obligations: | ||||||||||||||||
U.S. | $108,200 | $ 34,714 | $ 21 | $142,935 | ||||||||||||
Non-U.S. | 33,709 | 11,108 | 22 | 44,839 | ||||||||||||
Loans and securities backed by: | ||||||||||||||||
Commercial real estate | – | 2,031 | 191 | 2,222 | ||||||||||||
Residential real estate | – | 5,794 | 231 | 6,025 | ||||||||||||
Corporate debt instruments | 1,313 | 26,768 | 692 | 28,773 | ||||||||||||
State and municipal obligations | – | 680 | – | 680 | ||||||||||||
Other debt obligations | 409 | 1,074 | 10 | 1,493 | ||||||||||||
Equity securities | 78,782 | 489 | 75 | 79,346 | ||||||||||||
Commodities | – | 3,767 | – | 3,767 | ||||||||||||
Total | $222,413 | $ 86,425 | $1,242 | $310,080 | ||||||||||||
Liabilities | ||||||||||||||||
Government and agency obligations: | ||||||||||||||||
U.S. | $ | ) | $ | ) | $ | $ | ) | |||||||||
Non-U.S. | (21,213 | ) | (2,205 | ) | (6 | ) | (23,424 | ) | ||||||||
Loans and securities backed by: | ||||||||||||||||
Commercial real estate | – | (31 | ) | (1 | ) | (32 | ) | |||||||||
Residential real estate | – | (2 | ) | – | (2 | ) | ||||||||||
Corporate debt instruments | (115 | ) | (7,494 | ) | (253 | ) | (7,862 | ) | ||||||||
State and Municipal obligations | – | (2 | ) | – | (2 | ) | ||||||||||
Equity securities | (23,519 | ) | (212 | ) | (13 | ) | (23,744 | ) | ||||||||
Commodities | – | (6 | ) | – | (6 | ) | ||||||||||
Total | $ | ) | $ | ) | $ (273 | ) | $ | ) |
In the table above:
• | Trading cash instrument assets are shown as positive amounts and trading cash instrument liabilities are shown as negative amounts. |
• | Corporate debt instruments includes corporate loans, debt securities, convertible debentures, prepaid commodity transactions and transfers of assets accounted for as secured loans rather than purchases. |
• | Equity securities includes public equities and exchange-traded funds. |
• | Other debt obligations includes other asset-backed securities and money market instruments. |
See Note 4 for an overview of the firm’s fair value measurement policies and the valuation techniques and significant inputs used to determine the fair value of trading cash instruments.
Significant Unobservable Inputs
The table below presents the amount of level 3 assets, and ranges and weighted averages of significant unobservable inputs used to value level 3 trading cash instruments.
Level 3 Assets and Range of Significant Unobservable Inputs (Weighted Average) as of | ||||||||
$ in millions | March 2020 | December 2019 | ||||||
Loans and securities backed by commercial real estate | ||||||||
Level 3 assets | $130 | $191 | ||||||
Yield | 4.3% to 22.0% (15.5% | ) | 2.7% to 21.7% (13.5% | ) | ||||
Recovery rate | 7.0% to 88.0% (59.9% | ) | 11.4% to 81.1% (55.6% | ) | ||||
Duration (years) | 1.0 to 6.0 (3.3 | ) | 0.3 to 6.6 (2.8 | ) | ||||
Loans and securities backed by residential real estate | ||||||||
Level 3 assets | $251 | $231 | ||||||
Yield | 1.4% to 9.2% (4.4% | ) | 1.2% to 12.0% (5.8% | ) | ||||
Cumulative loss rate | 4.0% to 33.0% (16.0% | ) | 5.4% to 30.4% (16.3% | ) | ||||
Duration (years) | 2.1 to 14.3 (8.3 | ) | 2.3 to 12.4 (5.7 | ) | ||||
Corporate debt instruments | ||||||||
Level 3 assets | $719 | $692 | ||||||
Yield | 2.3% to 46.8% (15.6% | ) | 0.1% to 20.4% (7.2% | ) | ||||
Recovery rate | 0.0% to 70.0% (55.8% | ) | 0.0% to 69.7% (54.9% | ) | ||||
Duration (years) | 1.3 to 5.6 (3.4 | ) | 1.7 to 16.6 (5.1 | ) |
Level 3 government and agency obligations, other debt obligations and equity securities were not material as of both March 2020 and December 2019, and therefore are not included in the table above.
17 | Goldman Sachs March 2020 Form 10-Q |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
In the table above:
• | Ranges represent the significant unobservable inputs that were used in the valuation of each type of trading cash instrument. |
• | Weighted averages are calculated by weighting each input by the relative fair value of the trading cash instruments. |
• | The ranges and weighted averages of these inputs are not representative of the appropriate inputs to use when calculating the fair value of any one trading cash instrument. For example, the highest recovery rate for corporate debt instruments is appropriate for valuing a specific corporate debt instrument, but may not be appropriate for valuing any other corporate debt instrument. Accordingly, the ranges of inputs do not represent uncertainty in, or possible ranges of, fair value measurements of level 3 trading cash instruments. |
• | Increases in yield, duration or cumulative loss rate used in the valuation of level 3 trading cash instruments would have resulted in a lower fair value measurement, while increases in recovery rate would have resulted in a higher fair value measurement as of both March 2020 and December 2019. Due to the distinctive nature of each level 3 trading cash instrument, the interrelationship of inputs is not necessarily uniform within each product type. |
• | Trading cash instruments are valued using discounted cash flows. |
Level 3 Rollforward
The table below presents a summary of the changes in fair value for level 3 trading cash instruments.
Three Months Ended March | ||||||||
$ in millions | 2020 | 2019 | ||||||
Total trading cash instrument assets | ||||||||
Beginning balance | $1,242 | $1,689 | ||||||
Net realized gains/(losses) | 34 | 25 | ||||||
Net unrealized gains/(losses) | (159 | ) | (11 | ) | ||||
Purchases | 353 | 111 | ||||||
Sales | (268 | ) | (289 | ) | ||||
Settlements | (153 | ) | (83 | ) | ||||
Transfers into level 3 | 342 | 341 | ||||||
Transfers out of level 3 | (157 | ) | (193 | ) | ||||
Ending balance | $1,234 | $1,590 | ||||||
Total trading cash instrument liabilities | ||||||||
Beginning balance | $ (273 | ) | $ (49 | ) | ||||
Net realized gains/(losses) | – | – | ||||||
Net unrealized gains/(losses) | 91 | (63 | ) | |||||
Purchases | 26 | 18 | ||||||
Sales | (32 | ) | (52 | ) | ||||
Settlements | (2 | ) | 8 | |||||
Transfers into level 3 | (13 | ) | (24 | ) | ||||
Transfers out of level 3 | 9 | 3 | ||||||
Ending balance | $ (194 | ) | $ (159 | ) |
In the table above:
• | Changes in fair value are presented for all trading cash instruments that are classified in level 3 as of the end of the period. |
• | Net unrealized gains/(losses) relates to trading cash instruments that were still held at period-end. |
• | Transfers between levels of the fair value hierarchy are reported at the beginning of the reporting period in which they occur. If a trading cash instrument was transferred to level 3 during a reporting period, its entire gain or loss for the period is classified in level 3. |
• | For level 3 trading cash instrument assets, increases are shown as positive amounts, while decreases are shown as negative amounts. For level 3 trading cash instrument liabilities, increases are shown as negative amounts, while decreases are shown as positive amounts. |
• | Level 3 trading cash instruments are frequently economically hedged with level 1 and level 2 trading cash instruments and/or level 1, level 2 or level 3 derivatives. Accordingly, gains or losses that are classified in level 3 can be partially offset by gains or losses attributable to level 1 or level 2 trading cash instruments and/or level 1, level 2 or level 3 derivatives. As a result, gains or losses included in the level 3 rollforward below do not necessarily represent the overall impact on the firm’s results of operations, liquidity or capital resources. |
Goldman Sachs March 2020 Form 10-Q | 18 |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
The table below presents information, by product type, for assets included in the summary table above.
Three Months Ended March | ||||||||
$ in millions | 2020 | 2019 | ||||||
Loans and securities backed by commercial real estate | ||||||||
Beginning balance | $ 191 | $ 332 | ||||||
Net realized gains/(losses) | 9 | 7 | ||||||
Net unrealized gains/(losses) | (22 | ) | (6 | ) | ||||
Purchases | 14 | 12 | ||||||
Sales | (6 | ) | (29 | ) | ||||
Settlements | (50 | ) | (21 | ) | ||||
Transfers into level 3 | 7 | 89 | ||||||
Transfers out of level 3 | (13 | ) | (13 | ) | ||||
Ending balance | $ 130 | $ 371 | ||||||
Loans and securities backed by residential real estate | ||||||||
Beginning balance | $ 231 | $ 348 | ||||||
Net realized gains/(losses) | 1 | 3 | ||||||
Net unrealized gains/(losses) | 7 | 7 | ||||||
Purchases | 80 | 18 | ||||||
Sales | (23 | ) | (110 | ) | ||||
Settlements | (13 | ) | (11 | ) | ||||
Transfers into level 3 | 61 | 22 | ||||||
Transfers out of level 3 | (93 | ) | (14 | ) | ||||
Ending balance | $ 251 | $ 263 | ||||||
Corporate debt instruments | ||||||||
Beginning balance | $ 692 | $ 912 | ||||||
Net realized gains/(losses) | 22 | 13 | ||||||
Net unrealized gains/(losses) | (132 | ) | (11 | ) | ||||
Purchases | 238 | 60 | ||||||
Sales | (214 | ) | (135 | ) | ||||
Settlements | (80 | ) | (45 | ) | ||||
Transfers into level 3 | 242 | 151 | ||||||
Transfers out of level 3 | (49 | ) | (156 | ) | ||||
Ending balance | $ 719 | $ 789 | ||||||
Other | ||||||||
Beginning balance | $ 128 | $ 97 | ||||||
Net realized gains/(losses) | 2 | 2 | ||||||
Net unrealized gains/(losses) | (12 | ) | (1 | ) | ||||
Purchases | 21 | 21 | ||||||
Sales | (25 | ) | (15 | ) | ||||
Settlements | (10 | ) | (6 | ) | ||||
Transfers into level 3 | 32 | 79 | ||||||
Transfers out of level 3 | (2 | ) | (10 | ) | ||||
Ending balance | $ 134 | $ 167 |
In the table above, other includes U.S. and
non-U.S.
government and agency obligations, other debt obligations and equity securities.Level 3 Rollforward Commentary
Three Months Ended March 2020.
The net unrealized losses on level 3 trading cash instrument assets for the three months ended March 2020 primarily reflected losses on certain corporate debt instruments, principally driven by weak corporate performance.
Transfers into level 3 trading cash instrument assets during the three months ended March 2020 primarily reflected transfers of certain corporate debt instruments from level 2, principally due to reduced price transparency as a result of a lack of market evidence, including fewer market transactions in these instruments.
The drivers of transfers out of level 3 trading cash instrument assets during the three months ended March 2020 were not material.
Three Months Ended March 2019.
The drivers of net unrealized losses on level 3 trading cash instrument assets for the three months ended March 2019 were not material.
Transfers into level 3 trading cash instrument assets during the three months ended March 2019 primarily reflected transfers of certain corporate debt instruments and loans and securities backed by commercial real estate from level 2, principally due to reduced price transparency as a result of a lack of market evidence, including fewer market transactions in these instruments.
Transfers out of level 3 trading cash instrument assets during the three months ended March 2019 primarily reflected transfers of certain corporate debt instruments to level 2, principally due to increased price transparency as a result of market evidence, including market transactions in these instruments.
19 | Goldman Sachs March 2020 Form 10-Q |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
Note 7.
Derivatives and Hedging Activities
Derivative Activities
Derivatives are instruments that derive their value from underlying asset prices, indices, reference rates and other inputs, or a combination of these factors. Derivatives may be traded on an exchange (exchange-traded) or they may be privately negotiated contracts, which are usually referred to as OTC derivatives. Certain of the firm’s OTC derivatives are cleared and settled through central clearing counterparties
(OTC-cleared),
while others are bilateral contracts between two counterparties (bilateral OTC).Market Making.
Risk Management.
instrument-by-instrument
basis. The offsetting impact of this economic hedging is reflected in the same business segment as the related revenues. In addition, the firm may enter into derivatives designated as hedges under U.S. GAAP. These derivatives are used to manage interest rate exposure in certain fixed-rate unsecured long-term and short-term borrowings, and deposits, and to manage foreign currency exposure on the net investment in certainnon-U.S.
operations.The firm enters into various types of derivatives, including:
• | Futures and Forwards. |
• | Swaps. |
• | Options. |
Derivatives are reported on a
net-by-counterparty
basis (i.e., the net payable or receivable for derivative assets and liabilities for a given counterparty) when a legal right of setoff exists under an enforceable netting agreement (counterparty netting). Derivatives are accounted for at fair value, net of cash collateral received or posted under enforceable credit support agreements (cash collateral netting). Derivative assets are included in trading assets and derivative liabilities are included in trading liabilities. Realized and unrealized gains and losses on derivatives not designated as hedges are included in market making (for derivatives included in the Global Markets segment), and other principal transactions (for derivatives included in the remaining business segments) in the consolidated statements of earnings. For both the three months ended March 2020 and March 2019, substantially all of the firm’s derivatives were included in the Global Markets segment.Goldman Sachs March 2020 Form 10-Q | 20 |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
The tables below present the gross fair value and the notional amounts of derivative contracts by major product type, the amounts of counterparty and cash collateral netting in the consolidated balance sheets, as well as cash and securities collateral posted and received under enforceable credit support agreements that do not meet the criteria for netting under U.S. GAAP.
As of March 2020 | As of December 2019 | |||||||||||||||||
$ in millions | Derivative Assets | Derivative Liabilities | Derivative Assets | Derivative Liabilities | ||||||||||||||
Not accounted for as hedges | ||||||||||||||||||
Exchange-traded | $ 1,233 | $ 1,815 | $ 476 | $ 856 | ||||||||||||||
OTC-cleared | 16,091 | 13,947 | 9,958 | 8,618 | ||||||||||||||
Bilateral OTC | 355,084 | 323,742 | 266,387 | 242,046 | ||||||||||||||
Total interest rates | 372,408 | 339,504 | 276,821 | 251,520 | ||||||||||||||
OTC-cleared | 1,937 | 1,735 | 6,551 | 6,929 | ||||||||||||||
Bilateral OTC | 22,215 | 20,639 | 14,178 | 13,860 | ||||||||||||||
Total credit | 24,152 | 22,374 | 20,729 | 20,789 | ||||||||||||||
Exchange-traded | 78 | 27 | 35 | 10 | ||||||||||||||
OTC-cleared | 1,114 | 1,229 | 411 | 391 | ||||||||||||||
Bilateral OTC | 130,426 | 130,093 | 79,887 | 81,613 | ||||||||||||||
Total currencies | 131,618 | 131,349 | 80,333 | 82,014 | ||||||||||||||
Exchange-traded | 6,926 | 6,489 | 2,390 | 2,272 | ||||||||||||||
OTC-cleared | 172 | 201 | 180 | 243 | ||||||||||||||
Bilateral OTC | 18,434 | 23,466 | 8,568 | 13,034 | ||||||||||||||
Total commodities | 25,532 | 30,156 | 11,138 | 15,549 | ||||||||||||||
Exchange-traded | 33,169 | 35,127 | 13,499 | 16,976 | ||||||||||||||
Bilateral OTC | 54,380 | 54,276 | 36,162 | 39,531 | ||||||||||||||
Total equities | 87,549 | 89,403 | 49,661 | 56,507 | ||||||||||||||
Subtotal | 641,259 | 612,786 | 438,682 | 426,379 | ||||||||||||||
Accounted for as hedges | ||||||||||||||||||
OTC-cleared | 4 | – | – | – | ||||||||||||||
Bilateral OTC | 1,544 | – | 3,182 | 1 | ||||||||||||||
Total interest rates | 1,548 | – | 3,182 | 1 | ||||||||||||||
OTC-cleared | 272 | 23 | 16 | 57 | ||||||||||||||
Bilateral OTC | 177 | 99 | 16 | 153 | ||||||||||||||
Total currencies | 449 | 122 | 32 | 210 | ||||||||||||||
Subtotal | 1,997 | 122 | 3,214 | 211 | ||||||||||||||
Total gross fair value | $ 643,256 | $ 612,908 | $ 441,896 | $ 426,590 | ||||||||||||||
Offset in the consolidated balance sheets | ||||||||||||||||||
Exchange-traded | $ (35,739 | ) | $ (35,739 | ) | $ (14,159 | ) | $ (14,159 | ) | ||||||||||
OTC-cleared | (16,855 | ) | (16,855 | ) | (15,565 | ) | (15,565 | ) | ||||||||||
Bilateral OTC | (438,292 | ) | (438,292 | ) | (310,920 | ) | (310,920 | ) | ||||||||||
Counterparty netting | (490,886 | ) | (490,886 | ) | (340,644 | ) | (340,644 | ) | ||||||||||
OTC-cleared | (1,639 | ) | (49 | ) | (1,302 | ) | (526 | ) | ||||||||||
Bilateral OTC | (76,160 | ) | (59,934 | ) | (54,698 | ) | (41,618 | ) | ||||||||||
Cash collateral netting | (77,799 | ) | (59,983 | ) | (56,000 | ) | (42,144 | ) | ||||||||||
Total amounts offset | $(568,685 | ) | $(550,869 | ) | $(396,644 | ) | $(382,788 | ) | ||||||||||
Included in the consolidated balance sheets | ||||||||||||||||||
Exchange-traded | $ 5,667 | $ 7,719 | $ 2,241 | $ 5,955 | ||||||||||||||
OTC-cleared | 1,096 | 231 | 249 | 147 | ||||||||||||||
Bilateral OTC | 67,808 | 54,089 | 42,762 | 37,700 | ||||||||||||||
Total | $ 74,571 | $ 62,039 | $ 45,252 | $ 43,802 | ||||||||||||||
Not offset in the consolidated balance sheets | ||||||||||||||||||
Cash collateral | $ (1,447 | ) | $ (2,971 | ) | $ (604 | ) | $ (1,603 | ) | ||||||||||
Securities collateral | (18,357 | ) | (11,940 | ) | (14,196 | ) | (9,252 | ) | ||||||||||
Total | $ 54,767 | $ 47,128 | $ 30,452 | $ 32,947 |
Notional Amounts as of | ||||||||
$ in millions | March 2020 | December 2019 | ||||||
Not accounted for as hedges | ||||||||
Exchange-traded | $ 3,881,459 | $ 4,757,300 | ||||||
OTC-cleared | 21,309,964 | 13,440,376 | ||||||
Bilateral OTC | 11,550,666 | 11,668,171 | ||||||
Total interest rates | 36,742,089 | 29,865,847 | ||||||
OTC-cleared | 536,609 | 396,342 | ||||||
Bilateral OTC | 825,708 | 707,935 | ||||||
Total credit | 1,362,317 | 1,104,277 | ||||||
Exchange-traded | 4,822 | 4,566 | ||||||
OTC-cleared | 167,487 | 134,060 | ||||||
Bilateral OTC | 6,952,771 | 5,926,602 | ||||||
Total currencies | 7,125,080 | 6,065,228 | ||||||
Exchange-traded | 239,892 | 230,018 | ||||||
OTC-cleared | 2,383 | 2,639 | ||||||
Bilateral OTC | 241,849 | 243,228 | ||||||
Total commodities | 484,124 | 475,885 | ||||||
Exchange-traded | 1,071,077 | 910,099 | ||||||
Bilateral OTC | 1,075,007 | 1,182,335 | ||||||
Total equities | 2,146,084 | 2,092,434 | ||||||
Subtotal | 47,859,694 | 39,603,671 | ||||||
Accounted for as hedges | ||||||||
OTC-cleared | 148,644 | 123,531 | ||||||
Bilateral OTC | 6,741 | 9,714 | ||||||
Total interest rates | 155,385 | 133,245 | ||||||
OTC-cleared | 3,734 | 4,152 | ||||||
Bilateral OTC | 8,882 | 9,247 | ||||||
Total currencies | 12,616 | 13,399 | ||||||
Subtotal | 168,001 | 146,644 | ||||||
Total notional amounts | $48,027,695 | $39,750,315 |
In the tables above:
• | Gross fair values exclude the effects of both counterparty netting and collateral, and therefore are not representative of the firm’s exposure. |
• | 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. |
• | Notional amounts, which represent the sum of gross long and short derivative contracts, provide an indication of the volume of the firm’s derivative activity and do not represent anticipated losses. |
• | Total gross fair value of derivatives included derivative assets of $17.15 billion as of March 2020 and $9.15 billion as of December 2019, and derivative liabilities of $20.35 billion as of March 2020 and $14.88 billion as of December 2019, which are not subject to an enforceable netting agreement or are subject to a netting agreement that the firm has not yet determined to be enforceable. |
• | During the first quarter of 2020, consistent with the rules of a clearing organization, the firm elected to consider its transactions with that clearing organization as settled each day. The impact of this change would have been a reduction in gross credit derivative assets of $3.97 billion and liabilities of $4.15 billion as of December 2019, and a corresponding decrease in counterparty and cash collateral netting, with no impact to the consolidated balance sheets. |
21 | Goldman Sachs March 2020 Form 10-Q |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
Fair Value of Derivatives by Level
The table below presents derivatives on a gross basis by level and product type, as well as the impact of netting.
$ in millions | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
As of March 2020 | ||||||||||||||||
Assets | ||||||||||||||||
Interest rates | $ 18 | $ 373,085 | $ 853 | $ 373,956 | ||||||||||||
Credit | – | 19,560 | 4,592 | 24,152 | ||||||||||||
Currencies | – | 131,624 | 443 | 132,067 | ||||||||||||
Commodities | – | 24,784 | 748 | 25,532 | ||||||||||||
Equities | 13 | 85,247 | 2,289 | 87,549 | ||||||||||||
Gross fair value | 31 | 634,300 | 8,925 | 643,256 | ||||||||||||
Counterparty netting in levels | – | (488,529 | ) | (1,544 | ) | (490,073 | ) | |||||||||
Subtotal | $ 31 | $ 145,771 | $ 7,381 | $ 153,183 | ||||||||||||
Cross-level counterparty netting | (813 | ) | ||||||||||||||
Cash collateral netting | (77,799 | ) | ||||||||||||||
Net fair value | $ 74,571 | |||||||||||||||
Liabilities | ||||||||||||||||
Interest rates | $(32 | ) | $(338,885 | ) | $ (587 | ) | $(339,504 | ) | ||||||||
Credit | – | (20,300 | ) | (2,074 | ) | (22,374 | ) | |||||||||
Currencies | – | (131,089 | ) | (382 | ) | (131,471 | ) | |||||||||
Commodities | – | (29,796 | ) | (360 | ) | (30,156 | ) | |||||||||
Equities | (17 | ) | (85,524 | ) | (3,862 | ) | (89,403 | ) | ||||||||
Gross fair value | (49 | ) | (605,594 | ) | (7,265 | ) | (612,908 | ) | ||||||||
Counterparty netting in levels | – | 488,529 | 1,544 | 490,073 | ||||||||||||
Subtotal | $(49 | ) | $(117,065 | ) | $(5,721 | ) | $(122,835 | ) | ||||||||
Cross-level counterparty netting | 813 | |||||||||||||||
Cash collateral netting | 59,983 | |||||||||||||||
Net fair value | $ (62,039 | ) | ||||||||||||||
As of December 2019 | ||||||||||||||||
Assets | ||||||||||||||||
Interest rates | $ | $ | $ | $ | ||||||||||||
Credit | – | 17,204 | 3,525 | 20,729 | ||||||||||||
Currencies | – | 80,178 | 187 | 80,365 | ||||||||||||
Commodities | – | 10,648 | 490 | 11,138 | ||||||||||||
Equities | 21 | 48,953 | 687 | 49,661 | ||||||||||||
Gross fair value | 24 | 436,426 | 5,446 | 441,896 | ||||||||||||
Counterparty netting in levels | – | (340,325 | ) | (792 | ) | (341,117 | ) | |||||||||
Subtotal | $ | $ | $ | $ | ||||||||||||
Cross-level counterparty netting | 473 | |||||||||||||||
Cash collateral netting | (56,000 | ) | ||||||||||||||
Net fair value | $ | |||||||||||||||
Liabilities | ||||||||||||||||
Interest rates | $ | ) | $ | ) | $ | ) | $ | ) | ||||||||
Credit | – | (19,141 | ) | (1,648 | ) | (20,789 | ) | |||||||||
Currencies | – | (81,826 | ) | (398 | ) | (82,224 | ) | |||||||||
Commodities | – | (15,306 | ) | (243 | ) | (15,549 | ) | |||||||||
Equities | (26 | ) | (53,817 | ) | (2,664 | ) | (56,507 | ) | ||||||||
Gross fair value | (29 | ) | (421,140 | ) | (5,421 | ) | (426,590 | ) | ||||||||
Counterparty netting in levels | – | 340,325 | 792 | 341,117 | ||||||||||||
Subtotal | $ | ) | $ | ) | $ | ) | $ | ) | ||||||||
Cross-level counterparty netting | (473 | ) | ||||||||||||||
Cash collateral netting | 42,144 | |||||||||||||||
Net fair value | $ | ) |
In the table above:
• | Gross fair values exclude the effects of both counterparty netting and collateral netting, and therefore are not representative of the firm’s exposure. |
• | Counterparty netting is reflected in each level to the extent that receivable and payable balances are netted within the same level and is included in counterparty netting in levels. Where the counterparty netting is across levels, the netting is included in cross-level counterparty netting. |
• | Derivative assets are shown as positive amounts and derivative liabilities are shown as negative amounts. |
See Note 4 for an overview of the firm’s fair value measurement policies and the valuation techniques and significant inputs used to determine the fair value of derivatives.
Significant Unobservable Inputs
The table below presents the amount of level 3 derivative assets (liabilities), and ranges, averages and medians of significant unobservable inputs used to value level 3 derivatives.
Level 3 Assets (Liabilities) and Range of Significant Unobservable Inputs (Average/Median) as of | ||||||||||||
$ in millions, except inputs | March 2020 | December 2019 | ||||||||||
Interest rates, net | $266 | $89 | ||||||||||
Correlation | (42)% to 81% (52%/62%) | (42)% to 81% (52%/60%) | ||||||||||
Volatility (bps) | 31 to 150 (70/61) | 31 to 150 (70/61) | ||||||||||
Credit, net | $2,518 | $1,877 | ||||||||||
Credit spreads (bps) | 2 to 872 (154/95) | 1 to 559 (96/53) | ||||||||||
Upfront credit points | 1 to 95 (32/25) | 2 to 90 (38/32) | ||||||||||
Recovery rates | 1% to 70% (35%/38%) | 10% to 60% (31%/25%) | ||||||||||
Currencies, net | $61 | $(211) | ||||||||||
Correlation | 20% to 70% (39%/41%) | 20% to 70% (37%/36%) | ||||||||||
Commodities, net | $388 | $247 | ||||||||||
Volatility | 15% to 187% (45%/42%) | 9% to 57% (26%/25%) | ||||||||||
Natural gas spread | $(1.31) to $1.50 ($(0.15)/$(0.09)) | $(1.93) to $1.69 ($(0.16)/$(0.17)) | ||||||||||
Oil spread | $(4.71) to $18.31 ($3.92/$1.26) | $(4.86) to $19.77 ($9.82/$11.15) | ||||||||||
Equities, net | $(1,573) | $(1,977) | ||||||||||
Correlation | (70)% to 99% (53%/62%) | (70)% to 99% (42%/45%) | ||||||||||
Volatility | 2% to 129% (27%/20%) | 2% to 72% (14%/7%) |
In the table above:
• | Derivative assets are shown as positive amounts and derivative liabilities are shown as negative amounts. |
• | Ranges represent the significant unobservable inputs that were used in the valuation of each type of derivative. |
• | Averages represent the arithmetic average of the inputs and are not weighted by the relative fair value or notional of the respective financial instruments. An average greater than the median indicates that the majority of inputs are below the average. For example, the difference between the average and the median for credit spreads indicates that the majority of the inputs fall in the lower end of the range. |
Goldman Sachs March 2020 Form 10-Q | 22 |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
• | The ranges, averages and medians of these inputs are not representative of the appropriate inputs to use when calculating the fair value of any one derivative. For example, the highest correlation for interest rate derivatives is appropriate for valuing a specific interest rate derivative but may not be appropriate for valuing any other interest rate derivative. Accordingly, the ranges of inputs do not represent uncertainty in, or possible ranges of, fair value measurements of level 3 derivatives. |
• | Interest rates, currencies and equities derivatives are valued using option pricing models, credit derivatives are valued using option pricing, correlation and discounted cash flow models, and commodities derivatives are valued using option pricing and discounted cash flow models. |
• | The fair value of any one instrument may be determined using multiple valuation techniques. For example, option pricing models and discounted cash flows models are typically used together to determine fair value. Therefore, the level 3 balance encompasses both of these techniques. |
• | Correlation within currencies and equities includes cross-product type correlation. |
• | Natural gas spread represents the spread per million British thermal units of natural gas. |
• | Oil spread represents the spread per barrel of oil and refined products. |
Range of Significant Unobservable Inputs
The following provides information about the ranges of significant unobservable inputs used to value the firm’s level 3 derivative instruments:
• | Correlation. |
• | Volatility. |
• | Credit spreads, upfront credit points and recovery rates. |
• | Commodity prices and spreads. |
Sensitivity of Fair Value Measurement to Changes in Significant Unobservable Inputs
The following is a description of the directional sensitivity of the firm’s level 3 fair value measurements to changes in significant unobservable inputs, in isolation, as of each
period-end:
• | Correlation. |
• | Volatility. |
• | Credit spreads, upfront credit points and recovery rates. |
• | Commodity prices and spreads. |
Due to the distinctive nature of each of the firm’s level 3 derivatives, the interrelationship of inputs is not necessarily uniform within each product type.
23 | Goldman Sachs March 2020 Form 10-Q |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
Level 3 Rollforward
The table below presents a summary of the changes in fair value for level 3 derivatives.
Three Months Ended March | ||||||||
$ in millions | 2020 | 2019 | ||||||
Total level 3 derivatives, net | ||||||||
Beginning balance | $ 25 | $ 590 | ||||||
Net realized gains/(losses) | 137 | 49 | ||||||
Net unrealized gains/(losses) | 2,305 | (91 | ) | |||||
Purchases | 223 | 110 | ||||||
Sales | (413 | ) | (1,574 | ) | ||||
Settlements | 41 | 384 | ||||||
Transfers into level 3 | (801 | ) | (34 | ) | ||||
Transfers out of level 3 | 143 | (122 | ) | |||||
Ending balance | $1,660 | $ (688 | ) |
In the table above:
• | Changes in fair value are presented for all derivative assets and liabilities that are classified in level 3 as of the end of the period. |
• | Net unrealized gains/(losses) relates to instruments that were still held at period-end. |
• | Transfers between levels of the fair value hierarchy are reported at the beginning of the reporting period in which they occur. If a derivative was transferred into level 3 during a reporting period, its entire gain or loss for the period is classified in level 3. |
• | Positive amounts for transfers into level 3 and negative amounts for transfers out of level 3 represent net transfers of derivative assets. Negative amounts for transfers into level 3 and positive amounts for transfers out of level 3 represent net transfers of derivative liabilities. |
• | A derivative with level 1 and/or level 2 inputs is classified in level 3 in its entirety if it has at least one significant level 3 input. |
• | If there is one significant level 3 input, the entire gain or loss from adjusting only observable inputs (i.e., level 1 and level 2 inputs) is classified in level 3. |
• | Gains or losses that have been classified in level 3 resulting from changes in level 1 or level 2 inputs are frequently offset by gains or losses attributable to level 1 or level 2 derivatives and/or level 1, level 2 and level 3 trading cash instruments. As a result, gains/(losses) included in the level 3 rollforward below do not necessarily represent the overall impact on the firm’s results of operations, liquidity or capital resources. |
The table below presents information, by product type, for derivatives included in the summary table above.
Three Months Ended March | ||||||||
$ in millions | 2020 | 2019 | ||||||
Interest rates, net | ||||||||
Beginning balance | $ 89 | $ (109 | ) | |||||
Net realized gains/(losses) | 7 | – | ||||||
Net unrealized gains/(losses) | 132 | 111 | ||||||
Purchases | 1 | 2 | ||||||
Sales | (13 | ) | (4 | ) | ||||
Settlements | 37 | (17 | ) | |||||
Transfers into level 3 | 11 | (11 | ) | |||||
Transfers out of level 3 | 2 | 9 | ||||||
Ending balance | $ 266 | $ (19 | ) | |||||
Credit, net | ||||||||
Beginning balance | $ 1,877 | $ 1,672 | ||||||
Net realized gains/(losses) | (20 | ) | 8 | |||||
Net unrealized gains/(losses) | 652 | 80 | ||||||
Purchases | 53 | 42 | ||||||
Sales | (27 | ) | (28 | ) | ||||
Settlements | (55 | ) | (32 | ) | ||||
Transfers into level 3 | 11 | 55 | ||||||
Transfers out of level 3 | 27 | 77 | ||||||
Ending balance | $ 2,518 | $ 1,874 | ||||||
Currencies, net | ||||||||
Beginning balance | $ (211 | ) | $ 461 | |||||
Net realized gains/(losses) | (6 | ) | (12 | ) | ||||
Net unrealized gains/(losses) | 185 | (131 | ) | |||||
Purchases | – | 2 | ||||||
Sales | (11 | ) | (16 | ) | ||||
Settlements | 111 | 29 | ||||||
Transfers into level 3 | (4 | ) | (1 | ) | ||||
Transfers out of level 3 | (3 | ) | (303 | ) | ||||
Ending balance | $ 61 | $ 29 | ||||||
Commodities, net | ||||||||
Beginning balance | $ 247 | $ 112 | ||||||
Net realized gains/(losses) | 17 | 18 | ||||||
Net unrealized gains/(losses) | 197 | 15 | ||||||
Purchases | 22 | 3 | ||||||
Sales | (69 | ) | (6 | ) | ||||
Settlements | (7 | ) | (12 | ) | ||||
Transfers into level 3 | (11 | ) | (8 | ) | ||||
Transfers out of level 3 | (8 | ) | 23 | |||||
Ending balance | $ 388 | $ 145 | ||||||
Equities, net | ||||||||
Beginning balance | $(1,977 | ) | $(1,546 | ) | ||||
Net realized gains/(losses) | 139 | 35 | ||||||
Net unrealized gains/(losses) | 1,139 | (166 | ) | |||||
Purchases | 147 | 61 | ||||||
Sales | (293 | ) | (1,520 | ) | ||||
Settlements | (45 | ) | 416 | |||||
Transfers into level 3 | (808 | ) | (69 | ) | ||||
Transfers out of level 3 | 125 | 72 | ||||||
Ending balance | $(1,573 | ) | $(2,717 | ) |
Level 3 Rollforward Commentary
Three Months Ended March 2020.
Goldman Sachs March 2020 Form 10-Q | 24 |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
The net unrealized gains on level 3 derivatives for the three months ended March 2020 were primarily attributable to gains on certain equity derivatives (primarily reflecting the impact of a decrease in equity prices), gains on certain credit derivatives (primarily reflecting the impact of a decrease in interest rates and widening of certain credit spreads), gains on certain commodity derivatives (primarily reflecting the impact of a decrease in commodity prices), gains on certain currency derivatives (primarily reflecting the impact of changes in foreign exchange rates) and gains on certain interest rate derivatives (primarily reflecting a decrease in interest rates).
Transfers into level 3 derivatives during the three months ended March 2020 primarily reflected transfers of certain equity derivative liabilities from level 2, principally due to increased significance of certain unobservable inputs used to value these derivatives.
Transfers out of level 3 derivatives during the three months ended March 2020 primarily reflected transfers of certain equity derivative liabilities to level 2, principally due to increased transparency of certain unobservable volatility inputs used to value these derivatives.
Three Months Ended March 2019.
The net unrealized losses on level 3 derivatives for the three months ended March 2019 were primarily attributable to losses on certain equity derivatives (primarily reflecting the impact of an increase in equity prices), losses on certain currency derivatives (primarily reflecting the impact of a decrease in interest rates), partially offset by gains on certain interest rate derivatives (primarily reflecting the impact of a decrease in interest rates and changes in foreign exchange rates).
The drivers of transfers into level 3 derivatives during the three months ended March 2019 were not material.
Transfers out of level 3 derivatives during the three months ended March 2019 primarily reflected transfers of certain currency derivative assets to level 2, principally due to certain unobservable inputs no longer being significant to the valuation of these derivatives, partially offset by transfers of certain credit derivative liabilities to level 2, principally due to certain unobservable credit spread inputs no longer being significant to the valuation of these derivatives, and transfers of certain equity derivative liabilities to level 2, principally due to increased transparency and reduced significance of volatility and correlation inputs used to value these derivatives.
OTC Derivatives
The table below presents OTC derivative assets and liabilities by tenor and major product type.
$ in millions | Less than 1 Year | 1 - 5 Years | Greater than 5 Years | Total | ||||||||||||
As of March 2020 | ||||||||||||||||
Assets | ||||||||||||||||
Interest rates | $ 9,971 | $21,382 | $70,611 | $101,964 | ||||||||||||
Credit | 1,776 | 4,342 | 4,306 | 10,424 | ||||||||||||
Currencies | 21,673 | 6,428 | 8,945 | 37,046 | ||||||||||||
Commodities | 6,741 | 2,486 | 512 | 9,739 | ||||||||||||
Equities | 11,562 | 7,238 | 3,169 | 21,969 | ||||||||||||
Counterparty netting in tenors | (4,734 | ) | (5,006 | ) | (3,722 | ) | (13,462 | ) | ||||||||
Subtotal | $46,989 | $36,870 | $83,821 | $167,680 | ||||||||||||
Cross-tenor counterparty netting | (20,977 | ) | ||||||||||||||
Cash collateral netting | (77,799 | ) | ||||||||||||||
Total OTC derivative assets | $ 68,904 | |||||||||||||||
Liabilities | ||||||||||||||||
Interest rates | $ 8,157 | $12,908 | $45,859 | $ 66,924 | ||||||||||||
Credit | 1,817 | 4,433 | 2,399 | 8,649 | ||||||||||||
Currencies | 17,701 | 11,104 | 7,700 | 36,505 | ||||||||||||
Commodities | 7,790 | 2,711 | 4,299 | 14,800 | ||||||||||||
Equities | 9,567 | 7,999 | 4,298 | 21,864 | ||||||||||||
Counterparty netting in tenors | (4,734 | ) | (5,006 | ) | (3,722 | ) | (13,462 | ) | ||||||||
Subtotal | $40,298 | $34,149 | $60,833 | $135,280 | ||||||||||||
Cross-tenor counterparty netting | (20,977 | ) | ||||||||||||||
Cash collateral netting | (59,983 | ) | ||||||||||||||
Total OTC derivative liabilities | $ 54,320 | |||||||||||||||
As of December 2019 | ||||||||||||||||
Assets | ||||||||||||||||
Interest rates | $ 5,521 | $15,183 | $57,394 | $ 78,098 | ||||||||||||
Credit | 678 | 3,259 | 3,183 | 7,120 | ||||||||||||
Currencies | 10,236 | 5,063 | 6,245 | 21,544 | ||||||||||||
Commodities | 2,507 | 1,212 | 302 | 4,021 | ||||||||||||
Equities | 7,332 | 4,509 | 1,294 | 13,135 | ||||||||||||
Counterparty netting in tenors | (3,263 | ) | (3,673 | ) | (2,332 | ) | (9,268 | ) | ||||||||
Subtotal | $23,011 | $25,553 | $66,086 | $114,650 | ||||||||||||
Cross-tenor counterparty netting | (15,639 | ) | ||||||||||||||
Cash collateral netting | (56,000 | ) | ||||||||||||||
Total OTC derivative assets | $ 43,011 | |||||||||||||||
Liabilities | ||||||||||||||||
Interest rates | $ 3,654 | $ 9,113 | $36,470 | $ 49,237 | ||||||||||||
Credit | 1,368 | 4,052 | 1,760 | 7,180 | ||||||||||||
Currencies | 12,486 | 6,906 | 4,036 | 23,428 | ||||||||||||
Commodities | 2,796 | 1,950 | 3,804 | 8,550 | ||||||||||||
Equities | 5,755 | 7,381 | 3,367 | 16,503 | ||||||||||||
Counterparty netting in tenors | (3,263 | ) | (3,673 | ) | (2,332 | ) | (9,268 | ) | ||||||||
Subtotal | $22,796 | $25,729 | $47,105 | $ 95,630 | ||||||||||||
Cross-tenor counterparty netting | (15,639 | ) | ||||||||||||||
Cash collateral netting | (42,144 | ) | ||||||||||||||
Total OTC derivative liabilities | $ 37,847 |
In the table above:
• | Tenor is based on remaining contractual maturity. |
• | Counterparty netting within the same product type and tenor category is included within such product type and tenor category. |
• | Counterparty netting across product types within the same tenor category is included in counterparty netting in tenors. Where the counterparty netting is across tenor categories, the netting is included in cross-tenor counterparty netting. |
25 | Goldman Sachs March 2020 Form 10-Q |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
Credit Derivatives
The firm enters into a broad array of credit derivatives to facilitate client transactions and to manage the credit risk associated with market-making and investing and financing activities. Credit derivatives are actively managed based on the firm’s net risk position. Credit derivatives are generally individually negotiated contracts and can have various settlement and payment conventions. Credit events include failure to pay, bankruptcy, acceleration of indebtedness, restructuring, repudiation and dissolution of the reference entity.
The firm enters into the following types of credit derivatives:
• | Credit Default Swaps. |
• | Credit Options. |
• | Credit Indices, Baskets and Tranches. pro-rata portion of the transaction’s total notional amount based on the underlying defaulted reference obligation. In certain transactions, the credit risk of a basket or index is separated into various portions (tranches), each having different levels of subordination. The most junior tranches cover initial defaults and once losses exceed the notional amount of these junior tranches, any excess loss is covered by the next most senior tranche. |
• | Total Return Swaps. |
The firm economically hedges its exposure to written credit derivatives primarily by entering into offsetting purchased credit derivatives with identical underliers. Substantially all of the firm’s purchased credit derivative transactions are with financial institutions and are subject to stringent collateral thresholds. In addition, upon the occurrence of a specified trigger event, the firm may take possession of the reference obligations underlying a particular written credit derivative, and consequently may, upon liquidation of the reference obligations, recover amounts on the underlying reference obligations in the event of default.
As of March 2020, written credit derivatives had a total gross notional amount of $657.12 billion and purchased credit derivatives had a total gross notional amount of $705.20 billion, for total net notional purchased protection of $48.08 billion. As of December 2019, written credit derivatives had a total gross notional amount of $522.57 billion and purchased credit derivatives had a total gross notional amount of $581.76 billion, for total net notional purchased protection of $59.19 billion. The firm’s written and purchased credit derivatives primarily consist of credit default swaps.
Goldman Sachs March 2020 Form 10-Q | 26 |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
The table below presents information about credit derivatives.
Credit Spread on Underlier (basis points) | ||||||||||||||||||||
$ in millions | 0 - 250 | 251 - 500 | 501 - 1,000 | Greater than 1,000 | Total | |||||||||||||||
As of March 2020 | ||||||||||||||||||||
Maximum Payout/Notional Amount of Written Credit Derivatives by Tenor | ||||||||||||||||||||
Less than 1 year | $167,856 | $ 3,283 | $17,312 | $ 4,882 | $193,333 | |||||||||||||||
1 – 5 years | 303,456 | 25,507 | 16,341 | 17,346 | 362,650 | |||||||||||||||
Greater than 5 years | 91,017 | 5,570 | 3,038 | 1,509 | 101,134 | |||||||||||||||
Total | $562,329 | $34,360 | $36,691 | $23,737 | $657,117 | |||||||||||||||
Maximum Payout/Notional Amount of Purchased Credit Derivatives | ||||||||||||||||||||
Offsetting | $476,787 | $29,983 | $24,949 | $21,639 | $553,358 | |||||||||||||||
Other | $127,244 | $ 6,841 | $12,957 | $ 4,801 | $151,843 | |||||||||||||||
Fair Value of Written Credit Derivatives | ||||||||||||||||||||
Asset | $ 3,833 | $ 246 | $ 30 | $ 51 | $ 4,160 | |||||||||||||||
Liability | 4,333 | 1,939 | 3,304 | 8,237 | 17,813 | |||||||||||||||
Net asset/(liability) | $ | ) | $ | ) | $ | ) | $ | ) | $ | ) | ||||||||||
As of December 2019 | ||||||||||||||||||||
Maximum Payout/Notional Amount of Written Credit Derivatives by Tenor | ||||||||||||||||||||
Less than 1 year | $143,566 | $ 7,155 | $ 759 | $ 2,953 | $154,433 | |||||||||||||||
1 – 5 years | 292,444 | 10,125 | 5,482 | 8,735 | 316,786 | |||||||||||||||
Greater than 5 years | 48,109 | 2,260 | 427 | 554 | 51,350 | |||||||||||||||
Total | $484,119 | $19,540 | $ 6,668 | $12,242 | $522,569 | |||||||||||||||
Maximum Payout/Notional Amount of Purchased Credit Derivatives | ||||||||||||||||||||
Offsetting | $395,127 | $14,492 | $ 5,938 | $10,543 | $426,100 | |||||||||||||||
Other | $149,092 | $ 2,617 | $ 1,599 | $ 2,354 | $155,662 | |||||||||||||||
Fair Value of Written Credit Derivatives | ||||||||||||||||||||
Asset | $ 13,103 | $ 446 | $ 160 | $ 202 | $ 13,911 | |||||||||||||||
Liability | 1,239 | 448 | 372 | 3,490 | 5,549 | |||||||||||||||
Net asset/(liability) | $ 11,864 | $ (2 | ) | $ (212 | ) | $ | ) | $ 8,362 |
In the table above:
• | Fair values exclude the effects of both netting of receivable balances with payable balances under enforceable netting agreements, and netting of cash received or posted under enforceable credit support agreements, and therefore are not representative of the firm’s credit exposure. |
• | Tenor is based on remaining contractual maturity. |
• | The credit spread on the underlier, together with the tenor of the contract, are indicators of payment/performance risk. The firm is less likely to pay or otherwise be required to perform where the credit spread and the tenor are lower. |
• | Offsetting purchased credit derivatives represent the notional amount of purchased credit derivatives that economically hedge written credit derivatives with identical underliers. |
• | Other purchased credit derivatives represent the notional amount of all other purchased credit derivatives not included in offsetting. |
Impact of Credit and Funding Spreads on Derivatives
The firm realizes gains or losses on its derivative contracts. These gains or losses include credit valuation adjustments (CVA) relating to uncollateralized derivative assets and liabilities, which represents the gains or losses (including hedges) attributable to the impact of changes in credit exposure, counterparty credit spreads, liability funding spreads (which includes the firm’s own credit), probability of default and assumed recovery. These gains or losses also include funding valuation adjustments (FVA) relating to uncollateralized derivative assets, which represents the gains or losses (including hedges) attributable to the impact of changes in expected funding exposures and funding spreads.
The table below presents information about CVA and FVA.
Three Months Ended March | ||||||||
$ in millions | 2020 | 2019 | ||||||
CVA, net of hedges | $ 271 | $(163 | ) | |||||
FVA, net of hedges | (759 | ) | 234 | |||||
Total | $(488 | ) | $ 71 |
Bifurcated Embedded Derivatives
The table below presents the fair value and the notional amount of derivatives that have been bifurcated from their related borrowings.
As of | ||||||||
$ in millions | March 2020 | December 2019 | ||||||
Fair value of assets | $ 1,361 | $ 1,148 | ||||||
Fair value of liabilities | 1,715 | 1,717 | ||||||
Net liability | $ 354 | $ 569 | ||||||
Notional amount | $11,280 | $11,003 |
In the table above, derivatives that have been bifurcated from their related borrowings are recorded at fair value and primarily consist of interest rate, equity and commodity products. These derivatives are included in unsecured short- and long-term borrowings with the related borrowings.
Derivatives with Credit-Related Contingent Features
Certain of the firm’s derivatives have been transacted under bilateral agreements with counterparties who may require the firm to post collateral or terminate the transactions based on changes in the firm’s credit ratings. The firm assesses 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.
27 | Goldman Sachs March 2020 Form 10-Q |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
The table below presents information about net derivative liabilities under bilateral agreements (excluding collateral posted), the fair value of collateral posted and additional collateral or termination payments that could have been called by counterparties in the event of a
one-
ortwo-notch
downgrade in the firm’s credit ratings.As of | ||||||||
$ in millions | March 2020 | December 2019 | ||||||
Net derivative liabilities under bilateral agreements | $49,450 | $32,800 | ||||||
Collateral posted | $42,925 | $28,510 | ||||||
Additional collateral or termination payments: | ||||||||
One-notch downgrade | $ | $ 358 | ||||||
Two-notch downgrade | $ | $ 1,268 |
Hedge Accounting
The firm applies hedge accounting for (i) certain interest rate swaps used to manage the interest rate exposure of certain fixed-rate unsecured long-term and short-term borrowings and certain fixed-rate certificates of deposit and (ii) certain foreign currency forward contracts and foreign currency-denominated debt used to manage foreign currency exposures on the firm’s net investment in certain
non-U.S.
operations.To qualify for hedge accounting, the hedging instrument must be highly effective at reducing the risk from the exposure being hedged. Additionally, the firm must formally document the hedging relationship at inception and assess the hedging relationship at least on a quarterly basis to ensure the hedging instrument continues to be highly effective over the life of the hedging relationship.
Fair Value Hedges
The firm designates certain interest rate swaps as fair value hedges of certain fixed-rate unsecured long-term and short-term debt and fixed-rate certificates of deposit. These interest rate swaps hedge changes in fair value attributable to the designated benchmark interest rate (e.g., London Interbank Offered Rate (LIBOR) or Overnight Index Swap Rate), effectively converting a substantial portion of fixed-rate obligations into floating-rate obligations.
The firm applies a statistical method that utilizes regression analysis when assessing the effectiveness of its fair value hedging relationships in achieving offsetting changes in the fair values of the hedging instrument and the risk being hedged (i.e., interest rate risk). An interest rate swap is considered highly effective in offsetting changes in fair value attributable to changes in the hedged risk when the regression analysis results in a coefficient of determination of 80% or greater and a slope between 80% and 125%.
For qualifying fair value hedges, gains or losses on derivatives are included in interest expense. The change in fair value of the hedged item attributable to the risk being hedged is reported as an adjustment to its carrying value (hedging adjustment) and is also included in interest expense. When a derivative is no longer designated as a hedge, any remaining difference between the carrying value and par value of the hedged item is amortized to interest expense over the remaining life of the hedged item using the effective interest method. See Note 23 for further information about interest income and interest expense.
The table below presents the gains/(losses) from interest rate derivatives accounted for as hedges and the related hedged borrowings and deposits, and total interest expense.
Three Months Ended March | ||||||||
$ in millions | 2020 | 2019 | ||||||
Interest rate hedges | $ 6,586 | $ 1,256 | ||||||
Hedged borrowings and deposits | $(6,679 | ) | $(1,351 | ) | ||||
Interest expense | $ 3,437 | $ 4,379 |
In the table above, the difference between gains/(losses) from interest rate hedges and hedged borrowings and deposits was primarily due to the amortization of prepaid credit spreads resulting from the passage of time.
The table below presents the carrying value of the hedged items designated in a hedging relationship and the related cumulative hedging adjustment (increase/(decrease)) from current and prior hedging relationships included in such carrying values.
$ in millions | Carrying Value | Cumulative Hedging Adjustment | ||||||
As of March 2020 | ||||||||
Deposits | $ 19,660 | $ | ||||||
Unsecured short-term borrowings | $ 7,171 | $ | ||||||
Unsecured long-term borrowings | $103,057 | $12,527 | ||||||
As of December 2019 | ||||||||
Deposits | $ 19,634 | $ 200 | ||||||
Unsecured short-term borrowings | $ 6,008 | $ 28 | ||||||
Unsecured long-term borrowings | $ 87,874 | $ 7,292 |
In the table above, cumulative hedging adjustment included $3.81 billion as of March 2020 and $3.48 billion as of December 2019 of hedging adjustments from prior hedging relationships that were
de-designated
and substantially all were related to unsecured long-term borrowings.In addition,
cumulative hedging adjustments for items no longer designated in a hedging relationship were $1.25 billion as of March 2020 and $425 million as of December 2019 and substantially all were related to unsecured long-term borrowings.
Goldman Sachs March 2020 Form 10-Q | 28 |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
Net Investment Hedges
The firm seeks to reduce the impact of fluctuations in foreign exchange rates on its net investments in certain
non-U.S.
operations through the use of foreign currency forward contracts and foreign currency-denominated debt. For foreign currency forward contracts designated as hedges, the effectiveness of the hedge is assessed based on the overall changes in the fair value of the forward contracts (i.e., based on changes in forward rates). For foreign currency-denominated debt designated as a hedge, the effectiveness of the hedge is assessed based on changes in spot rates. For qualifying net investment hedges, all gains or losses on the hedging instruments are included in currency translation.The table below presents the gains/(losses) from net investment hedging.
Three Months Ended March | ||||||||
$ in millions | 2020 | 2019 | ||||||
Hedges: | ||||||||
Foreign currency forward contract | $756 | $14 | ||||||
Foreign currency-denominated debt | $ | ) | $31 |
Gains or losses on individual net investments in
non-U.S.
operations are reclassified to earnings from accumulated other comprehensive income/(loss) when such net investments are sold or substantially liquidated. The gross and net gains and losses on hedges and the related net investments innon-U.S.
operations reclassified to earnings from accumulated other comprehensive income/(loss) were not material for both the three months ended March 2020 and March 2019.The firm had designated $3.52 billion as of March 2020 and $3.05 billion as of December 2019 of foreign currency-denominated debt, included in unsecured long-term and short-term borrowings, as hedges of net investments in
non-U.S.
subsidiaries.Note 8.
Investments
Investments includes debt instruments and equity securities that are accounted for at fair value and are generally held by the firm in connection with its long-term investing activities. In addition, investments includes debt securities classified as
available-for-sale
andheld-to-maturity
that are generally held in connection with the firm’s asset-liability management activities. Investments also consists of equity securities that are accounted for under the equity method.The table below presents information about investments.
As of | ||||||||
$ in millions | March 2020 | December 2019 | ||||||
Equity securities, at fair value | $21,221 | $22,163 | ||||||
Debt instruments, at fair value | 23,145 | 16,570 | ||||||
Available-for-sale securities, at fair value | 18,289 | 19,094 | ||||||
Investments, at fair value | 62,655 | 57,827 | ||||||
Held-to-maturity securities | 5,756 | 5,825 | ||||||
Equity method investments | 283 | 285 | ||||||
Total investments | $68,694 | $63,937 |
Equity Securities and Debt Instruments, at Fair Value
Equity securities and debt instruments, at fair value are accounted for at fair value either under the fair value option or in accordance with other U.S. GAAP, and the related fair value gains and losses are recognized in earnings.
Equity Securities, at Fair Value.
The table below presents information about equity securities, at fair value.
As of | ||||||||
$ in millions | March 2020 | December 2019 | ||||||
Equity securities, at fair value | $21,221 | $22,163 | ||||||
Equity Type | ||||||||
Public equity | 10% | 11% | ||||||
Private equity | 90% | 89% | ||||||
Total | 100% | 100% | ||||||
Asset Class | ||||||||
Corporate | 77% | 79% | ||||||
Real estate | 23% | 21% | ||||||
Total | 100% | 100% | ||||||
Region | ||||||||
Americas | 46% | 50% | ||||||
EMEA | 19% | 17% | ||||||
Asia | 35% | 33% | ||||||
Total | 100% | 100% |
29 | Goldman Sachs March 2020 Form 10-Q |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
In the table above:
• | Equity securities, at fair value included investments accounted for at fair value under the fair value option where the firm would otherwise apply the equity method of accounting of $8.04 billion as of March 2020 and $8.23 billion as of December 2019. Gains recognized by the firm as a result of changes in the fair value of equity securities for which the fair value option was elected was $77 million for the three months ended March 2020 and $165 million for the three months ended March 2019. These gains are included in other principal transactions in the consolidated statements of earnings. |
• | Equity securities, at fair value included $2.71 billion as of March 2020 and $3.22 billion as of December 2019 of investments in funds that are measured at NAV. |
• | EMEA represents Europe, Middle East and Africa. |
Debt Instruments, at Fair Value.
,
senior and distressed debt.The table below presents information about debt instruments, at fair value.
As of | ||||||||
$ in millions | March 2020 | December 2019 | ||||||
Corporate debt securities | $ 9,923 | $10,838 | ||||||
Securities backed by real estate | 2,560 | 2,619 | ||||||
Money market instruments | 9,332 | 1,681 | ||||||
Other | 1,330 | 1,432 | ||||||
Total | $23,145 | $16,570 |
In the table above:
• | Money market instruments primarily includes commercial paper, certificates of deposit and time deposits. The increase in money market instruments from December 2019 to March 2020 was primarily related to the firm’s purchase of commercial paper and certificates of deposit from affiliated and non-affiliated money market funds. See Note 22 for further information about purchases by Goldman Sachs Bank USA (GS Bank USA) from two affiliated money market funds. |
• | Other included $840 million as of March 2020 and $983 million as of December 2019 of investments in credit funds that are measured at NAV. |
Investments in Funds at Net Asset Value Per Share.
Substantially all of the firm’s investments in funds at NAV consist of investments in firm-sponsored private equity, credit, real estate and hedge funds where the firm
co-invests
with third-party investors.Private equity funds primarily invest in a broad range of industries worldwide, including leveraged buyouts, recapitalizations, growth investments and distressed investments. Credit funds generally invest in loans and other fixed income instruments and are focused on providing private high-yield capital for leveraged and management buyout transactions, recapitalizations, financings, refinancings, acquisitions and restructurings for private equity firms, private family companies and corporate issuers. Real estate funds invest globally, primarily in real estate companies, loan portfolios, debt recapitalizations and property. Private equity, credit and real estate funds are
closed-end
funds in which the firm’s investments are generally not eligible for redemption. Distributions will be received from these funds as the underlying assets are liquidated or distributed, the timing of which is uncertain.The firm also invests in hedge funds, primarily multi-disciplinary hedge funds that employ a fundamental
bottom-up
investment approach across various asset classes and strategies. The firm’s investments in hedge funds primarily include interests where the underlying assets are illiquid in nature, and proceeds from redemptions will not be received until the underlying assets are liquidated or distributed, the timing of which is uncertain.Private equity, hedge and real estate funds described above are primarily “covered funds” as defined in the Volcker Rule of the U.S. Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act). The Board of Governors of the Federal Reserve System (FRB) extended the conformance period to July 2022 for the firm’s investments in, and relationships with, certain legacy “illiquid funds” (as defined in the Volcker Rule) that were in place prior to December 2013. This extension is applicable to substantially all of the firm’s remaining investments in, and relationships with, such covered funds. Substantially all of the credit funds described above are not covered funds.
Goldman Sachs March 2020 Form 10-Q | 30 |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
The table below presents the fair value of investments in funds at NAV and the related unfunded commitments.
$ in millions | Fair Value of Investments | Unfunded Commitments | ||||||
As of March 2020 | ||||||||
Private equity funds | $2,285 | $ | ||||||
Credit funds | 840 | 730 | ||||||
Hedge funds | 106 | – | ||||||
Real estate funds | 314 | 194 | ||||||
Total | $3,545 | $1,677 | ||||||
As of December 2019 | ||||||||
Private equity funds | $2,767 | $ 765 | ||||||
Credit funds | 983 | 820 | ||||||
Hedge funds | 125 | – | ||||||
Real estate funds | 331 | 196 | ||||||
Total | $4,206 | $1,781 |
Available-for-Sale
SecuritiesAvailable-for-sale
securities are accounted for at fair value, and the related unrealized fair value gains and losses are included in accumulated other comprehensive income/(loss).The table below presents information about
available-for-sale
securities by tenor.$ in millions | Amortized Cost | Fair Value | Weighted Average Yield | |||||||||
As of March 2020 | ||||||||||||
Less than 5 years | $14,038 | $14,472 | 1.53% | |||||||||
Greater than 5 years | 3,505 | 3,817 | 1.85% | |||||||||
Total | $17,543 | $18,289 | 1.59% | |||||||||
As of December 2019 | ||||||||||||
Less than 5 years | $14,063 | $14,041 | 1.53% | |||||||||
Greater than 5 years | 4,974 | 5,053 | 2.10% | |||||||||
Total | $19,037 | $19,094 | 1.68% |
In the table above:
• | Available-for-sale securities consists of U.S. government obligations that were classified in level 1 of the fair value hierarchy as of both March 2020 and December 2019. |
• | The firm sold available-for-sale securities of $1.45 billion during the three months ended March 2020 and $4.96 billion during the three months ended March 2019. The realized gains on sales of such securities were $265 million for the three months ended March 2020 and $36 million for the three months ended March 2019, and were included in the consolidated statements of earnings. |
• | The gross unrealized gains included in accumulated other comprehensive income/(loss) were $746 million as of March 2020 and $137 million as of December 2019. The gross unrealized losses included in accumulated other comprehensive income/(loss) were not material as of December 2019. |
• | Beginning in January 2020, available-for-sale securities are reviewed to determine if an allowance for credit losses should be recorded in the consolidated statements of earnings. The firm considers various factors in such determination, including market conditions, changes in issuer credit ratings, severity of the unrealized losses, and the intent and ability to hold the security until recovery. See Note 3 for further informationabout the adoption of CECL. Prior to January 2020, such securities were reviewed for other-than-temporary impairment. The firm did not record any provision for credit losses on such securities during the three months ended March 2020 and there was no other-than-temporary impairment during the year ended December 2019. |
Fair Value of Investments by Level
The table below presents investments accounted for at fair value by level within the fair value hierarchy.
$ in millions | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
As of March 2020 | ||||||||||||||||
Government and agency obligations: | ||||||||||||||||
U.S. | $18,289 | $ – | $ – | $18,289 | ||||||||||||
Non-U.S. | – | 23 | – | 23 | ||||||||||||
Corporate debt securities | 54 | 2,720 | 7,149 | 9,923 | ||||||||||||
Securities backed by real estate | – | 1,785 | 775 | 2,560 | ||||||||||||
Money market instruments | 29 | 9,303 | – | 9,332 | ||||||||||||
Other debt obligations | – | 39 | 428 | 467 | ||||||||||||
Equity securities | 236 | 7,224 | 11,056 | 18,516 | ||||||||||||
Subtotal | $18,608 | $21,094 | $19,408 | $59,110 | ||||||||||||
Investments in funds at NAV | 3,545 | |||||||||||||||
Total investments | $62,655 | |||||||||||||||
As of December 2019 | ||||||||||||||||
Government and agency obligations: | ||||||||||||||||
U.S. | $19,094 | $ | $ | $19,094 | ||||||||||||
Non-U.S. | – | 36 | – | 36 | ||||||||||||
Corporate debt securities | 48 | 7,325 | 3,465 | 10,838 | ||||||||||||
Securities backed by real estate | – | 2,024 | 595 | 2,619 | ||||||||||||
Money market instruments | 732 | 949 | – | 1,681 | ||||||||||||
Other debt obligations | – | 94 | 319 | 413 | ||||||||||||
Equity securities | 251 | 7,786 | 10,903 | 18,940 | ||||||||||||
Subtotal | $20,125 | $18,214 | $15,282 | $53,621 | ||||||||||||
Investments in funds at NAV | 4,206 | |||||||||||||||
Total investments | $57,827 |
See Note 4 for an overview of the firm’s fair value measurement policies and the valuation techniques and significant inputs used to determine the fair value of investments.
31 | Goldman Sachs March 2020 Form 10-Q |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
Significant Unobservable Inputs
The table below presents the amount of level 3 investments, and ranges and weighted averages of significant unobservable inputs used to value such investments.
Level 3 Assets and Range of Significant Unobservable Inputs (Weighted Average) as of | ||||||||
$ in millions | March 2020 | December 2019 | ||||||
Corporate debt securities | ||||||||
Level 3 assets | $7,149 | $3,465 | ||||||
Yield | 4.6% to 25.2% (11.8% | ) | 5.5% to 29.8% (12.0% | ) | ||||
Recovery rate | 40.0% to 100.0% (65.8% | ) | 25.0% to 100.0% (68.5% | ) | ||||
Duration (years) | 1.5 to 8.0 (4.0 | ) | 2.9 to 5.9 (5.0 | ) | ||||
Multiples | 0.6x to 39.7x (7.4x | ) | 0.6x to 24.4x (7.0x | ) | ||||
Securities backed by real estate | ||||||||
Level 3 assets | $775 | $595 | ||||||
Yield | 10.0% to 20.3% (15.8% | ) | 9.4% to 20.3% (16.0% | ) | ||||
Recovery rate | 25.0% to 35.0% (33.5% | ) | 33.1% to 34.4% (33.5% | ) | ||||
Duration (years) | 0.4 to 3.7 (2.3 | ) | 0.4 to 3.0 (0.9 | ) | ||||
Other debt obligations | ||||||||
Level 3 assets | $428 | $319 | ||||||
Yield | 3.2% to 6.0% (4.2% | ) | 3.4% to 5.2% (4.5% | ) | ||||
Duration (years) | 3.7 to 9.8 (6.8 | ) | 4.0 to 8.0 (6.7 | ) | ||||
Equity securities | ||||||||
Level 3 assets | $11,056 | $10,903 | ||||||
Multiples | 0.5x to 23.8x (8.0x | ) | 0.8x to 36.0x (8.0x | ) | ||||
Discount rate/yield | 4.9% to 20.3% (14.0% | ) | 2.1% to 20.3% (13.4% | ) | ||||
Capitalization rate | 3.7% to 16.0% (5.9% | ) | 3.6% to 15.1% (6.1% | ) |
In the table above:
• | Ranges represent the significant unobservable inputs that were used in the valuation of each type of investment. |
• | Weighted averages are calculated by weighting each input by the relative fair value of the investment. |
• | The ranges and weighted averages of these inputs are not representative of the appropriate inputs to use when calculating the fair value of any one investment. For example, the highest multiple for private equity securities is appropriate for valuing a specific private equity security but may not be appropriate for valuing any other private equity security. Accordingly, the ranges of inputs do not represent uncertainty in, or possible ranges of, fair value measurements of level 3 investments. |
• | Increases in yield, discount rate, capitalization rate or duration used in the valuation of level 3 investments would have resulted in a lower fair value measurement, while increases in recovery rate or multiples would have resulted in a higher fair value measurement as of both March 2020 and December 2019. Due to the distinctive nature of each level 3 investment, the interrelationship of inputs is not necessarily uniform within each product type. |
• | Corporate debt securities, securities backed by real estate and other debt obligations are valued using discounted cash flows, and equity securities are valued using market comparables and discounted cash flows. |
• | The fair value of any one instrument may be determined using multiple valuation techniques. For example, market comparables and discounted cash flows may be used together to determine fair value. Therefore, the level 3 balance encompasses both of these techniques. |
Level 3 Rollforward
The table below presents a summary of the changes in fair value for level 3 investments.
Three Months Ended March | ||||||||
$ in millions | 2020 | 2019 | ||||||
Beginning balance | $15,282 | $13,548 | ||||||
Net realized gains/(losses) | 75 | 35 | ||||||
Net unrealized gains/(losses) | (1,284 | ) | 239 | |||||
Purchases | 348 | 217 | ||||||
Sales | (197 | ) | (37 | ) | ||||
Settlements | (325 | ) | (232 | ) | ||||
Transfers into level 3 | 6,480 | 967 | ||||||
Transfers out of level 3 | (971 | ) | (461 | ) | ||||
Ending balance | $19,408 | $14,276 |
In the table above:
• | Changes in fair value are presented for all investments that are classified in level 3 as of the end of the period. |
• | Net unrealized gains/(losses) relates to investments that were still held at period-end. |
• | Transfers between levels of the fair value hierarchy are reported at the beginning of the reporting period in which they occur. If an investment was transferred to level 3 during a reporting period, its entire gain or loss for the period is classified in level 3. |
• | For level 3 investments, increases are shown as positive amounts, while decreases are shown as negative amounts. |
Goldman Sachs March 2020 Form 10-Q | 32 |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
The table below presents information, by product type, for investments included in the summary table above.
Three Months Ended March | ||||||||
$ in millions | 2020 | 2019 | ||||||
Corporate debt securities | ||||||||
Beginning balance | $ 3,465 | $ 2,540 | ||||||
Net realized gains/(losses) | 50 | 11 | ||||||
Net unrealized gains/(losses) | (465 | ) | 50 | |||||
Purchases | 69 | 86 | ||||||
Sales | (174 | ) | – | |||||
Settlements | (166 | ) | (42 | ) | ||||
Transfers into level 3 | 4,394 | 260 | ||||||
Transfers out of level 3 | (24 | ) | (214 | ) | ||||
Ending balance | $ 7,149 | $ 2,691 | ||||||
Securities backed by real estate | ||||||||
Beginning balance | $ | $ 457 | ||||||
Net realized gains/(losses) | 6 | 2 | ||||||
Net unrealized gains/(losses) | (72 | ) | 7 | |||||
Purchases | 52 | – | ||||||
Settlements | (12 | ) | (33 | ) | ||||
Transfers into level 3 | 206 | – | ||||||
Transfers out of level 3 | – | (22 | ) | |||||
Ending balance | $ | $ 411 | ||||||
Equity securities | ||||||||
Beginning balance | $10,903 | $10,335 | ||||||
Net realized gains/(losses) | 17 | 22 | ||||||
Net unrealized gains/(losses) | (766 | ) | 182 | |||||
Purchases | 227 | 112 | ||||||
Sales | (23 | ) | (36 | ) | ||||
Settlements | (145 | ) | (157 | ) | ||||
Transfers into level 3 | 1,790 | 707 | ||||||
Transfers out of level 3 | (947 | ) | (225 | ) | ||||
Ending balance | $11,056 | $10,940 | ||||||
Other debt obligations | ||||||||
Beginning balance | $ | $ 216 | ||||||
Net realized gains/(losses) | 2 | – | ||||||
Net unrealized gains/(losses) | 19 | – | ||||||
Purchases | – | 19 | ||||||
Sales | – | (1 | ) | |||||
Settlements | (2 | ) | – | |||||
Transfers into level 3 | 90 | – | ||||||
Ending balance | $ | $ 234 |
Level 3 Rollforward Commentary
Three Months Ended March 2020.
The net unrealized losses on level 3 investments for the three months ended March 2020 primarily reflected losses on certain private equity securities and corporate debt securities, principally driven by weak corporate performance.
Transfers into level 3 investments during the three months ended March 2020 primarily reflected transfers of certain corporate debt securities and private equity securities from level 2, principally due to certain unobservable yield and duration inputs becoming significant to the valuation of these instruments and as a result of a lack of market evidence, including fewer transactions in these instruments.
Transfers out of level 3 investments during the three months ended March 2020 primarily reflected transfers of certain private equity securities to level 2, principally due to increased price transparency as a result of market evidence, including market transactions in these instruments.
Three Months Ended March 2019.
The net unrealized gains on level 3 investments for the three months ended March 2019 primarily reflected gains on certain private equity securities, principally driven by company-specific events and corporate performance.
Transfers into level 3 investments during the three months ended March 2019 primarily reflected transfers of certain private equity securities and corporate debt from level 2, principally due to reduced price transparency as a result of a lack of market evidence, including fewer transactions in these instruments.
Transfers out of level 3 investments during the three months ended March 2019 primarily reflected transfers of certain private equity securities and corporate debt securities to level 2, principally due to increased price transparency as a result of market evidence, including market transactions in these instruments.
33 | Goldman Sachs March 2020 Form 10-Q |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
Held-to-Maturity
SecuritiesHeld-to-maturity
securities are accounted for at amortized cost.The table below presents information about
held-to-maturity
securities by type and tenor.$ in millions | Amortized Cost | Fair Value | Weighted Average Yield | |||||||||
As of March 2020 | ||||||||||||
Less than 5 years | $3,531 | $3,751 | 2.40% | |||||||||
Greater than 5 years | 1,524 | 1,680 | 2.25% | |||||||||
Total U.S. government obligations | 5,055 | 5,431 | 2.35% | |||||||||
Less than 5 years | 5 | 5 | 3.91% | |||||||||
Greater than 5 years | 696 | 688 | 1.62% | |||||||||
Total securities backed by real estate | 701 | 693 | 1.64% | |||||||||
Total held-to-maturity securities | $5,756 | $6,124 | 2.27% | |||||||||
As of December 2019 | ||||||||||||
Less than 5 years | $3,534 | $3,613 | 2.40% | |||||||||
Greater than 5 years | 1,534 | 1,576 | 2.25% | |||||||||
Total U.S. government obligations | 5,068 | 5,189 | 2.35% | |||||||||
Less than 5 years | 6 | 6 | 4.16% | |||||||||
Greater than 5 years | 751 | 769 | 1.67% | |||||||||
Total securities backed by real estate | 757 | 775 | 1.69% | |||||||||
Total held-to-maturity securities | $5,825 | $5,964 | 2.27% |
In the table above:
• | Substantially all of the securities backed by real estate consist of securities backed by residential real estate. |
• | As these securities are not accounted for at fair value, they are not included in the firm’s fair value hierarchy in Notes 4 through 10. Had these securities been included in the firm’s fair value hierarchy, U.S. government obligations would have been classified in level 1 and substantially all securities backed by real estate would have been classified in level 2 of the fair value hierarchy as of both March 2020 and December 2019. |
• | The gross unrealized gains were $395 million as of March 2020 and $141 million as of December 2019. The gross unrealized losses were 0t material as of both March 2020 and December 2019. |
• | Beginning in January 2020, held-to-maturity securities are reviewed to determine if an allowance for credit loss should be recorded in the consolidated statements of earnings. The firm considers various factors in such determination, including market conditions, changes in issuer credit ratings, historical credit losses and sovereign guarantees. See Note 3 for further information about the adoption of CECL. Prior to January 2020, such securities were reviewed for other-than-temporary impairment. The firm did not record any provision for credit losses on such securities during the three months ended March 2020 and there was no other-than-temporary impairment during the year ended December 2019. |
Note 9.
Loans
Loans include (i) loans held for investment that are accounted for at amortized cost net of allowance for loan losses or at fair value under the fair value option and (ii) loans held for sale that are accounted for at the lower of cost or fair value. Interest on loans is recognized over the life of the loan and is recorded on an accrual basis.
The table below presents information about loans.
$ in millions | Amortized Cost | Fair Value | Held For Sale | Total | ||||||||||||
As of March 2020 | ||||||||||||||||
Loan Type | ||||||||||||||||
Corporate | $ 63,697 | $ 2,915 | $1,918 | $ 68,530 | ||||||||||||
Wealth management | 21,183 | 7,834 | – | 29,017 | ||||||||||||
Commercial real estate | 14,165 | 2,005 | 660 | 16,830 | ||||||||||||
Residential real estate | 3,911 | 474 | 28 | 4,413 | ||||||||||||
Consumer: | ||||||||||||||||
Installment | 4,826 | – | – | 4,826 | ||||||||||||
Credit cards | 2,081 | – | – | 2,081 | ||||||||||||
Other | 4,472 | 601 | 551 | 5,624 | ||||||||||||
Total loans, gross | 114,335 | 13,829 | 3,157 | 131,321 | ||||||||||||
Allowance for loan losses | (2,868 | ) | – | – | (2,868 | ) | ||||||||||
Total loans | $111,467 | $13,829 | $3,157 | $128,453 | ||||||||||||
As of December 2019 | ||||||||||||||||
Loan Type | ||||||||||||||||
Corporate | $ 41,129 | $ 3,224 | $1,954 | $ 46,307 | ||||||||||||
Wealth management | 20,116 | 7,824 | – | 27,940 | ||||||||||||
Commercial real estate | 13,258 | 1,876 | 2,609 | 17,743 | ||||||||||||
Residential real estate | 6,132 | 792 | 34 | 6,958 | ||||||||||||
Consumer: | ||||||||||||||||
Installment | 4,747 | – | – | 4,747 | ||||||||||||
Credit cards | 1,858 | – | – | 1,858 | ||||||||||||
Other | 3,396 | 670 | 726 | 4,792 | ||||||||||||
Total loans, gross | 90,636 | 14,386 | 5,323 | 110,345 | ||||||||||||
Allowance for loan losses | (1,441 | ) | – | – | (1,441 | ) | ||||||||||
Total loans | $ 89,195 | $14,386 | $5,323 | $108,904 |
The following is a description of the loan types in the table above:
• | Corporate. |
• | Wealth Management. |
Goldman Sachs March 2020 Form 10-Q | 34 |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
• | Commercial Real Estate. |
• | Residential Real Estate. |
• | Installment. |
• | Credit Cards. |
• | Other. |
Loans accounted for at amortized cost included PCI loans with a carrying value of $1.62 billion (outstanding principal balance of $3.23 billion and accretable yield of $220 million) as of December 2019, which were secured by commercial and residential real estate. In January 2020, the firm elected the fair value option for these PCI loans in accordance with ASU No.
2016-13.
These loans were primarily transferred to trading assets. See Note 3 for further information about adoption of this ASU.Credit Quality
Risk Assessment.
The table below presents gross loans by an internally determined public rating agency equivalent or other credit metrics and the concentration of secured and unsecured loans.
$ in millions | Investment- Grade | Non-Investment- Grade | Other/ Unrated | Total | ||||||||||||
As of March 2020 | ||||||||||||||||
Accounting Method | ||||||||||||||||
Amortized cost | $40,637 | $64,397 | $ 9,301 | $114,335 | ||||||||||||
Fair value | 2,386 | 4,640 | 6,803 | 13,829 | ||||||||||||
Held for sale | 257 | 2,044 | 856 | 3,157 | ||||||||||||
Total | $43,280 | $71,081 | $16,960 | $131,321 | ||||||||||||
Loan Type | ||||||||||||||||
Corporate | $18,972 | $49,050 | $ | $ 68,530 | ||||||||||||
Wealth management | 20,393 | 4,275 | 4,349 | 29,017 | ||||||||||||
Real estate: | ||||||||||||||||
Commercial | 478 | 14,179 | 2,173 | 16,830 | ||||||||||||
Residential | 259 | 2,875 | 1,279 | 4,413 | ||||||||||||
Consumer: | ||||||||||||||||
Installment | – | – | 4,826 | 4,826 | ||||||||||||
Credit cards | – | – | 2,081 | 2,081 | ||||||||||||
Other | 3,178 | 702 | 1,744 | 5,624 | ||||||||||||
Total | $43,280 | $71,081 | $16,960 | $131,321 | ||||||||||||
Secured | 67% | 90% | 54% | 78% | ||||||||||||
Unsecured | 33% | 10% | 46% | 22% | ||||||||||||
Total | 100% | 100% | 100% | 100% | ||||||||||||
As of December 2019 | ||||||||||||||||
Accounting Method | ||||||||||||||||
Amortized cost | $30,266 | $51,222 | $ 9,148 | $ 90,636 | ||||||||||||
Fair value | 2,844 | 5,174 | 6,368 | 14,386 | ||||||||||||
Held for sale | 323 | 4,368 | 632 | 5,323 | ||||||||||||
Total | $33,433 | $60,764 | $16,148 | $110,345 | ||||||||||||
Loan Type | ||||||||||||||||
Corporate | $10,507 | $35,509 | $ 291 | $ 46,307 | ||||||||||||
Wealth management | 20,001 | 3,576 | 4,363 | 27,940 | ||||||||||||
Real estate: | ||||||||||||||||
Commercial | 306 | 15,997 | 1,440 | 17,743 | ||||||||||||
Residential | 244 | 4,600 | 2,114 | 6,958 | ||||||||||||
Consumer: | ||||||||||||||||
Installment | – | – | 4,747 | 4,747 | ||||||||||||
Credit cards | – | – | 1,858 | 1,858 | ||||||||||||
Other | 2,375 | 1,082 | 1,335 | 4,792 | ||||||||||||
Total | $33,433 | $60,764 | $16,148 | $110,345 | ||||||||||||
Secured | 83% | 91% | 54% | 83% | ||||||||||||
Unsecured | 17% | 9% | 46% | 17% | ||||||||||||
Total | 100% | 100% | 100% | 100% |
35 | Goldman Sachs March 2020 Form 10-Q |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
In the table above:
• | Substantially all of the other/unrated wealth management loans consists of loans backed by residential real estate, and real estate and other loans primarily consists of purchased real estate - backed, consumer and credit card loans. The firm’s risk assessment process for these loans includes reviewing certain key metrics, such asloan-to-value ratio, delinquency status, collateral values, expected cash flows, the Fair Isaac Corporation (FICO) credit score and other risk factors. |
• | Installment and credit card loans represent loans originated by the firm. An important credit-quality indicator for such loans is the FICO credit score, which measures a borrower’s creditworthiness by considering factors such as payment and credit history. FICO credit scores are refreshed by the firm to assess the updated creditworthiness of the borrower. |
The table below presents gross installment and credit card loans and the concentration by refreshed FICO credit score.
As of | ||||||||
$ in millions | March 2020 | December 2019 | ||||||
Installment, gross | $4,826 | $4,747 | ||||||
Credit cards, gross | 2,081 | 1,858 | ||||||
Total | $6,907 | $6,605 | ||||||
Refreshed FICO credit score | ||||||||
Greater than or equal to 660 | 82% | 85% | ||||||
Less than 660 | 18% | 15% | ||||||
Total | 100% | 100% |
In March 2020, in response to the global outbreak of the coronavirus (COVID-19) pandemic, the firm announced a customer assistance program providing borrowers of installment and credit card loans the flexibility to defer a payment for up to two months at no cost. The impact of this program was not material to the firm’s results for the three months ended March 2020.
The firm also assigns a regulatory risk rating to its loans based on the definitions provided by the U.S. federal bank regulatory agencies. Total loans included 91% of loans as of both March 2020 and December 2019 that were rated pass/non-criticized.
Vintage.
As of March 2020 | ||||||||||||||||
$ in millions | Investment- Grade | Non-Investment- Grade | Other/ Unrated | Total | ||||||||||||
2020 | $ 1,151 | $ 2,522 | $ – | $ 3,673 | ||||||||||||
2019 | 1,648 | 8,081 | 18 | 9,747 | ||||||||||||
2018 | 2,383 | 4,277 | – | 6,660 | ||||||||||||
2017 | 883 | 3,977 | – | 4,860 | ||||||||||||
2016 | 165 | 1,626 | – | 1,791 | ||||||||||||
2015 or earlier | 435 | 2,648 | – | 3,083 | ||||||||||||
Revolving | 11,617 | 22,240 | 26 | 33,883 | ||||||||||||
Corporate | $18,282 | $45,371 | $ | $ 63,697 | ||||||||||||
2020 | $ | $ | $ – | $ | ||||||||||||
2019 | 532 | 398 | – | 930 | ||||||||||||
2018 | 393 | 90 | – | 483 | ||||||||||||
2017 | 400 | 75 | – | 475 | ||||||||||||
2016 | 30 | 65 | – | 95 | ||||||||||||
2015 or earlier | 540 | 208 | – | 748 | ||||||||||||
Revolving | 16,663 | 1,557 | 15 | 18,235 | ||||||||||||
Wealth management | $18,730 | $ 2,438 | $ | $ 21,183 | ||||||||||||
2020 | $ – | $ | $ | $ | ||||||||||||
2019 | 57 | 1,870 | 27 | 1,954 | ||||||||||||
2018 | 195 | 2,484 | 19 | 2,698 | ||||||||||||
2017 | 18 | 1,718 | 25 | 1,761 | ||||||||||||
2016 | – | 180 | 12 | 192 | ||||||||||||
2015 or earlier | – | 589 | 691 | 1,280 | ||||||||||||
Revolving | – | 5,584 | – | 5,584 | ||||||||||||
Commercial real estate | $ | $13,057 | $ | $ 14,165 | ||||||||||||
2020 | $ – | $ | $ | $ | ||||||||||||
2019 | – | 707 | 251 | 958 | ||||||||||||
2018 | – | 169 | 316 | 485 | ||||||||||||
2017 | 179 | 95 | 169 | 443 | ||||||||||||
2016 | – | 524 | – | 524 | ||||||||||||
2015 or earlier | – | – | 70 | 70 | ||||||||||||
Revolving | 79 | 1,242 | – | 1,321 | ||||||||||||
Residential real estate | $ | $ 2,829 | $ | $ 3,911 | ||||||||||||
2020 | $ – | $ | $ | $ | ||||||||||||
2019 | – | 45 | 57 | 102 | ||||||||||||
2018 | – | 53 | 13 | 66 | ||||||||||||
2017 | – | 19 | 5 | 24 | ||||||||||||
2016 | – | 1 | – | 1 | ||||||||||||
Revolving | 3,097 | 562 | 118 | 3,777 | ||||||||||||
Other | $ 3,097 | $ | $ | $ 4,472 | ||||||||||||
Total | $40,637 | $64,397 | $2,394 | $107,428 |
In the table above, revolving loans which converted to term loans were not material as of March 2020.
Goldman Sachs March 2020 Form 10-Q | 36 |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
The table below presents gross originated installment loans by origination year and credit card revolving loans.
$ in millions | As of March 2020 | |||||||
2020 | $ | |||||||
2019 | 2,043 | |||||||
2018 | 1,686 | |||||||
2017 | 355 | |||||||
2016 | 19 | |||||||
Revolving | 2,081 | |||||||
Total | $6,907 |
Credit Concentrations.
$ in millions | Carrying Value | Americas | EMEA | Asia | Total | |||||||||||||||
As of March 2020 | ||||||||||||||||||||
Corporate | $ 68,530 | 67% | 26% | 7% | 100% | |||||||||||||||
Wealth management | 29,017 | 88% | 9% | 3% | 100% | |||||||||||||||
Commercial real estate | 16,830 | 69% | 21% | 10% | 100% | |||||||||||||||
Residential real estate | 4,413 | 87% | 11% | 2% | 100% | |||||||||||||||
Consumer: | ||||||||||||||||||||
Installment | 4,826 | 100% | – | – | 100% | |||||||||||||||
Credit cards | 2,081 | 100% | – | – | 100% | |||||||||||||||
Other | 5,624 | 87% | 12% | 1% | 100% | |||||||||||||||
Total | $131,321 | 75% | 19% | 6% | 100% | |||||||||||||||
As of December 2019 | ||||||||||||||||||||
Corporate | $ 46,307 | 60% | 31% | 9% | 100% | |||||||||||||||
Wealth management | 27,940 | 88% | 9% | 3% | 100% | |||||||||||||||
Commercial real estate | 17,743 | 69% | 21% | 10% | 100% | |||||||||||||||
Residential real estate | 6,958 | 90% | 9% | 1% | 100% | |||||||||||||||
Consumer: | ||||||||||||||||||||
Installment | 4,747 | 100% | – | – | 100% | |||||||||||||||
Credit cards | 1,858 | 100% | – | – | 100% | |||||||||||||||
Other | 4,792 | 87% | 12% | 1% | 100% | |||||||||||||||
Total | $110,345 | 73% | 21% | 6% | 100% |
The table below presents the concentration of gross corporate loans by industry.
As of | ||||||||
$ in millions | March 2020 | December 2019 | ||||||
Corporate, gross | $68,530 | $46,307 | ||||||
Industry | ||||||||
Consumer, Retail & Healthcare | 17% | 15% | ||||||
Diversified Industrials | 22% | 17% | ||||||
Financial Institutions | 9% | 10% | ||||||
Funds | 6% | 9% | ||||||
Natural Resources & Utilities | 11% | 12% | ||||||
Real Estate | 8% | 7% | ||||||
Technology, Media & Telecommunications | 18% | 17% | ||||||
Other (including Special Purpose Vehicles) | 9% | 13% | ||||||
Total | 100% | 100% |
The table below presents the firm’s credit exposure from originated installment and credit card loans and the concentration by the five most concentrated U.S. states.
As of | ||||||||
$ in millions | March 2020 | December 2019 | ||||||
Installment | $4,826 | $4,747 | ||||||
California | 12% | 12% | ||||||
Texas | 9% | 9% | ||||||
New York | 7% | 7% | ||||||
Florida | 7% | 7% | ||||||
Illinois | 4% | 4% | ||||||
Other | 61% | 61% | ||||||
Total | 100% | 100% | ||||||
Credit Cards | $2,081 | $1,858 | ||||||
California | 20% | 21% | ||||||
Texas | 9% | 9% | ||||||
New York | 8% | 8% | ||||||
Florida | 8% | 8% | ||||||
Illinois | 4% | 4% | ||||||
Other | 51% | 50% | ||||||
Total | 100% | 100% |
Nonaccrual and Past Due Loans.
In certain circumstances, the firm may also modify the original terms of a loan agreement by granting a concession to a borrower experiencing financial difficulty. Such modifications are considered troubled debt restructurings and typically include interest rate reductions, payment extensions and modification of loan covenants.
37 | Goldman Sachs March 2020 Form 10-Q |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
The table below presents information about past due loans.
$ in millions | 30-89 days | 90 days or more | Total | |||||||||
As of March 2020 | ||||||||||||
Corporate | $ 66 | $172 | $ 238 | |||||||||
Wealth management | 20 | 16 | 36 | |||||||||
Commercial real estate | 127 | 91 | 218 | |||||||||
Residential real estate | 11 | 23 | 34 | |||||||||
Consumer: | ||||||||||||
Installment | 65 | 23 | 88 | |||||||||
Credit cards | 35 | 39 | 74 | |||||||||
Other | 11 | 1 | 12 | |||||||||
Total | $ 335 | $ 365 | $ 700 | |||||||||
Past due loans divided by gross loans at amortized cost | 0.6% | |||||||||||
As of December 2019 | ||||||||||||
Corporate | $197 | $ 42 | $239 | |||||||||
Wealth management | 13 | 15 | 28 | |||||||||
Commercial real estate | 54 | 123 | 177 | |||||||||
Residential real estate | 19 | 18 | 37 | |||||||||
Consumer: | ||||||||||||
Installment | 71 | 29 | 100 | |||||||||
Credit cards | 35 | 4 | 39 | |||||||||
Other | 6 | 1 | 7 | |||||||||
Total | $395 | $232 | $627 | |||||||||
Past due loans divided by gross loans at amortized cost | 0.7% |
The table below presents information about nonaccrual loans.
As of | ||||||||
$ in millions | March 2020 | December 2019 | ||||||
Corporate | $1,622 | $1,122 | ||||||
Wealth management | 53 | 52 | ||||||
Commercial real estate | 155 | 175 | ||||||
Residential real estate | 156 | 143 | ||||||
Installment | 35 | 38 | ||||||
Total | $2,021 | $1,530 | ||||||
Nonaccrual loans divided by gross loans at amortized cost | 1.8% | 1.7% |
In the table above:
• | Nonaccrual loans included $502 million as of March 2020 and $429 million as of December 2019 of loans that were 30 days or more past due. |
• | Loans that were 90 days or more past due and still accruing were not material as of both March 2020 and December 2019. |
• | Nonaccrual loans included $302 million as of March 2020 and $251 million as of December 2019 of corporate loans that were modified in a troubled debt restructuring. The firm’s lending commitments related to these loans were not material as of both March 2020 and December 2019. Installment loans that were modified in a troubled debt restructuring were not material as of both March 2020 and December 2019. |
Allowance for Credit Losses
The firm’s allowance for credit losses consists of the allowance for losses on loans and lending commitments accounted for at amortized cost. Loans and lending commitments accounted for at fair value or accounted for at the lower of cost or fair value are not subject to an allowance for credit losses.
The firm adopted ASU No. 2016-13 in January 2020, which replaced the incurred credit loss model for recognizing credit losses with the CECL model. As a result, the firm’s allowance for credit losses effective January 2020 reflects management’s estimate of credit losses over the remaining expected life of such loans and also considers forecasts of future economic conditions. Prior to January 2020, the allowance for credit losses reflected probable incurred credit losses. See Note 3 for further information about the adoption of CECL.
To determine the allowance for credit losses, the firm classifies its loans and lending commitments accounted for at amortized cost into wholesale and consumer portfolios. Prior to January 2020, the firm also had PCI loans which were classified as a separate portfolio. These portfolios represent the level at which the firm has developed and documented its methodology to determine the allowance for credit losses. The allowance for credit losses is measured on a collective basis for loans that exhibit similar risk characteristics using a modeled approach and asset-specific basis for loans that do not share similar risk characteristics.
Under CECL, the allowance for loan losses takes into account the weighted average of a range of forecasts of future economic conditions over the expected life of the loan. These forecasts include baseline, favorable and adverse economic scenarios. The allowance for loan losses also includes qualitative components which allow management to reflect the uncertain nature of economic forecasting and account for model imprecision.
Management’s estimate of loan losses entails judgment about loan collectability at the reporting dates, and there are uncertainties inherent in those judgments. While management uses the best information available to determine this estimate, future adjustments to the allowance may be necessary based on, among other things, changes in the economic environment or variances between actual results and the original assumptions used.
Goldman Sachs March 2020 Form 10-Q | 38 |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
The table below presents gross loans and lending commitments accounted for at amortized cost by portfolio.
As of | ||||||||||||||||||
March 2020 | December 2019 | |||||||||||||||||
$ in millions | Loans | Lending Commitments | Loans | Lending Commitments | ||||||||||||||
Wholesale | ||||||||||||||||||
Corporate | $ 63,697 | $107,403 | $41,129 | $127,226 | ||||||||||||||
Wealth management | 21,183 | 2,441 | 20,116 | 2,198 | ||||||||||||||
Commercial real estate | 14,165 | 2,886 | 12,803 | 3,207 | ||||||||||||||
Residential real estate | 3,911 | 1,293 | 4,965 | 759 | ||||||||||||||
Other | 4,472 | 3,021 | 3,396 | 3,029 | ||||||||||||||
Consumer | ||||||||||||||||||
Installment | 4,826 | 10 | 4,747 | 12 | ||||||||||||||
Credit cards | 2,081 | 16,447 | 1,858 | 13,669 | ||||||||||||||
PCI | – | – | 1,622 | – | ||||||||||||||
Total | $114,335 | $133,501 | $90,636 | $150,100 |
In the table above, wholesale loans included $1.99 billion as of March 2020 and $1.49 billion as of December 2019 of nonaccrual loans for which the allowance for credit losses was measured on an asset-specific basis. The allowance for credit losses on these loans was $327 million as of March 2020 and $207 million as of December 2019. These loans included $543 million as of March 2020 and $754 million as of December 2019 of loans which did not require a reserve as the loan was deemed to be recoverable.
See Note 18 for further information about lending commitments.
The following is a description of the methodology used to calculate the allowance for credit losses:
Wholesale.
The allowance for loan losses for wholesale loans that do not share similar risk characteristics, such as nonaccrual loans or loans in a troubled debt restructuring, is measured on an asset-specific basis and is calculated using the present value of expected future cash flows discounted at the loan’s original effective rate, the observable market price of the loan or the fair value of the collateral.
Wholesale loans are charged-off against the allowance for loan losses when deemed to be uncollectible.
Consumer.
The allowance for credit losses for consumer loans in a troubled debt restructuring is calculated using the present value of expected future cash flows discounted at the loan’s original effective rate, the observable market price of the loan or the fair value of the collateral.
Installment loans are charged-off when they are 120 days past due. Credit card loans are charged-off when they are 180 days past due.
39 | Goldman Sachs March 2020 Form 10-Q |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
The table below presents information about the allowance for credit losses.
$ in millions | Wholesale | Consumer | PCI | Total | ||||||||||||
Three Months Ended March 2020 | ||||||||||||||||
Allowance for loan losses | ||||||||||||||||
Beginning balance, reported | $ | $ | $ 169 | $1,441 | ||||||||||||
Impact of CECL adoption | 452 | 444 | (169 | ) | 727 | |||||||||||
Beginning balance, adjusted | 1,331 | 837 | – | 2,168 | ||||||||||||
Net charge-offs | (50 | ) | (81 | ) | – | (131 | ) | |||||||||
Provision | 746 | 169 | – | 915 | ||||||||||||
Other | (84 | ) | – | – | (84 | ) | ||||||||||
Ending balance | $1,943 | $ | $ | $2,868 | ||||||||||||
Allowance for losses on lending commitments | ||||||||||||||||
Beginning balance, reported | $ | $ | $ | $ | ||||||||||||
Impact of CECL adoption | (48 | ) | – | – | (48 | ) | ||||||||||
Beginning balance, adjusted | 313 | – | – | 313 | ||||||||||||
Provision | 22 | – | – | 22 | ||||||||||||
Ending balance | $ | $ | $ | $ | ||||||||||||
Year Ended December 2019 | ||||||||||||||||
Allowance for loan losses | ||||||||||||||||
Beginning balance | $ 658 | $ 292 | $ | $1,066 | ||||||||||||
Net charge-offs | (121 | ) | (317 | ) | (52 | ) | (490 | ) | ||||||||
Provision | 469 | 418 | 103 | 990 | ||||||||||||
Other | (127 | ) | – | 2 | (125 | ) | ||||||||||
Ending balance | $ 879 | $ 393 | $ | $1,441 | ||||||||||||
Allowance for losses on lending commitments | ||||||||||||||||
Beginning balance | $ 286 | $ | $ | $ 286 | ||||||||||||
Provision | 75 | – | – | 75 | ||||||||||||
Ending balance | $ 361 | $ | $ | $ 361 |
In the table above:
• | The impact of CECL adoption for wholesale and consumer loans is driven by the fact that the allowance under CECL covers expected credit losses over the full expected life of the loan portfolios and also considers forecasts of expected future economic conditions. The impact of CECL adoption for PCI loans was as a result of the firm electing to apply the fair value option for such loans. |
• | Net charge-offs for wholesale loans were primarily related to corporate loans for both the three months ended March 2020 and the year ended December 2019. Net charge-offs for consumer loans were substantially all related to installment loans for both the three months ended March 2020 and the year ended December 2019. |
• | The provision for credit losses for the three months ended March 2020 on wholesale loans was primarily related to corporate loans and was driven by growth in the firm’s wholesale loan portfolio, asset-specific provisions relating to borrowers in the oil and gas sector and the impact of the COVID-19 pandemic on the broader economic outlook. The provision for credit losses for wholesale loans was substantially all related to corporate loans for the year ended December 2019. |
• | The provision for credit losses for the three months ended March 2020 on consumer loans was primarily related to seasoning of credit card loans. The provision for credit losses related to consumer loans was primarily related to installment loans for the year ended December 2019. |
• | Other represents the reduction to the allowance related to loans and lending commitments transferred to held for sale. |
• | The allowance for loan losses for wholesale loans was 1.8% as of March 2020 and 1.1% as of December 2019 of total gross wholesale loans accounted for at amortized cost.The allowance for loan losses for consumer loans was 13.4% as of March 2020 and 6.0% as of December 2019 of total gross consumer loans accounted for at amortized cost. |
• | The net charge-off ratio for wholesale loans accounted for at amortized cost was 0.2% on an annualized basis for the three months ended March 2020 and 0.2% for the year ended December 2019.The net charge-off ratio for consumer loans accounted for at amortized cost was 4.8% on an annualized basis for the three months ended March 2020 and 6.2% for the year ended December 2019. |
Goldman Sachs March 2020 Form 10-Q | 40 |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
Fair Value of Loans by Level
The table below presents loans held for investment accounted for at fair value under the fair value option by level within the fair value hierarchy.
$ in millions | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
As of March 2020 | ||||||||||||||||
Loan Type | ||||||||||||||||
Corporate | $ – | $ 1,871 | $1,044 | $ 2,915 | ||||||||||||
Wealth management | – | 7,773 | 61 | 7,834 | ||||||||||||
Commercial real estate | – | 942 | 1,063 | 2,005 | ||||||||||||
Residential real estate | – | 214 | 260 | 474 | ||||||||||||
Other | – | 276 | 325 | 601 | ||||||||||||
Total | $ – | $11,076 | $2,753 | $13,829 | ||||||||||||
As of December 2019 | ||||||||||||||||
Loan Type | ||||||||||||||||
Corporate | $ – | $ 2,472 | $ 752 | $ 3,224 | ||||||||||||
Wealth management | – | 7,764 | 60 | 7,824 | ||||||||||||
Commercial real estate | – | 1,285 | 591 | 1,876 | ||||||||||||
Residential real estate | – | 571 | 221 | 792 | ||||||||||||
Other | – | 404 | 266 | 670 | ||||||||||||
Total | $ – | $12,496 | $1,890 | $14,386 |
The gains/(losses) as a result of changes in the fair value of loans held for investment for which the fair value option was elected were $(27) million for the three months ended March 2020 and $102 million for the three months ended March 2019. These gains/(losses) were included in other principal transactions.
See Note 4 for an overview of the firm’s fair value measurement policies and the valuation techniques and significant inputs used to determine the fair value of loans.
Significant Unobservable Inputs
The table below presents the amount of level 3 loans, and ranges and weighted averages of significant unobservable inputs used to value such loans.
Level 3 Assets and Range of Significant Unobservable Inputs (Weighted Average) as of | ||||||||
$ in millions | March 2020 | December 2019 | ||||||
Corporate | ||||||||
Level 3 assets | $1,044 | $752 | ||||||
Yield | 3.1% to 26.3% (12.5%) | 1.9% to 26.3% (9.5%) | ||||||
Recovery rate | 15.1% to 85.4% (40.6%) | 13.5% to 78.0% (44.4%) | ||||||
Duration (years) | 1.7 to 4.3 (3.2) | 3.7 to 5.8 (3.9) | ||||||
Commercial real estate | ||||||||
Level 3 assets | $1,063 | $591 | ||||||
Yield | 7.0% to 26.3% (11.2%) | 7.0% to 16.0% (9.3%) | ||||||
Recovery rate | 6.7% to 65.0% (29.5%) | 5.9% to 85.2% (48.6%) | ||||||
Duration (years) | 0.3 to 5.9 (3.3) | 0.2 to 5.3 (3.5) | ||||||
Residential real estate | ||||||||
Level 3 assets | $260 | $221 | ||||||
Yield | 1.6% to 14.0% (11.9%) | 1.1% to 14.0% (11.5%) | ||||||
Duration (years) | 1.0 to 5.2 (3.8) | 1.1 to 4.8 (4.0) | ||||||
Wealth management and other | ||||||||
Level 3 assets | $386 | $326 | ||||||
Yield | 2.7% to 11.5% (9.6%) | 3.9% to 16.0% (9.9%) | ||||||
Duration (years) | 1.5 to 5.1 (3.2) | 1.6 to 6.7 (3.7) |
In the table above:
• | Ranges represent the significant unobservable inputs that were used in the valuation of each type of loan. |
• | Weighted averages are calculated by weighting each input by the relative fair value of the loan. |
• | The ranges and weighted averages of these inputs are not representative of the appropriate inputs to use when calculating the fair value of any one loan. For example, the highest yield for residential real estate loans is appropriate for valuing a specific residential real estate loan but may not be appropriate for valuing any other residential real estate loan. Accordingly, the ranges of inputs do not represent uncertainty in, or possible ranges of, fair value measurements of level 3 loans. |
• | Increases in yield or duration used in the valuation of level 3 loans would have resulted in a lower fair value measurement, while increases in recovery rate would have resulted in a higher fair value measurement as of both March 2020 and December 2019. Due to the distinctive nature of each level 3 loan, the interrelationship of inputs is not necessarily uniform within each product type. |
• | Loans are valued using discounted cash flows. |
Level 3 Rollforward
The table below presents a summary of the changes in fair value for level 3 loans.
Three Months Ended March | ||||||||
$ in millions | 2020 | 2019 | ||||||
Beginning balance | $1,890 | $1,990 | ||||||
Net realized gains/(losses) | 27 | 26 | ||||||
Net unrealized gains/(losses) | (54 | ) | 1 | |||||
Purchases | 473 | 44 | ||||||
Sales | (12 | ) | (3 | ) | ||||
Settlements | (221 | ) | (124 | ) | ||||
Transfers into level 3 | 653 | 170 | ||||||
Transfers out of level 3 | (3 | ) | (35 | ) | ||||
Ending balance | $2,753 | $2,069 |
In the table above:
• | Changes in fair value are presented for loans that are classified in level 3 as of the end of the period. |
• | Net unrealized gains/(losses) relates to loans that were still held at period-end. |
• | Purchases includes originations and secondary purchases. |
• | Transfers between levels of the fair value hierarchy are reported at the beginning of the reporting period in which they occur. If a loan was transferred to level 3 during a reporting period, its entire gain or loss for the period is classified in level 3. |
41 | Goldman Sachs March 2020 Form 10-Q |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
The table below presents information, by loan type, for loans included in the summary table above.
Three Months Ended March | ||||||||
$ in millions | 2020 | 2019 | ||||||
Corporate | ||||||||
Beginning balance | $ | $659 | ||||||
Net realized gains/(losses) | 10 | 2 | ||||||
Net unrealized gains/(losses) | (11 | ) | (14 | ) | ||||
Purchases | 156 | 34 | ||||||
Sales | (7 | ) | – | |||||
Settlements | (40 | ) | (4 | ) | ||||
Transfers into level 3 | 187 | 81 | ||||||
Transfers out of level 3 | (3 | ) | (32 | ) | ||||
Ending balance | $1,044 | $726 | ||||||
Commercial real estate | ||||||||
Beginning balance | $ | $677 | ||||||
Net realized gains/(losses) | 17 | 7 | ||||||
Net unrealized gains/(losses) | 7 | 7 | ||||||
Purchases | 236 | 1 | ||||||
Sales | (5 | ) | (2 | ) | ||||
Settlements | (115 | ) | (47 | ) | ||||
Transfers into level 3 | 332 | – | ||||||
Transfers out of level 3 | – | (3 | ) | |||||
Ending balance | $1,063 | $640 | ||||||
Residential real estate | ||||||||
Beginning balance | $ | $290 | ||||||
Net realized gains/(losses) | – | 8 | ||||||
Net unrealized gains/(losses) | (17 | ) | (2 | ) | ||||
Purchases | 42 | 9 | ||||||
Sales | – | (1 | ) | |||||
Settlements | (27 | ) | (30 | ) | ||||
Transfers into level 3 | 41 | – | ||||||
Ending balance | $ | $274 | ||||||
Wealth management and other | ||||||||
Beginning balance | $ | $364 | ||||||
Net realized gains/(losses) | – | 9 | ||||||
Net unrealized gains/(losses) | (33 | ) | 10 | |||||
Purchases | 39 | – | ||||||
Settlements | (39 | ) | (43 | ) | ||||
Transfers into level 3 | 93 | 89 | ||||||
Ending balance | $ | $429 |
Level 3 Rollforward Commentary
Three Months Ended March 2020.
The drivers of the net unrealized losses on level 3 loans for the three months ended March 2020 were not material.
Transfers into level 3 loans during the three months ended March 2020 primarily reflected transfer of certain commercial real estate loans and corporate loans from level 2, principally due to reduced price transparency as a result of a lack of market evidence, including fewer market transactions in these instruments.
The drivers of transfers out of level 3 loans during the three months ended March 2020 were not material.
Three Months Ended March 2019.
The drivers of the net unrealized gains on level 3 loans for the three months ended March 2019 were not material.
The drivers of transfers into and out of
level 3 loans during the three months ended March 2019 were not material.
Estimated Fair Value
The table below presents the estimated fair value of loans that are not accounted for at fair value and in what level of the fair value hierarchy they would have been classified if they had been included in the firm’s fair value hierarchy.
$ in millions | Carrying Value | Estimated Fair Value | ||||||||||||||||
Level 2 | Level 3 | Total | ||||||||||||||||
As of March 2020 | ||||||||||||||||||
Amortized cost | $111,467 | $54,658 | $53,979 | $108,637 | ||||||||||||||
Held for sale | $ 3,157 | $ 1,646 | $ 1,564 | $ 3,210 | ||||||||||||||
As of December 2019 | ||||||||||||||||||
Amortized cost | $ 89,195 | $52,091 | $37,095 | $ 89,186 | ||||||||||||||
Held for sale | $ 5,323 | $ 4,157 | $ 1,252 | $ 5,409 |
Goldman Sachs March 2020 Form 10-Q | 42 |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
Note 10.
Fair Value Option
Other Financial Assets and Liabilities at Fair Value
In addition to trading assets and liabilities, and certain investments and loans, the firm accounts for certain of its other financial assets and liabilities at fair value, substantially all under the fair value option. The primary reasons for electing the fair value option are to:
• | Reflect economic events in earnings on a timely basis; |
• | Mitigate volatility in earnings from using different measurement attributes (e.g., transfers of financial assets accounted for as financings are recorded at fair value, whereas the related secured financing would be recorded on an accrual basis absent electing the fair value option); and |
• | Address simplification and cost-benefit considerations (e.g., accounting for hybrid financial instruments at fair value in their entirety versus bifurcation of embedded derivatives and hedge accounting for debt hosts). |
Hybrid financial instruments are instruments that contain bifurcatable embedded derivatives and do not require settlement by physical delivery of nonfinancial assets (e.g., physical commodities). If the firm elects to bifurcate the embedded derivative from the associated debt, the derivative is accounted for at fair value and the host contract is accounted for at amortized cost, adjusted for the effective portion of any fair value hedges. If the firm does not elect to bifurcate, the entire hybrid financial instrument is accounted for at fair value under the fair value option.
Other financial assets and liabilities accounted for at fair value under the fair value option include:
• | Repurchase agreements and substantially all resale agreements; |
• | Securities borrowed and loaned in FICC financing; |
• | Most other secured financings, including transfers of assets accounted for as financings and collateralized central bank financings ; |
• | Certain unsecured short- and long-term borrowings, substantially all of which are hybrid financial instruments; |
• | Certain customer and other receivables, including certain margin loans; and |
• | Certain time deposits (deposits with no stated maturity are not eligible for a fair value option election), including structured certificates of deposit, which are hybrid financial instruments. |
Fair Value of Other Financial Assets and Liabilities by Level
The table below presents, by level within the fair value hierarchy, other financial assets and liabilities at fair value, substantially all of which are accounted for at fair value under the fair value option.
$ in millions | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
As of March 2020 | ||||||||||||||||
Assets | ||||||||||||||||
Resale agreements | $ – | $ 132,333 | $ – | $ 132,333 | ||||||||||||
Securities borrowed | – | 29,771 | – | 29,771 | ||||||||||||
Customer and other receivables | – | 53 | – | 53 | ||||||||||||
Total | $ – | $ 162,157 | $ – | $ 162,157 | ||||||||||||
Liabilities | ||||||||||||||||
Deposits | $ – | $ (20,726 | ) | $ (3,996 | ) | $ (24,722 | ) | |||||||||
Repurchase agreements | – | (95,852 | ) | (12 | ) | (95,864 | ) | |||||||||
Securities loaned | – | (1,148 | ) | – | (1,148 | ) | ||||||||||
Other secured financings | – | (28,761 | ) | (1,230 | ) | (29,991 | ) | |||||||||
Unsecured borrowings: | ||||||||||||||||
Short-term | – | (13,572 | ) | (5,411 | ) | (18,983 | ) | |||||||||
Long-term | – | (32,637 | ) | (10,676 | ) | (43,313 | ) | |||||||||
Other liabilities | – | (2 | ) | (325 | ) | (327 | ) | |||||||||
Total | $ – | $(192,698 | ) | $(21,650 | ) | $(214,348 | ) | |||||||||
As of December 2019 | ||||||||||||||||
Assets | ||||||||||||||||
Resale agreements | $ – | $ | $ | $ | ||||||||||||
Securities borrowed | – | 26,279 | – | 26,279 | ||||||||||||
Customer and other receivables | – | 53 | – | 53 | ||||||||||||
Total | $ – | $ | $ | $ | ||||||||||||
Liabilities | ||||||||||||||||
Deposits | $ – | $ | ) | $ | ) | $ | ) | |||||||||
Repurchase agreements | – | (117,726 | ) | (30 | ) | (117,756 | ) | |||||||||
Securities loaned | – | (714 | ) | – | (714 | ) | ||||||||||
Other secured financings | – | (17,685 | ) | (386 | ) | (18,071 | ) | |||||||||
Unsecured borrowings: | ||||||||||||||||
Short-term | – | (20,300 | ) | (5,707 | ) | (26,007 | ) | |||||||||
Long-term | – | (32,920 | ) | (10,741 | ) | (43,661 | ) | |||||||||
Other liabilities | – | (1 | ) | (149 | ) | (150 | ) | |||||||||
Total | $ – | $ | ) | $ | ) | $ | ) |
In the table above, other financial assets are shown as positive amounts and other financial liabilities are shown as negative amounts.
See Note 4 for an overview of the firm’s fair value measurement policies and the valuation techniques and significant inputs used to determine the fair value of other financial assets and liabilities.
Significant Unobservable Inputs
See below for information about the significant unobservable inputs used to value level 3 other financial assets and liabilities at fair value as of both March 2020 and December 2019.
43 | Goldman Sachs March 2020 Form 10-Q |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
Other Secured Financings.
As of March 2020:
• | Yield: 2.2% to 4.2% (weighted average: 2.6%) |
• | Duration: 0.4 to 3.8 years (weighted average: 3.3 years) |
As of December 2019:
• | Yield: 3.3% to 4.2% (weighted average: 3.5%) |
• | Duration: 0.6 to 2.1 years (weighted average: 1.0 year) |
Generally, increases in yield or duration, in isolation, would have resulted in a lower fair value measurement as of period-end. Due to the distinctive nature of each of level 3 other secured financings, the interrelationship of inputs is not necessarily uniform across such financings. See Note 11 for further information about other secured financings.
Deposits, Unsecured Borrowings and Other Liabilities.
Repurchase Agreements.
Level 3 Rollforward
The table below presents a summary of the changes in fair value for level 3 other financial liabilities accounted for at fair value.
Three Months Ended March | ||||||||
$ in millions | 2020 | 2019 | ||||||
Beginning balance | $(21,036 | ) | $(19,397 | ) | ||||
Net realized gains/(losses) | (130 | ) | (79 | ) | ||||
Net unrealized gains/(losses) | 3,160 | (1,494 | ) | |||||
Issuances | (7,643 | ) | (3,036 | ) | ||||
Settlements | 5,157 | 3,307 | ||||||
Transfers into level 3 | (1,596 | ) | (571 | ) | ||||
Transfers out of level 3 | 438 | 351 | ||||||
Ending balance | $(21,650 | ) | $(20,919 | ) |
In the table above:
• | Changes in fair value are presented for all other financial liabilities that are classified in level 3 as of the end of the period. |
• | Net unrealized gains/(losses) relates to other financial liabilities that were still held at period-end. |
• | Transfers between levels of the fair value hierarchy are reported at the beginning of the reporting period in which they occur. If a financial liability was transferred to level 3 during a reporting period, its entire gain or loss for the period is classified in level 3. |
• | For level 3 other financial liabilities, increases are shown as negative amounts, while decreases are shown as positive amounts. |
• | Level 3 other financial liabilities are frequently economically hedged with trading assets and liabilities. Accordingly, gains or losses that are classified in level 3 can be partially offset by gains or losses attributable to level 1, 2 or 3 trading assets and liabilities. As a result, gains or losses included in the level 3 rollforward below do not necessarily represent the overall impact on the firm’s results of operations, liquidity or capital resources. |
Goldman Sachs March 2020 Form 10-Q | 44 |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
The table below presents information, by the consolidated balance sheet line items, for liabilities included in the summary table above.
Three Months Ended March | ||||||||
$ in millions | 2020 | 2019 | ||||||
Deposits | ||||||||
Beginning balance | $ (4,023 | ) | $ (3,168 | ) | ||||
Net realized gains/(losses) | (11 | ) | (1 | ) | ||||
Net unrealized gains/(losses) | 117 | (142 | ) | |||||
Issuances | (335 | ) | (197 | ) | ||||
Settlements | 309 | 111 | ||||||
Transfers into level 3 | (121 | ) | (16 | ) | ||||
Transfers out of level 3 | 68 | 62 | ||||||
Ending balance | $ (3,996 | ) | $ (3,351 | ) | ||||
Repurchase agreements | ||||||||
Beginning balance | $ | ) | $ (29 | ) | ||||
Net unrealized gains/(losses) | 3 | (4 | ) | |||||
Settlements | 15 | 4 | ||||||
Ending balance | $ | ) | $ (29 | ) | ||||
Other secured financings | ||||||||
Beginning balance | $ | ) | $ (170 | ) | ||||
Net realized gains/(losses) | (44 | ) | 11 | |||||
Net unrealized gains/(losses) | 107 | (10 | ) | |||||
Issuances | (14 | ) | (11 | ) | ||||
Settlements | 92 | 8 | ||||||
Transfers into level 3 | (985 | ) | (20 | ) | ||||
Ending balance | $ (1,230 | ) | $ (192 | ) | ||||
Unsecured short-term borrowings | ||||||||
Beginning balance | $ (5,707 | ) | $ (4,076 | ) | ||||
Net realized gains/(losses) | (11 | ) | 7 | |||||
Net unrealized gains/(losses) | 1,538 | (425 | ) | |||||
Issuances | (3,954 | ) | (2,155 | ) | ||||
Settlements | 2,718 | 1,344 | ||||||
Transfers into level 3 | (270 | ) | (338 | ) | ||||
Transfers out of level 3 | 275 | 130 | ||||||
Ending balance | $ (5,411 | ) | $ (5,513 | ) | ||||
Unsecured long-term borrowings | ||||||||
Beginning balance | $(10,741 | ) | $(11,823 | ) | ||||
Net realized gains/(losses) | (72 | ) | (103 | ) | ||||
Net unrealized gains/(losses) | 1,571 | (912 | ) | |||||
Issuances | (3,332 | ) | (666 | ) | ||||
Settlements | 2,023 | 1,840 | ||||||
Transfers into level 3 | (220 | ) | (197 | ) | ||||
Transfers out of level 3 | 95 | 159 | ||||||
Ending balance | $(10,676 | ) | $(11,702 | ) | ||||
Other liabilities | ||||||||
Beginning balance | $ | ) | $ (131 | ) | ||||
Net realized gains/(losses) | 8 | 7 | ||||||
Net unrealized gains/(losses) | (176 | ) | (1 | ) | ||||
Issuances | (8 | ) | (7 | ) | ||||
Ending balance | $ | ) | $ (132 | ) |
Level 3 Rollforward Commentary
Three Months Ended March 2020.
and
$64 million reported in other principal transactions in the consolidated statements of earnings, and
$974 million reported in debt valuation adjustment in the consolidated statements of comprehensive income.The unrealized gains on level 3 other financial liabilities for the three months ended March 2020 primarily reflected gains on certain hybrid financial instruments included in unsecured long- and short-term borrowings, principally due to a decrease in global equity prices.
Transfers into level 3 other financial liabilities during the three months ended March 2020 primarily reflected transfers of certain other secured financings and hybrid financial instruments included in unsecured short- and long-term borrowings from level 2, principally due to reduced price transparency of certain volatility and correlation inputs used to value these instruments.
Transfers out of level 3 other financial liabilities during the three months ended March 2020 primarily reflected transfers of certain hybrid financial instruments included in unsecured short- and long-term borrowings to level 2, principally due to increased price transparency of certain volatility and correlation inputs used to value these instruments.
Three Months Ended March 2019.
The net unrealized losses on level 3 other financial liabilities for the three months ended March 2019 primarily reflected losses on certain hybrid financial instruments included in unsecured long-term and short-term borrowings, principally due to an increase in global equity prices.
Transfers into level 3 other financial liabilities during the three months ended March 2019 primarily reflected transfers of certain hybrid financial instruments included in unsecured short-term and long-term borrowings from level 2, principally due to reduced transparency of certain volatility and correlation inputs used to value these instruments.
45 | Goldman Sachs March 2020 Form 10-Q |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
Transfers out of level 3 other financial liabilities during the three months ended March 2019 primarily reflected transfers of certain hybrid financial instruments included in unsecured long-term and short-term borrowings to level 2, principally due to increased transparency of certain volatility and correlation inputs used to value these instruments.
Gains and Losses on Other Financial Assets and Liabilities Accounted for at Fair Value Under the Fair Value Option
The table below presents the gains and losses recognized in earnings as a result of the election to apply the fair value option to certain financial assets and liabilities.
Three Months Ended March | ||||||||
$ in millions | 2020 | 2019 | ||||||
Unsecured short-term borrowings | $4,481 | $(1,616 | ) | |||||
Unsecured long-term borrowings | 992 | (2,229 | ) | |||||
Other | 398 | (476 | ) | |||||
Total | $5,871 | $(4,321 | ) |
In the table above:
• | Gains/(losses) were substantially all included in market making. |
• | Gains/(losses) exclude contractual interest, which is included in interest income and interest expense, for all instruments other than hybrid financial instruments. See Note 23 for further information about interest income and interest expense. |
• | Gains/(losses) included in unsecured short- and long-term borrowings were substantially all related to the embedded derivative component of hybrid financial instruments for both the three months ended March 2020 and March 2019. These gains and losses would have been recognized under other U.S. GAAP even if the firm had not elected to account for the entire hybrid financial instrument at fair value. |
• | Other primarily consists of gains/(losses) on customer and other receivables, deposits, other secured financings and other liabilities. |
• | Other financial assets and liabilities at fair value are frequently economically hedged with trading assets and liabilities. Accordingly, gains or losses on such other financial assets and liabilities can be partially offset by gains or losses on trading assets and liabilities. As a result, gains or losses on other financial assets and liabilities do not necessarily represent the overall impact on the firm’s results of operations, liquidity or capital resources. |
See Note 8 for information about gains/(losses) on equity securities and Note 9 for information about gains/(losses) on loans which are accounted for at fair value under the fair value option. Gains/(losses) on trading assets and liabilities accounted for at fair value under the fair value option are included in market making. See Note 5 for further information about gains/(losses) from market making.
Long-Term Debt Instruments
The aggregate contractual principal amount of long-term other secured financings for which the fair value option was elected exceeded the related fair value by $546 million as of March 2020. The difference between the aggregate contractual principal amount and the related fair value of long-term other secured financings for which the fair value option was elected was not material as of December 2019.
The aggregate contractual principal amount of unsecured long-term borrowings for which the fair value option was elected exceeded the related fair value by $823 million as of March 2020, and the fair value exceeded the aggregate contractual principal amount by $199 million as of December 2019. The amounts above include both principal-protected and
non-principal-protected
long-term borrowings.Debt Valuation Adjustment
The firm calculates the fair value of financial liabilities for which the fair value option is elected by discounting future cash flows at a rate which incorporates the firm’s credit spreads.
The table below presents information about the net debt valuation adjustment (DVA) gains/(losses) on financial liabilities for which the fair value option was elected.
Three Months Ended March | ||||||||
$ in millions | 2020 | 2019 | ||||||
DVA (pre-tax) | $3,871 | $(1,889 | ) | |||||
DVA (net of tax) | $2,914 | $(1,417 | ) |
In the table above:
• | DVA (net of tax) is included in debt valuation adjustment in the consolidated statements of comprehensive income. |
• | The gains/(losses) reclassified to earnings from accumulated other comprehensive income/(loss) upon extinguishment of such financial liabilities were not material for both the three months ended March 2020 and March 2019. |
Goldman Sachs March 2020 Form 10-Q | 46 |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
Loans and Lending Commitments
The table below presents the difference between the aggregate fair value and the aggregate contractual principal amount for loans (included in trading assets and loans on the consolidated balance sheets) for which the fair value option was elected.
As of | ||||||||
$ in millions | March 2020 | December 2019 | ||||||
Performing loans | ||||||||
Aggregate contractual principal in excess of fair value | $ | $ 809 | ||||||
Loans on nonaccrual status and/or more than 90 days past due | ||||||||
Aggregate contractual principal in excess of fair value | $8,591 | $6,703 | ||||||
Aggregate fair value | $3,472 | $2,776 |
In the table above, the aggregate contractual principal amount of loans on nonaccrual status and/or more than 90 days past due (which excludes loans carried at zero fair value and considered uncollectible) exceeds the related fair value primarily because the firm regularly purchases loans, such as distressed loans, at values significantly below the contractual principal amounts.
The fair value of unfunded lending commitments for which the fair value option was elected was a liability of $6 million as of March 2020 and $24 million as of December 2019, and the related total contractual amount of these lending commitments was $2.33 billion as of March 2020 and $1.55 billion as of December 2019. See Note 18 for further information about lending commitments.
Impact of Credit Spreads on Loans and Lending Commitments
The estimated net gain/(loss) attributable to changes in instrument-specific credit spreads on loans and lending commitments for which the fair value option was elected was $(194) million for the three months ended March 2020 and $77 million for the three months ended March 2019. The firm generally calculates the fair value of loans and lending commitments for which the fair value option is elected by discounting future cash flows at a rate which incorporates the instrument-specific credit spreads. For floating-rate loans and lending commitments, substantially all changes in fair value are attributable to changes in instrument-specific credit spreads, whereas for fixed-rate loans and lending commitments, changes in fair value are also attributable to changes in interest rates.
Note 11.
Collateralized Agreements and Financings
Collateralized agreements are resale agreements and securities borrowed. Collateralized financings are repurchase agreements, securities loaned and other secured financings. The firm enters into these transactions in order to, among other things, facilitate client activities, invest excess cash, acquire securities to cover short positions and finance certain firm activities.
Collateralized agreements and financings are presented on a
net-by-counterparty
basis when a legal right of setoff exists. Interest on collateralized agreements, which is included in interest income, and collateralized financings, which is included in interest expense, is recognized over the life of the transaction. See Note 23 for further information about interest income and interest expense.The table below presents the carrying value of resale and repurchase agreements and securities borrowed and loaned transactions.
As of | ||||||||
$ in millions | March 2020 | December 2019 | ||||||
Resale agreements | $132,333 | $ 85,691 | ||||||
Securities borrowed | $121,670 | $136,071 | ||||||
Repurchase agreements | $ 95,864 | $117,756 | ||||||
Securities loaned | $ 13,869 | $ 14,985 |
In the table above:
• | Substantially all resale agreements and all repurchase agreements are carried at fair value under the fair value option. See Note 4 for further information about the valuation techniques and significant inputs used to determine fair value. |
• | Securities borrowed of $29.77 billion as of March 2020 and $26.28 billion as of December 2019, and securities loaned of $1.15 billion as of March 2020 and $714 million as of December 2019 were at fair value. |
Resale and Repurchase Agreements
A resale agreement is a transaction in which the firm purchases financial instruments from a seller, typically in exchange for cash, and simultaneously enters into an agreement to resell the same or substantially the same financial instruments to the seller at a stated price plus accrued interest at a future date.
47 | Goldman Sachs March 2020 Form 10-Q |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
A repurchase agreement is a transaction in which the firm sells financial instruments to a buyer, typically in exchange for cash, and simultaneously enters into an agreement to repurchase the same or substantially the same financial instruments from the buyer at a stated price plus accrued interest at a future date.
Even though repurchase and resale agreements (including “repos- and
reverses-to-maturity”)
involve the legal transfer of ownership of financial instruments, they are accounted for as financing arrangements because they require the financial instruments to be repurchased or resold before or at the maturity of the agreement. The financial instruments purchased or sold in resale and repurchase agreements typically include U.S. government and agency, and investment-grade sovereign obligations.The firm receives financial instruments purchased under resale agreements and makes delivery of financial instruments sold under repurchase agreements. To mitigate credit exposure, the firm monitors the market value of these financial instruments on a daily basis, and delivers or obtains additional collateral due to changes in the market value of the financial instruments, as appropriate. For resale agreements, the firm typically requires collateral with a fair value approximately equal to the carrying value of the relevant assets in the consolidated balance sheets.
Securities Borrowed and Loaned Transactions
In a securities borrowed transaction, the firm borrows securities from a counterparty in exchange for cash or securities. When the firm returns the securities, the counterparty returns the cash or securities. Interest is generally paid periodically over the life of the transaction.
In a securities loaned transaction, the firm lends securities to a counterparty in exchange for cash or securities. 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 and makes delivery of securities loaned. To mitigate credit exposure, the firm 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 FICC financing are recorded at fair value under the fair value option. See Note 10 for further information about securities borrowed and loaned accounted for at fair value.
Securities borrowed and loaned within Equities financing are recorded based on the amount of cash collateral advanced or received plus accrued interest. As these agreements generally can be terminated on demand, they exhibit little, if any, sensitivity to changes in interest rates. Therefore, the carrying value of such agreements approximates fair value. As these agreements are not accounted for at fair value, they are not included in the firm’s fair value hierarchy in Notes 4 through 10. Had these agreements been included in the firm’s fair value hierarchy, they would have been classified in level 2 as of both March 2020 and December 2019.
Offsetting Arrangements
The table below presents resale and repurchase agreements and securities borrowed and loaned transactions included in the consolidated balance sheets, as well as the amounts not offset in the consolidated balance sheets.
Assets | Liabilities | |||||||||||||||||
$ in millions | Resale agreements | Securities borrowed | Repurchase agreements | Securities loaned | ||||||||||||||
As of March 2020 | ||||||||||||||||||
Included in the consolidated balance sheets | ||||||||||||||||||
Gross carrying value | $ 199,157 | $ 125,340 | $ | $ | ||||||||||||||
Counterparty netting | (66,824 | ) | (3,670 | ) | (66,824 | ) | (3,670 | ) | ||||||||||
Total | 132,333 | 121,670 | 95,864 | 13,869 | ||||||||||||||
Amounts not offset | ||||||||||||||||||
Counterparty netting | (7,393 | ) | (4,043 | ) | (7,393 | ) | (4,043 | ) | ||||||||||
Collateral | (121,885 | ) | (110,661 | ) | (87,681 | ) | (9,826 | ) | ||||||||||
Total | $ 3,055 | $ 6,966 | $ | $ | ||||||||||||||
As of December 2019 | ||||||||||||||||||
Included in the consolidated balance sheets | ||||||||||||||||||
Gross carrying value | $ | $ | $ 185,047 | $ 19,591 | ||||||||||||||
Counterparty netting | (67,291 | ) | (4,606 | ) | (67,291 | ) | (4,606 | ) | ||||||||||
Total | 85,691 | 136,071 | 117,756 | 14,985 | ||||||||||||||
Amounts not offset | ||||||||||||||||||
Counterparty netting | (3,058 | ) | (2,211 | ) | (3,058 | ) | (2,211 | ) | ||||||||||
Collateral | (78,528 | ) | (127,901 | ) | (114,065 | ) | (12,614 | ) | ||||||||||
Total | $ | $ | $ 633 | $ 160 |
In the table above:
• | Substantially all of the gross carrying values of these arrangements are subject to enforceable netting 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. |
• | Amounts not offset includes counterparty netting that does not meet the criteria for netting under U.S. GAAP and the fair value of collateral received or posted subject to enforceable credit support agreements. |
Goldman Sachs March 2020 Form 10-Q | 48 |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
Gross Carrying Value of Repurchase Agreements and Securities Loaned
The table below presents the gross carrying value of repurchase agreements and securities loaned by class of collateral pledged.
$ in millions | Repurchase agreements | Securities loaned | ||||||
As of March 2020 | ||||||||
Money market instruments | $ | $ | ||||||
U.S. government and agency obligations | 81,270 | – | ||||||
Non-U.S. government and agency obligations | 61,443 | 1,032 | ||||||
Securities backed by commercial real estate | 60 | – | ||||||
Securities backed by residential real estate | 450 | – | ||||||
Corporate debt securities | 6,875 | 74 | ||||||
State and municipal obligations | 222 | – | ||||||
Other debt obligations | 1,061 | – | ||||||
Equity securities | 10,588 | 16,433 | ||||||
Total | $162,688 | $17,539 | ||||||
As of December 2019 | ||||||||
Money market instruments | $ 158 | $ | ||||||
U.S. government and agency obligations | 112,903 | – | ||||||
Non-U.S. government and agency obligations | 55,575 | 1,051 | ||||||
Securities backed by commercial real estate | 210 | – | ||||||
Securities backed by residential real estate | 1,079 | – | ||||||
Corporate debt securities | 6,857 | 122 | ||||||
State and municipal obligations | 242 | – | ||||||
Other debt obligations | 196 | – | ||||||
Equity securities | 7,827 | 18,418 | ||||||
Total | $185,047 | $19,591 |
The table below presents the gross carrying value of repurchase agreements and securities loaned by maturity.
As of March 2020 | ||||||||
$ in millions | Repurchase agreements | Securities loaned | ||||||
No stated maturity and overnight | $ 42,764 | $13,522 | ||||||
2 - 30 days | 68,223 | – | ||||||
31 - 90 days | 29,421 | 972 | ||||||
91 days - 1 year | 20,504 | 3,045 | ||||||
Greater than 1 year | 1,776 | – | ||||||
Total | $162,688 | $17,539 |
In the table above:
• | Repurchase agreements and securities loaned that are repayable prior to maturity at the option of the firm are reflected at their contractual maturity dates. |
• | Repurchase agreements and securities loaned that are redeemable prior to maturity at the option of the holder are reflected at the earliest dates such options become exercisable. |
Other Secured Financings
In addition to repurchase agreements and securities loaned 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 (e.g., pledged commodities, bank loans and mortgage whole loans); |
• | Other structured financing arrangements; and |
• | Collateralized central bank financings. |
Other secured financings included nonrecourse arrangements. Nonrecourse other secured financings were $18.02 billion as of March 2020 and $10.91 billion as of December 2019.
The firm has elected to apply the fair value option to 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. See Note 10 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 recorded based on the amount of cash received plus accrued interest, which generally approximates fair value. As these financings are not accounted for at fair value, they are not included in the firm’s fair value hierarchy in Notes 4 through 10. Had these financings been included in the firm’s fair value hierarchy, they would have been primarily classified in level 2 as of both March 2020 and December 2019.
49 | Goldman Sachs March 2020 Form 10-Q |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
The table below presents information about other secured financings.
$ in millions | U.S. Dollar | Non-U.S. Dollar | Total | |||||||||
As of March 2020 | ||||||||||||
Other secured financings (short-term): | ||||||||||||
At fair value | $13,248 | $ 4,725 | $17,973 | |||||||||
At amortized cost | 6,123 | – | 6,123 | |||||||||
Other secured financings (long-term): | ||||||||||||
At fair value | 6,665 | 5,353 | 12,018 | |||||||||
At amortized cost | 396 | 686 | 1,082 | |||||||||
Total other secured financings | $26,432 | $10,764 | $37,196 | |||||||||
Other secured financings collateralized by: | ||||||||||||
Financial instruments | $19,694 | $ 8,629 | $28,323 | |||||||||
Other assets | $ 6,738 | $ 2,135 | $ 8,873 | |||||||||
As of December 2019 | ||||||||||||
Other secured financings (short-term): | ||||||||||||
At fair value | $ 2,754 | $ 4,441 | $ 7,195 | |||||||||
At amortized cost | 129 | – | 129 | |||||||||
Other secured financings (long-term): | ||||||||||||
At fair value | 7,402 | 3,474 | 10,876 | |||||||||
At amortized cost | 397 | 680 | 1,077 | |||||||||
Total other secured financings | $10,682 | $ 8,595 | $19,277 | |||||||||
Other secured financings collateralized by: | ||||||||||||
Financial instruments | $ 4,826 | $ 7,189 | $12,015 | |||||||||
Other assets | $ 5,856 | $ 1,406 | $ 7,262 |
In the table above:
• | Short-term other secured financings includes 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. |
• | U.S. dollar-denominated short-term other secured financings at amortized cost had a weighted average interest rate of 0.32% as of March 2020 and 4.32% as of December 2019. These rates include the effect of hedging activities. |
• | U.S. dollar-denominated long-term other secured financings at amortized cost had a weighted average interest rate of 2.79% as of both March 2020 and December 2019. These rates include the effect of hedging activities. |
• | Total other secured financings included $1.48 billion as of March 2020 and $2.16 billion as of December 2019 related to transfers of financial assets accounted for as financings rather than sales. Such financings were collateralized by financial assets of $1.38 billion as of March 2020 and $2.21 billion as of December 2019, both primarily included in trading assets. |
• | Other secured financings collateralized by financial instruments included $24.62 billion as of March 2020 and $9.09 billion as of December 2019 of other secured financings collateralized by trading assets and loans, and included $3.70 billion as of March 2020 and $2.93 billion as of December 2019 of other secured financings collateralized by financial instruments received as collateral and repledged. |
The table below presents other secured financings by maturity.
$ in millions | As of March 2020 | |||
Other secured financings (short-term) | $24,096 | |||
Other secured financings (long-term): | ||||
2021 | 3,460 | |||
2022 | 2,589 | |||
2023 | 1,606 | |||
2024 | 1,490 | |||
2025 | 492 | |||
2026 - thereafter | 3,463 | |||
Total other secured financings (long-term) | 13,100 | |||
Total other secured financings | $37,196 |
In the table above:
• | Long-term other secured financings that are repayable prior to maturity at the option of the firm are reflected at their contractual maturity dates. |
• | Long-term other secured financings that are redeemable prior to maturity at the option of the holder are reflected at the earliest dates such options become exercisable. |
Collateral Received and Pledged
The firm receives cash and securities (e.g., U.S. government and agency obligations, other sovereign and corporate obligations, as well as equity securities) 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 financial instruments received as collateral when entering into repurchase agreements and securities loaned transactions, 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, collateralized derivative transactions and firm or customer settlement requirements.
Goldman Sachs March 2020 Form 10-Q | 50 |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
The firm also pledges certain trading assets in connection with repurchase agreements, securities loaned transactions and other secured financings, and other assets (substantially all 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.
As of | ||||||||
$ in millions | March 2020 | December 2019 | ||||||
Collateral available to be delivered or repledged | $689,662 | $661,490 | ||||||
Collateral that was delivered or repledged | $557,726 | $558,634 |
In the table above, collateral available to be delivered or repledged excluded $14.65 billion as of March 2020 and $6.15 billion as of December 2019 of securities received under resale agreements and securities borrowed transactions that contractually had the right to be delivered or repledged, but were segregated for regulatory and other purposes.
The table below presents information about assets pledged.
As of | ||||||||
$ in millions | March 2020 | December 2019 | ||||||
Pledged to counterparties that had the right to deliver or repledge | ||||||||
Trading assets | $59,128 | $ 66,605 | ||||||
Investments | $10,765 | $ 10,968 | ||||||
Pledged to counterparties that did not have the right to deliver or repledge | ||||||||
Trading assets | $92,201 | $101,578 | ||||||
Investments | $ 8,098 | $ 849 | ||||||
Loans | $34,933 | $ 6,628 | ||||||
Other assets | $14,573 | $ 12,337 |
The firm also segregated securities included in trading
assets
and
investments
of $39.32 billion as of March 2020 and $20.61 billion as of December 2019 for regulatory and other purposes. See Note 3 for information about segregated cash.
Note 12.
Other Assets
The table below presents other assets by type.
As of | ||||||||
$ in millions | March 2020 | December 2019 | ||||||
Property, leasehold improvements and equipment | $23,620 | $21,886 | ||||||
Goodwill and identifiable intangible assets | 4,810 | 4,837 | ||||||
Operating lease right-of-use assets | 2,284 | 2,360 | ||||||
Income tax-related assets | 1,804 | 2,068 | ||||||
Miscellaneous receivables and other | 4,201 | 3,731 | ||||||
Total | $36,719 | $34,882 |
Property, Leasehold Improvements and Equipment
Property, leasehold improvements and equipment is net of accumulated depreciation and amortization of $9.23 billion as of March 2020 and $9.95 billion as of December 2019. Property, leasehold improvements and equipment included $6.23 billion as of March 2020 and $6.16 billion as of December 2019 that the firm uses in connection with its operations, and $484 million as of March 2020 and $521 million as of December 2019 of foreclosed real estate primarily related to distressed loans that were purchased by the firm. The remainder is held by investment entities, including VIEs, consolidated by the firm. Substantially all property and equipment is depreciated on a straight-line basis over the useful life of the asset. Leasehold improvements are amortized on a straight-line basis over the shorter of the useful life of the improvement or the term of the lease. Capitalized costs of software developed or obtained for internal use are amortized on a straight-line basis over three years.
The firm tests property, leasehold improvements and equipment for impairment whenever events or changes in circumstances suggest that an asset’s or asset group’s carrying value may not be fully recoverable. To the extent the carrying value of an asset or asset group exceeds the projected undiscounted cash flows expected to result from the use and eventual disposal of the asset or asset group, the firm determines the asset or asset group is impaired and records an impairment equal to the difference between the estimated fair value and the carrying value of the asset or asset group. In addition, the firm will recognize an impairment prior to the sale of an asset or asset group if the carrying value of the asset or asset group exceeds its estimated fair value.
There were no material impairments during both the three months ended March 2020 and March 2019.
51 | Goldman Sachs March 2020 Form 10-Q |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
Goodwill and Identifiable Intangible Assets
Goodwill.
The table below presents the carrying value of goodwill by reporting unit.
As of | ||||||||
$ in millions | March 2020 | December 2019 | ||||||
Investment Banking | $ | $ 281 | ||||||
Global Markets: | ||||||||
FICC | 269 | 269 | ||||||
Equities | 2,508 | 2,508 | ||||||
Asset Management | 390 | 390 | ||||||
Consumer & Wealth Management: | ||||||||
Consumer banking | 48 | 48 | ||||||
Wealth management | 700 | 700 | ||||||
Total | $4,196 | $4,196 |
Goodwill is assessed for impairment annually in the fourth quarter or more frequently if events occur or circumstances change that indicate an impairment may exist. When assessing goodwill for impairment, first, a qualitative assessment can be made to determine whether it is more likely than not that the estimated fair value of a reporting unit is less than its estimated carrying value. If the results of the qualitative assessment are not conclusive, a quantitative goodwill test is performed. Alternatively, a quantitative goodwill test can be performed without performing a qualitative assessment.
The quantitative goodwill test compares the estimated fair value of each reporting unit with its estimated net book value (including goodwill and identifiable intangible assets). If the reporting unit’s estimated fair value exceeds its estimated net book value, goodwill is not impaired. An impairment is recognized if the estimated fair value of a reporting unit is less than its estimated net book value.
To estimate the fair value of each reporting unit, other than Consumer banking, a relative value technique is used because the firm believes market participants would use this technique to value these reporting units. The relative value technique applies observable price-to-earnings multiples or price-to-book multiples of comparable competitors to reporting units’ net earnings or net book value. To estimate the fair value of Consumer banking, a discounted cash flow valuation approach is used because the firm believes market participants would use this technique to value that reporting unit given its early stage of development. The estimated net carrying value of each reporting unit reflects an allocation of total shareholders’ equity and represents the estimated amount of total shareholders’ equity required to support the activities of the reporting unit under currently applicable regulatory capital requirements.
In the fourth quarter of 2019, goodwill was tested for impairment using a quantitative test. The estimated fair value of each of the reporting units exceeded its respective net carrying value, and therefore goodwill was not impaired.
During the first quarter of 2020, the outbreak of the COVID-19 pandemic broadly impacted the operating environment, notably in March, causing a sharp contraction in global economic activity and increased market volatility, affecting both equity and credit markets. Due to the significance of this event in relation to the firm’s businesses, the firm performed a qualitative assessment of the goodwill in each of its reporting units for impairment. Multiple factors, including performance indicators, firm and industry events, macroeconomic indicators and fair value indicators, were assessed with respect to each of the firm’s reporting units to determine whether it was more likely than not that the estimated fair value of any of these reporting units was less than its estimated carrying value. The qualitative assessment also considered changes since the quantitative test performed in the fourth quarter of 2019.
Despite challenges to the firm’s operating environment, net revenues for the first quarter of 2020 were strong across three of the firm’s four business segments and their respective reporting units. Asset Management recorded a net loss for the quarter, due to the impact of market declines on the firm’s investments, which was a reflection of the broader market and not due to a firm-specific issue,
which
more than offset fee revenue generated from increased assets under supervision.As a result of investor uncertainty and the economic outlook, fair value indicators in the market were negatively impacted, as global equity prices significantly declined and credit spreads widened. This similarly affected fair value indicators for the firm and publicly traded participants in its industry. In response to the macroeconomic concerns, central banks and governments intervened with monetary and fiscal measures aimed at mitigating the extent of the contraction in economic activity, as well as market concerns, and providing liquidity to the financial markets. There were no other events, entity-specific or otherwise, that would have had a significant negative impact on the valuation of the firm’s reporting units.
Based on the qualitative assessment, the firm determined that it was more likely than not that the estimated fair value of each of the reporting units exceeded its respective estimated carrying value, and that the impact of the COVID-19 pandemic through the end of the first quarter of 2020 was not a triggering event to perform a quantitative test.
Goldman Sachs March 2020 Form 10-Q | 52 |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
Identifiable Intangible Assets.
As of | ||||||||
$ in millions | March 2020 | December 2019 | ||||||
By Reporting Unit | ||||||||
Global Markets: | ||||||||
FICC | $ | $ 3 | ||||||
Asset Management | 257 | 265 | ||||||
Consumer & Wealth Management: | ||||||||
Consumer banking | 6 | 7 | ||||||
Wealth management | 349 | 366 | ||||||
Total | $ | $ 641 | ||||||
By Type | ||||||||
Customer lists | ||||||||
Gross carrying value | $ 1,427 | $ 1,427 | ||||||
Accumulated amortization | (1,055 | ) | (1,044 | ) | ||||
Net carrying value | 372 | 383 | ||||||
Acquired leases and other | ||||||||
Gross carrying value | 792 | 790 | ||||||
Accumulated amortization | (550 | ) | (532 | ) | ||||
Net carrying value | 242 | 258 | ||||||
Total gross carrying value | 2,219 | 2,217 | ||||||
Total accumulated amortization | (1,605 | ) | (1,576 | ) | ||||
Total net carrying value | $ | $ 641 |
The firm acquired $34 million of intangible assets during the three months ended March 2020, primarily related to acquired leases, with a weighted average amortization period of 8 years. The firm acquired $515 million of intangible assets during 2019, primarily related to customer lists, with a weighted average amortization period of 10 years.
Substantially all of the firm’s identifiable intangible assets have finite useful lives and are amortized over their estimated useful lives generally using the straight-line method.
The tables below present information about the amortization of identifiable intangible assets.
Three Months Ended March | ||||||||
$ in millions | 2020 | 2019 | ||||||
Amortization | $41 | $43 |
$ in millions | As of March 2020 | |||
Estimated future amortization | ||||
Remainder of 2020 | $84 | |||
2021 | $89 | |||
2022 | $78 | |||
2023 | $72 | |||
2024 | $61 | |||
2025 | $42 |
The firm tests intangible assets for impairment whenever events or changes in circumstances suggest that an asset’s or asset group’s carrying value may not be fully recoverable. To the extent the carrying value of an asset or asset group exceeds the projected undiscounted cash flows expected to result from the use and eventual disposal of the asset or asset group, the firm determines the asset or asset group is impaired and records an impairment equal to the difference between the estimated fair value and the carrying value of the asset or asset group. In addition, the firm will recognize an impairment prior to the sale of an asset or asset group if the carrying value of the asset or asset group exceeds its estimated fair value. There were no material impairments during each of the three months ended March 2020 and March 2019.
Operating Lease
Right-of-Use
AssetsThe firm enters into operating leases for real estate, office equipment and other assets, substantially all of which are used in connection with its operations. For leases longer than one year, the firm recognizes a
right-of-use
asset representing the right to use the underlying asset for the lease term, and a lease liability representing the liability to make payments. The lease term is generally determined based on the contractual maturity of the lease. For leases where the firm has the option to terminate or extend the lease, an assessment of the likelihood of exercising the option is incorporated into the determination of the lease term. Such assessment is initially performed at the inception of the lease and is updated if events occur that impact the original assessment.An operating lease
right-of-use
asset is initially determined based on the operating lease liability, adjusted for initial direct costs, lease incentives and amounts paid at or prior to lease commencement. This amount is then amortized over the lease term. The firm recognized $51 million for the three months ended March 2020and $
712 million (primarily related to the firm’s new European headquarters in London) for the three months ended March 2019 of
right-of-use
assets and operating lease liabilities in
non-cash
transactions for leases entered into or assumed. See Note 15 for information about operating lease liabilities.
For leases where the firm will derive no economic benefit from leased space that it has vacated or where the firm has shortened the term of a lease when space is no longer needed, the firm will record an impairment or accelerated amortization of
right-of-use
assets. There were no material impairments or accelerated amortizations during each of the three months ended March 2020 and March 2019.53 | Goldman Sachs March 2020 Form 10-Q |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
Miscellaneous Receivables and Other
Miscellaneous receivables and other included:
• | Investments in qualified affordable housing projects of $671 million as of March 2020 and $606 million as of December 2019. |
• | Assets classified as held for sale of $632 million as of March 2020 and $470 million as of December 2019 related to the firm’s consolidated investments within the Asset Management segment, substantially all of which consisted of property and equipment. |
Note 13.
Deposits
The table below presents the types and sources of deposits.
$ in millions | Savings and Demand | Time | Total | |||||||||
As of March 2020 | ||||||||||||
Private bank deposits | $ 56,437 | $ 2,292 | $ 58,729 | |||||||||
Consumer deposits | 49,843 | 21,784 | 71,627 | |||||||||
Brokered certificates of deposit | – | 38,905 | 38,905 | |||||||||
Deposit sweep programs | 19,082 | – | 19,082 | |||||||||
Transaction banking | 6,920 | 2,260 | 9,180 | |||||||||
Other deposits | – | 22,471 | 22,471 | |||||||||
Total | $132,282 | $87,712 | $219,994 | |||||||||
As of December 2019 | ||||||||||||
Private bank deposits | $ 53,726 | $ 2,087 | $ 55,813 | |||||||||
Consumer deposits | 44,973 | 15,023 | 59,996 | |||||||||
Brokered certificates of deposit | – | 39,449 | 39,449 | |||||||||
Deposit sweep programs | 17,760 | – | 17,760 | |||||||||
Transaction banking | 2,291 | 235 | 2,526 | |||||||||
Other deposits | – | 14,475 | 14,475 | |||||||||
Total | $118,750 | $71,269 | $190,019 |
In the table above:
• | Substantially all deposits are interest-bearing. |
• | Savings and demand accounts consist of money market deposit accounts, negotiable order of withdrawal accounts and demand deposit accounts that have no stated maturity or expiration date. |
• | Time deposits included $24.72 billion as of March 2020 and $17.77 billion as of December 2019 of deposits accounted for at fair value under the fair value option. See Note 10 for further information about deposits accounted for at fair value. |
• | Time deposits had a weighted average maturity of approximately 1.5 years as of March 2020 and 1.7 years as of December 2019. |
• | Deposit sweep programs represent long-term contractual agreements with U.S. broker-dealers who sweep client cash to FDIC-insured deposits. As of March 2020, the firm had 12 such deposit sweep program agreements. |
• | Other deposits represent deposits from institutional clients. |
• | Deposits insured by the FDIC were $111.92 billion as of March 2020 and $103.98 billion as of December 2019. |
• | Deposits insured by the U.K.’s Financial Services Compensation Scheme were $18.99 billion as of March 2020 and $15.86 billion as of December 2019. |
The table below presents the location of deposits.
As of | ||||||||
$ in millions | March 2020 | December 2019 | ||||||
U.S. offices | $168,992 | $150,759 | ||||||
Non-U.S. offices | 51,002 | 39,260 | ||||||
Total | $219,994 | $190,019 |
In the table above, U.S. deposits were held at GS Bank USA and substantially all
non-U.S.
deposits were held at Goldman Sachs International Bank (GSIB).The table below presents maturities of time deposits held in U.S. and
non-U.S.
offices.As of March 2020 | ||||||||||||
$ in millions | U.S. | Non-U.S. | Total | |||||||||
Remainder of 2020 | $25,358 | $17,200 | $ | |||||||||
2021 | 18,487 | 1,356 | 19,843 | |||||||||
2022 | 8,857 | 80 | 8,937 | |||||||||
2023 | 6,498 | 112 | 6,610 | |||||||||
2024 | 4,393 | 115 | 4,508 | |||||||||
2025 | 2,155 | 226 | 2,381 | |||||||||
2026 - thereafter | 2,072 | 803 | 2,875 | |||||||||
Total | $67,820 | $19,892 | $87,712 |
As of March 2020, deposits in U.S. offices included
$14.35 billion and deposits innon-U.S.
offices included $19.52 billion of time deposits in denominations that met or exceeded the applicable insurance limits, or were otherwise not covered by insurance.
The firm’s savings and demand deposits are 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 to convert a portion of its time deposits not accounted for at fair value from fixed-rate obligations into floating-rate obligations. The carrying value of time deposits not accounted for at fair value approximated fair value as of both March 2020 and December 2019. As these savings and demand deposits and time deposits are not accounted for at fair value, they are not included in the firm’s fair value hierarchy in Notes 4 through 10. Had these deposits been included in the firm’s fair value hierarchy, they would have been classified in level 2 as of both March 2020 and December 2019.
Goldman Sachs March 2020 Form 10-Q | 54 |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
Note 14.
Unsecured Borrowings
The table below presents information about unsecured borrowings.
As of | ||||||||
$ in millions | March 2020 | December 2019 | ||||||
Unsecured short-term borrowings | $ 37,148 | $ 48,287 | ||||||
Unsecured long-term borrowings | 225,476 | 207,076 | ||||||
Total | $262,624 | $255,363 |
Unsecured Short-Term Borrowings
Unsecured short-term borrowings includes 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 certain hybrid financial instruments at fair value under the fair value option. See Note 10 for further information about unsecured short-term borrowings that are accounted for at fair value. In addition, the firm designates certain derivatives as fair value hedges to convert a portion of its unsecured short-term borrowings not accounted for at fair value from fixed-rate obligations into floating-rate obligations. The carrying value of unsecured short-term borrowings that are not recorded at fair value generally approximates fair value due to the short-term nature of the obligations. As these unsecured short-term borrowings are not accounted for at fair value, they are not included in the firm’s fair value hierarchy in Notes 4 through 10. Had these borrowings been included in the firm’s fair value hierarchy, substantially all would have been classified in level 2 as of both March 2020 and December 2019.
The table below presents information about unsecured short-term borrowings.
As of | ||||||||
$ in millions | March 2020 | December 2019 | ||||||
Current portion of unsecured long-term borrowings | $22,532 | $ 30,636 | ||||||
Hybrid financial instruments | 12,635 | 15,814 | ||||||
Other unsecured short-term borrowings | 1,981 | 1,837 | ||||||
Total unsecured short-term borrowings | $37,148 | $ 48,287 | ||||||
Weighted average interest rate | 2.22% | 2.71% |
In the table above, the weighted average interest rates for these borrowings include the effect of hedging activities and exclude unsecured short-term borrowings accounted for at fair value under the fair value option. See Note 7 for further information about hedging activities.
Unsecured Long-Term Borrowings
The table below presents information about unsecured long-term borrowings.
$ in millions | U.S. Dollar | Non-U.S. Dollar | Total | |||||||||
As of March 2020 | ||||||||||||
Fixed-rate obligations | $107,774 | $39,008 | $146,782 | |||||||||
Floating-rate obligations | 47,041 | 31,653 | 78,694 | |||||||||
Total | $154,815 | $70,661 | $225,476 | |||||||||
As of December 2019 | ||||||||||||
Fixed-rate obligations | $ 92,846 | $36,185 | $129,031 | |||||||||
Floating-rate obligations | 47,850 | 30,195 | 78,045 | |||||||||
Total | $140,696 | $66,380 | $207,076 |
In the table above:
• | Unsecured long-term borrowings consists principally of senior borrowings, which have maturities extending through 2067. |
• | Floating-rate obligations includes equity-linked and indexed instruments. Floating interest rates are generally based on LIBOR or Euro Interbank Offered Rate. |
• | U.S. dollar-denominated debt had interest rates ranging from 2.00% to 10.04% (with a weighted average rate of 4.22%) as of March 2020 and 2.00% to 10.04% (with a weighted average rate of 3.82%) as of December 2019. These rates exclude unsecured long-term borrowings accounted for at fair value under the fair value option. |
• | Non-U.S. dollar-denominated debt had interest rates ranging from 0.13% to 13.00% (with a weighted average rate of 2.30%) as of March 2020 and 0.13% to 13.00% (with a weighted average rate of 2.33%) as of December 2019. These rates exclude unsecured long-term borrowings accounted for at fair value under the fair value option. |
55 | Goldman Sachs March 2020 Form 10-Q |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
The table below presents unsecured long-term borrowings by maturity.
$ in millions | As of March 2020 | |||
2021 | $ 24,653 | |||
2022 | 25,114 | |||
2023 | 28,607 | |||
2024 | 19,162 | |||
2025 | 23,720 | |||
2026 - thereafter | 104,220 | |||
Total | $225,476 |
In the table above:
• | 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 are excluded as they are included in 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. |
• | Unsecured long-term borrowings that are redeemable prior to maturity at the option of the holder are reflected at the earliest dates such options become exercisable. |
• | Unsecured long-term borrowings included $13.76 billion of adjustments to the carrying value of certain unsecured long-term borrowings resulting from the application of hedge accounting by year of maturity as follows: $288 million in 2021, $(26) million in 2022, $273 million in 2023, $762 million in 2024, $915 million in 2025 and $11.55 billion in 2026 and thereafter. |
The firm designates certain derivatives as fair value hedges to convert a portion of fixed-rate unsecured long-term borrowings not accounted for at fair value into floating-rate obligations. See Note 7 for further information about hedging activities.
The table below presents unsecured long-term borrowings, after giving effect to such hedging activities.
As of | ||||||||
$ in millions | March 2020 | December 2019 | ||||||
Fixed-rate obligations: | ||||||||
At fair value | $ 1,385 | $ 725 | ||||||
At amortized cost | 50,062 | 47,577 | ||||||
Floating-rate obligations: | ||||||||
At fair value | 41,928 | 42,936 | ||||||
At amortized cost | 132,101 | 115,838 | ||||||
Total | $225,476 | $207,076 |
In the table above, the aggregate amounts of unsecured long-term borrowings had weighted average interest rates of 2.59% (3.82% related to fixed-rate obligations and 2.08% related to floating-rate obligations) as of March 2020 and 2.87% (3.77% related to fixed-rate obligations and 2.48% related to floating-rate obligations) as of December 2019. These rates exclude unsecured long-term borrowings accounted for at fair value under the fair value option.
As of both March 2020 and December 2019, the carrying value of unsecured long-term borrowings for which the firm did not elect the fair value option approximated fair value. As these borrowings are not accounted for at fair value, they are not included in the firm’s fair value hierarchy in Notes 4 through 10. Had these borrowings been included in the firm’s fair value hierarchy, substantially all would have been classified in level 2 as of both March 2020 and December 2019.
Subordinated Borrowings
Unsecured long-term borrowings includes 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. Subordinated debt had maturities ranging from 2021 to 2045 as of both March 2020 and December 2019. Subordinated debt that matures within one year is included in unsecured short-term borrowings.
Goldman Sachs March 2020 Form 10-Q | 56 |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
The table below presents information about subordinated borrowings.
$ in millions | Par Amount | Carrying Value | Rate | |||||||||
As of March 2020 | ||||||||||||
Subordinated debt | $13,797 | $19,199 | 3.30% | |||||||||
Junior subordinated debt | 968 | 1,499 | 2.71% | |||||||||
Total | $14,765 | $20,698 | 3.26% | |||||||||
As of December 2019 | ||||||||||||
Subordinated debt | $14,041 | $16,980 | 3.46% | |||||||||
Junior subordinated debt | 976 | 1,328 | 2.85% | |||||||||
Total | $15,017 | $18,308 | 3.42% |
In the table above, the rate is the weighted average interest rate for these borrowings (excluding borrowings accounted for at fair value under the fair value option), including the effect of fair value hedges used to convert fixed-rate obligations into floating-rate obligations. See Note 7 for further information about hedging activities.
Junior Subordinated Debt
In 2004, Group Inc. issued $2.84 billion of junior subordinated debt to Goldman Sachs Capital I (Trust), a Delaware statutory trust. The Trust issued $2.75 billion of guaranteed preferred beneficial interests (Trust Preferred securities) to third parties and $85 million of common beneficial interests to Group Inc. As of March 2020, the outstanding par amount of junior subordinated debt held by the Trust was $968 million and the outstanding par amount of Trust Preferred securities and common beneficial interests issued by the Trust was $939 million and $29 million, respectively. As of December 2019, the outstanding par amount of junior subordinated debt held by the Trust was $976 million and the outstanding par amount of Trust Preferred securities and common beneficial interests issued by the Trust was $947 million and $29 million, respectively.
During the three months ended March 2020, the firm purchased Trust Preferred securities with a par amount and a carrying value of $7.9 million and $11.0 million and delivered these securities, along with $0.2 million of common beneficial interests, to the Trust in a
non-cash
exchange for junior subordinated debt with a par amount and carrying value of $8.1 million and $12.5 million, respectively. Following the exchange, these Trust Preferred securities, common beneficial interests and junior subordinated debt were extinguished. 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 junior subordinated debt at an annual rate of 6.345% and the debt matures 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 junior subordinated debt. The firm has the right, from time to time, to defer payment of interest on the junior subordinated debt, 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 deferral 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.
The firm has covenanted in favor of the holders of Group Inc.’s 6.345% junior subordinated debt due February 15, 2034, that, subject to certain exceptions, the firm will not redeem or purchase the capital securities issued by Goldman Sachs Capital II and Goldman Sachs Capital III (APEX Trusts) or shares of Group Inc.’s Perpetual
Non-Cumulative
Preferred Stock, Series E (Series E Preferred Stock), PerpetualNon-Cumulative
Preferred Stock, Series F (Series F Preferred Stock) or PerpetualNon-Cumulative
Preferred Stock, Series O, if the redemption or purchase results in less than $253 million aggregate liquidation preference of that series outstanding, prior to specified dates in 2022 for a price that exceeds a maximum amount determined by reference to the net cash proceeds that the firm has received from the sale of qualifying securities.The APEX Trusts hold Group Inc.’s Series E Preferred Stock and Series F Preferred Stock. These 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.
57 | Goldman Sachs March 2020 Form 10-Q |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
Note 15.
Other Liabilities
The table below presents other liabilities by type.
As of | ||||||||
$ in millions | March 2020 | December 2019 | ||||||
Compensation and benefits | $ 3,281 | $ 6,889 | ||||||
Income tax-related liabilities | 3,172 | 2,947 | ||||||
Operating lease liabilities | 2,289 | 2,385 | ||||||
Noncontrolling interests | 1,122 | 1,713 | ||||||
Employee interests in consolidated funds | 71 | 81 | ||||||
Accrued expenses and other | 8,359 | 7,636 | ||||||
Total | $18,294 | $21,651 |
In the table above, accrued expenses and other includes contract liabilities, which represent consideration received by the firm in connection with its contracts with clients, prior to providing the service. As of both March 2020 and December 2019, the firm’s contract liabilities were not material.
Operating Lease Liabilities
For leases longer than one year, the firm recognizes a
right-of-use
asset representing the right to use the underlying asset for the lease term, and a lease liability representing the liability to make payments. See Note 12 for information about operating leaseright-of-use
assets.The table below presents information about operating lease liabilities.
$ in millions | Operating lease liabilities | |||
As of March 2020 | ||||
Remainder of 2020 | $ | |||
2021 | 307 | |||
2022 | 266 | |||
2023 | 233 | |||
2024 | 218 | |||
2025 | 192 | |||
2026 - thereafter | 2,365 | |||
Total undiscounted lease payments | 3,828 | |||
Imputed interest | (1,539 | ) | ||
Total operating lease liabilities | $ 2,289 | |||
Weighted average remaining lease term | 18 years | |||
Weighted average discount rate | 5.07% | |||
As of December 2019 | ||||
2020 | $ | |||
2021 | 308 | |||
2022 | 268 | |||
2023 | 235 | |||
2024 | 219 | |||
2025 - thereafter | 2,566 | |||
Total undiscounted lease payments | 3,980 | |||
Imputed interest | (1,595 | ) | ||
Total operating lease liabilities | $ | |||
Weighted average remaining lease term | 18 years | |||
Weighted average discount rate | 5.02% |
In the table above, the weighted average discount rate represents the firm’s incremental borrowing rate as of January 2019 for operating leases existing on the date of adoption of ASU No.
2016-02
and at the lease inception date for leases entered into subsequent to the adoption of this ASU.Operating lease costs were $113 million for the three months ended March 2020 and $117 million for the three months ended March 2019. Variable lease costs, which are included in operating lease costs, were not material for both the three months ended March 2020 and March 2019.
Operating lease liabilities include obligations for office space held in excess of current requirements. Operating lease costs relating to space held for growth is included in occupancy expenses. Total occupancy expenses for space held in excess of the firm’s current requirements were not material for both the three months ended March 2020 and March 2019.
Lease payments relating to operating lease arrangements that were signed, but had not yet commenced as of March 2020, were not material.
Goldman Sachs March 2020 Form 10-Q | 58 |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
Note 16.
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) or through a resecuritization. The firm acts as underwriter of the beneficial interests that are sold to investors. The firm’s residential mortgage securitizations are primarily in connection with government agency securitizations.
The firm accounts for a securitization as a sale when it has relinquished control over the transferred financial assets. Prior to securitization, the firm generally 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.
The firm generally receives cash in exchange for the transferred assets but may also have continuing involvement with the transferred financial assets, including ownership of beneficial interests in securitized financial assets, primarily in the form of debt instruments. The firm may also purchase senior or subordinated securities issued by securitization vehicles (which are typically VIEs) in connection with secondary market-making activities.
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. Interests accounted for at fair value are classified in level 2 of the fair value hierarchy. Interests not accounted for at fair value are carried at amounts that approximate fair value. See Notes 4 through 10 for further information about fair value measurements.
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 as of the end of the period.
Three Months Ended March | ||||||||
$ in millions | 2020 | 2019 | ||||||
Residential mortgages | $3,107 | $3,489 | ||||||
Commercial mortgages | 4,996 | 671 | ||||||
Other financial assets | 540 | 172 | ||||||
Total financial assets securitized | $8,643 | $4,332 | ||||||
Retained interests cash flows | $ | $ 93 |
In the table above, financial assets securitized included assets of $174 million during the three months ended March 2020 and $104 million during the three months ended March 2019, which were securitized in a
non-cash
exchange for loans andheld-to-maturity
securities.The table below presents information about nonconsolidated securitization entities to which the firm sold assets and had continuing involvement as of the end of the period.
$ in millions | Outstanding Principal Amount | Retained Interests | Purchased Interests | |||||||||
As of March 2020 | ||||||||||||
U.S. government agency-issued CMOs | $14,309 | $ | $14 | |||||||||
Other residential mortgage-backed | 23,121 | 1,047 | 25 | |||||||||
Other commercial mortgage-backed | 29,350 | 708 | 19 | |||||||||
Corporate debt and other asset-backed | 3,851 | 156 | 4 | |||||||||
Total | $70,631 | $2,846 | $62 | |||||||||
As of December 2019 | ||||||||||||
U.S. government agency-issued CMOs | $14,328 | $1,530 | $ 3 | |||||||||
Other residential mortgage-backed | 24,166 | 1,078 | 24 | |||||||||
Other commercial mortgage-backed | 25,588 | 615 | 6 | |||||||||
Corporate debt and other asset-backed | 3,612 | 149 | – | |||||||||
Total | $67,694 | $3,372 | $33 |
59 | Goldman Sachs March 2020 Form 10-Q |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
In the table above:
• | CMOs represents collateralized mortgage obligations. |
• | The outstanding principal amount is presented for the purpose of providing information about the size of the securitization entities and is not representative of the firm’s risk of loss. |
• | The firm’s risk of loss from retained or purchased interests is limited to the carrying value of these interests. |
• | 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. |
• | Substantially all of the total outstanding principal amount and total retained interests relate to securitizations during 2014 and thereafter. |
• | The fair value of retained interests was $2.84 billion as of March 2020 and $3.35 billion as of December 2019. |
In addition to the interests in the table above, the firm had other continuing involvement in the form of derivative transactions and commitments with certain nonconsolidated VIEs. The carrying value of these derivatives and commitments was a net asset of $94 million as of March 2020 and $57 million as of December 2019, and the notional amount of these derivatives and commitments was $1.44 billion as of March 2020 and $1.20 billion as of December 2019. The notional amounts of these derivatives and commitments are included in maximum exposure to loss in the nonconsolidated VIE table in Note 17.
The table below presents information about the weighted average key economic assumptions used in measuring the fair value of mortgage-backed retained interests.
As of | ||||||||
$ in millions | March 2020 | December 2019 | ||||||
Fair value of retained interests | $ | $ | ||||||
Weighted average life (years) | 5.2 | 6.0 | ||||||
Constant prepayment rate | 14.9% | 12.9% | ||||||
Impact of 10% adverse change | $ | ) | $ | ) | ||||
Impact of 20% adverse change | $ | ) | $ | ) | ||||
Discount rate | 5.8% | 4.7% | ||||||
Impact of 10% adverse change | $ | ) | $ | ) | ||||
Impact of 20% adverse change | $ | ) | $ | ) |
In the table above:
• | Amounts do not reflect the 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. |
• | The impact of a change in a particular assumption is calculated independently of changes in any other assumption. In practice, simultaneous changes in assumptions might magnify or counteract the sensitivities disclosed above. |
• | The constant prepayment rate is included only for positions for which it is a key assumption in the determination of fair value. |
• | The discount rate for retained interests that relate to U.S. government agency-issued CMOs does not include any credit loss. Expected credit loss assumptions are reflected in the discount rate for the remainder of retained interests. |
The firm has other retained interests not reflected in the table above with a fair value of $156 million and a weighted average life of 2.9 years as of March 2020, and a fair value of $149 million and a weighted average life of 3.3 years as of December 2019. Due to the nature and 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 both March 2020 and December 2019. The firm’s maximum exposure to adverse changes in the value of these interests is the carrying value of $156 million as of March 2020 and $149 million as of December 2019.
Goldman Sachs March 2020 Form 10-Q | 60 |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
Note 17.
Variable Interest Entities
A variable interest in a VIE is an investment (e.g., debt or equity) or other interest (e.g., derivatives or loans and lending commitments) 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; 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.
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 16, and investments in and loans to other types of VIEs, as described below. See Note 3 for the firm’s consolidation policies, including the definition of a VIE.
VIE Consolidation Analysis
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 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.
VIE Activities
The firm is principally involved with VIEs through the following business activities:
Mortgage-Backed VIEs.
Real Estate, Credit- and Power-Related and Other Investing VIEs.
Corporate Debt and Other Asset-Backed VIEs.
61 | Goldman Sachs March 2020 Form 10-Q |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
Principal-Protected Note VIEs.
Investments in Funds.
Nonconsolidated VIEs
The table below presents a summary of the nonconsolidated VIEs in which the firm holds variable interests.
As of | ||||||||
$ in millions | March 2020 | December 2019 | ||||||
Total nonconsolidated VIEs | ||||||||
Assets in VIEs | $128,603 | $128,069 | ||||||
Carrying value of variable interests — assets | $ 10,390 | $ 9,526 | ||||||
Carrying value of variable interests — liabilities | $ | $ 619 | ||||||
Maximum exposure to loss: | ||||||||
Retained interests | $ 2,846 | $ 3,372 | ||||||
Purchased interests | 2,418 | 901 | ||||||
Commitments and guarantees | 2,329 | 2,697 | ||||||
Derivatives | 8,689 | 9,010 | ||||||
Debt and equity | 4,719 | 4,806 | ||||||
Total maximum exposure to loss | $ 21,001 | $ 20,786 |
In the table above:
• | The nature of the firm’s variable interests is described in the rows under maximum exposure to loss. |
• | 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 maximum exposure to loss excludes the benefit of offsetting financial instruments that are held to mitigate the risks associated with these variable interests. |
• | The maximum exposure to loss from retained interests, purchased interests, and debt and equity is the carrying value of these interests. |
• | The maximum exposure to loss from commitments and guarantees, and derivatives is the notional amount, which does not represent anticipated losses and has not been reduced by unrealized losses. As a result, the maximum exposure to loss exceeds liabilities recorded for commitments and guarantees, and derivatives. |
The table below presents information, by principal business activity, for nonconsolidated VIEs included in the summary table above.
As of | ||||||||
$ in millions | March 2020 | December 2019 | ||||||
Mortgage-backed | ||||||||
Assets in VIEs | $77,153 | $75,354 | ||||||
Carrying value of variable interests — assets | $ 3,323 | $ 3,830 | ||||||
Maximum exposure to loss: | ||||||||
Retained interests | $ 2,690 | $ 3,223 | ||||||
Purchased interests | 631 | 607 | ||||||
Commitments and guarantees | 43 | 50 | ||||||
Derivatives | 402 | 66 | ||||||
Total maximum exposure to loss | $ 3,766 | $ 3,946 | ||||||
Real estate, credit- and power-related and other investing | ||||||||
Assets in VIEs | $19,442 | $19,602 | ||||||
Carrying value of variable interests — assets | $ 3,066 | $ 3,243 | ||||||
Carrying value of variable interests — liabilities | $ | $ 7 | ||||||
Maximum exposure to loss: | ||||||||
Commitments and guarantees | $ | $ 1,213 | ||||||
Derivatives | 83 | 92 | ||||||
Debt and equity | 3,066 | 3,238 | ||||||
Total maximum exposure to loss | $ 4,093 | $ 4,543 | ||||||
Corporate debt and other asset-backed | ||||||||
Assets in VIEs | $17,141 | $16,248 | ||||||
Carrying value of variable interests — assets | $ 3,598 | $ 2,040 | ||||||
Carrying value of variable interests — liabilities | $ | $ 612 | ||||||
Maximum exposure to loss: | ||||||||
Retained interests | $ | $ 149 | ||||||
Purchased interests | 1,787 | 294 | ||||||
Commitments and guarantees | 1,294 | 1,374 | ||||||
Derivatives | 8,201 | 8,849 | ||||||
Debt and equity | 1,250 | 1,155 | ||||||
Total maximum exposure to loss | $12,688 | $11,821 | ||||||
Investments in funds | ||||||||
Assets in VIEs | $14,867 | $16,865 | ||||||
Carrying value of variable interests — assets | $ | $ 413 | ||||||
Maximum exposure to loss: | ||||||||
Commitments and guarantees | $ | $ 60 | ||||||
Derivatives | 3 | 3 | ||||||
Debt and equity | 403 | 413 | ||||||
Total maximum exposure to loss | $ | $ 476 |
Goldman Sachs March 2020 Form 10-Q | 62 |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
As of both March 2020 and December 2019, the carrying values of the firm’s variable interests in nonconsolidated VIEs are included in the consolidated balance sheets as follows:
• | Mortgage-backed: Assets were primarily included in trading assets and loans. |
• | Real estate, credit- and power-related and other investing: Assets were primarily included in loans and investments and liabilities were included in trading liabilities and other liabilities. |
• | Corporate debt and other asset-backed: Assets were included in trading assets and loans and liabilities were included in trading liabilities. |
• | Investments in funds: Assets were included in investments. |
Consolidated VIEs
The table below presents a summary of the carrying value and balance sheet classification of assets and liabilities in consolidated VIEs.
As of | ||||||||
$ in millions | March 2020 | December 2019 | ||||||
Total consolidated VIEs | ||||||||
Assets | ||||||||
Cash and cash equivalents | $ | $ 112 | ||||||
Trading assets | 1 | 27 | ||||||
Investments | 144 | 835 | ||||||
Loans | 2,082 | 2,392 | ||||||
Other assets | 1,100 | 1,084 | ||||||
Total | $3,475 | $4,450 | ||||||
Liabilities | ||||||||
Other secured financings | $1,088 | $1,163 | ||||||
Customer and other payables | 9 | 9 | ||||||
Trading liabilities | 9 | 10 | ||||||
Unsecured short-term borrowings | 46 | 48 | ||||||
Unsecured long-term borrowings | 207 | 214 | ||||||
Other liabilities | 312 | 959 | ||||||
Total | $1,671 | $2,403 |
In the table above:
• | Assets and liabilities are presented net of intercompany eliminations and exclude the benefit of offsetting financial instruments that are held to mitigate the risks associated with the firm’s variable interests. |
• | VIEs in which the firm holds a majority voting interest are excluded 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. |
• | Substantially all assets can only be used to settle obligations of the VIE. |
The table below presents information, by principal business activity, for consolidated VIEs included in the summary table above.
As of | ||||||||
$ in millions | March 2020 | December 2019 | ||||||
Real estate, credit-related and other investing | ||||||||
Assets | ||||||||
Cash and cash equivalents | $ | $ 112 | ||||||
Trading assets | – | 26 | ||||||
Investments | 144 | 835 | ||||||
Loans | 2,082 | 2,392 | ||||||
Other assets | 1,100 | 1,084 | ||||||
Total | $3,474 | $4,449 | ||||||
Liabilities | ||||||||
Other secured financings | $ | $ 684 | ||||||
Customer and other payables | 9 | 9 | ||||||
Trading liabilities | 9 | 10 | ||||||
Other liabilities | 312 | 959 | ||||||
Total | $ | $1,662 | ||||||
Principal-protected notes | ||||||||
Assets | ||||||||
Trading assets | $ | $ 1 | ||||||
Total | $ | $ 1 | ||||||
Liabilities | ||||||||
Other secured financings | $ | $ 479 | ||||||
Unsecured short-term borrowings | 46 | 48 | ||||||
Unsecured long-term borrowings | 207 | 214 | ||||||
Total | $ | $ 741 |
In the table above:
• | The majority of the assets in principal-protected notes VIEs are intercompany and are eliminated in consolidation. |
• | Creditors and beneficial interest holders of real estate, credit-related and other investing VIEs do not have recourse to the general credit of the firm. |
63 | Goldman Sachs March 2020 Form 10-Q |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
Note 18.
Commitments, Contingencies and Guarantees
Commitments
The table below presents commitments by type.
As of | ||||||||
$ in millions | March 2020 | December 2019 | ||||||
Commitment Type | ||||||||
Commercial lending: | ||||||||
Investment-grade | $ 76,791 | $ 89,276 | ||||||
Non-investment-grade | 51,208 | 58,718 | ||||||
Warehouse financing | 7,519 | 5,581 | ||||||
Credit cards | 16,447 | 13,669 | ||||||
Total lending | 151,965 | 167,244 | ||||||
Collateralized agreement | 64,243 | 62,093 | ||||||
Collateralized financing | 18,845 | 10,193 | ||||||
Letters of credit | 374 | 456 | ||||||
Investment | 5,812 | 7,879 | ||||||
Other | 9,027 | 6,135 | ||||||
Total commitments | $250,266 | $254,000 |
The table below presents commitments by expiration.
As of March 2020 | ||||||||||||||||
$ in millions | Remainder of 2020 | 2021 - 2022 | 2023 - 2024 | 2025 - Thereafter | ||||||||||||
Commitment Type | ||||||||||||||||
Commercial lending: | ||||||||||||||||
Investment-grade | $ 8,002 | $27,196 | $35,485 | $ 6,108 | ||||||||||||
Non-investment-grade | 3,337 | 16,676 | 20,843 | 10,352 | ||||||||||||
Warehouse financing | 927 | 5,103 | 1,295 | 194 | ||||||||||||
Credit cards | 16,447 | – | – | – | ||||||||||||
Total lending | 28,713 | 48,975 | 57,623 | 16,654 | ||||||||||||
Collateralized agreement | 63,747 | 496 | – | – | ||||||||||||
Collateralized financing | 18,845 | – | – | – | ||||||||||||
Letters of credit | 299 | 35 | – | 40 | ||||||||||||
Investment | 1,657 | 1,422 | 1,059 | 1,674 | ||||||||||||
Other | 8,909 | 118 | – | – | ||||||||||||
Total commitments | $122,170 | $51,046 | $58,682 | $18,368 |
Lending Commitments
The firm’s commercial and warehouse financing lending commitments are agreements to lend with fixed termination dates and depend on the satisfaction of all contractual conditions to borrowing. These commitments are presented net of amounts syndicated to third parties. The total commitment amount does not necessarily reflect actual future cash flows because the firm may syndicate all or substantial portions of these commitments. In addition, commitments can expire unused or be reduced or cancelled at the counterparty’s request. The firm also provides credit to consumers by issuing credit card lines.
The table below presents information about lending commitments.
As of | ||||||||
$ in millions | March 2020 | December 2019 | ||||||
Held for investment | $133,501 | $150,100 | ||||||
Held for sale | 15,419 | 15,245 | ||||||
At fair value | 3,045 | 1,899 | ||||||
Total | $151,965 | $167,244 |
In the table above:
• | Held for investment lending commitments are accounted for at amortized cost. The carrying value of lending commitments was a liability of $460 million (including allowance for losses of $335 million) as of March 2020 and $527 million (including allowance for losses of $361 million) as of December 2019. The estimated fair value of such lending commitments was a liability of $5.89 billion as of March 2020 and $3.05 billion as of December 2019. Had these lending commitments been carried at fair value and included in the fair value hierarchy, $3.29 billion as of March 2020 and $1.78 billion as of December 2019 would have been classified in level 2, and $2.60 billion as of March 2020 and $1.27 billion as of December 2019 would have been classified in level 3. |
• | Held for sale lending commitments are accounted for at the lower of cost or fair value. The carrying value of lending commitments held for sale was a liability of $196 million as of March 2020 and $60 million as of December 2019. The estimated fair value of such lending commitments approximates the carrying value. Had these lending commitments been included in the fair value hierarchy, they would have been primarily classified in level 2 as of both March 2020 and December 2019. |
• | Gains or losses related to lending commitments at fair value, if any, are generally recorded net of any fees in other principal transactions. |
Goldman Sachs March 2020 Form 10-Q | 64 |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
Commercial Lending.
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 $4.05 billion as of March 2020 and $5.74 billion as of December 2019. 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 $750 million, of which 0 protection had been provided as of March 2020 and December 2019. 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 credit index.
Warehouse Financing.
Credit Cards.
Collateralized Agreement Commitments/ Collateralized Financing Commitments
Collateralized agreement commitments includes forward starting resale and securities borrowing agreements, and collateralized financing commitments includes forward starting repurchase and secured lending agreements that settle at a future date, generally within three business days. Collateralized agreement commitments also includes transactions where the firm has entered 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.
Letters of Credit
The firm has 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.
Investment Commitments
Investment commitments includes commitments to invest in private equity, real estate and other assets directly and through funds that the firm raises and manages. Investment commitments included $2.00 billion as of March 2020 and $2.06 billion as of December 2019, related to commitments to invest in funds managed by the firm. If these commitments are called, they would be funded at market value on the date of investment.
Contingencies
Legal Proceedings.
Certain Mortgage-Related Contingencies.
Based on the large number of defaults in residential mortgages, including those sold or securitized by the firm, there is a potential for repurchase claims. However, the firm is not in a position to make a meaningful estimate of that exposure at this time. 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, such as the extent to which these claims are made within the statute of limitations, taking into consideration the agreements to toll the statute of limitations the firm entered into with trustees representing certain trusts.
65 | Goldman Sachs March 2020 Form 10-Q |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
Other Contingencies.
In connection with the settlement agreement with the Residential Mortgage-Backed Securities Working Group of the U.S. Financial Fraud Enforcement Task Force, the firm agreed to provide $1.80 billion in consumer relief by January 2021. As of March 2020, approximately $1.55 billion of such relief was provided. This relief was provided in the form of principal forgiveness for underwater homeowners and distressed borrowers; financing for construction, rehabilitation and preservation of affordable housing; and support for debt restructuring, foreclosure prevention and housing quality improvement programs, as well as land banks.
Guarantees
The table below presents derivatives that meet the definition of a guarantee, securities lending indemnifications and certain other financial guarantees.
$ in millions | Derivatives | Securities lending indemnifications | Other financial guarantees | |||||||||
As of March 2020 | ||||||||||||
Carrying Value of Net Liability | $ 7,973 | $ | $ | |||||||||
Maximum Payout/Notional Amount by Period of Expiration | ||||||||||||
Remainder of 2020 | $ 65,570 | $16,978 | $1,648 | |||||||||
2021 - 2022 | 72,282 | – | 1,930 | |||||||||
2023 - 2024 | 22,395 | – | 2,853 | |||||||||
2025 - thereafter | 35,303 | – | 192 | |||||||||
Total | $195,550 | $16,978 | $6,623 | |||||||||
As of December 2019 | ||||||||||||
Carrying Value of Net Liability | $ 3,817 | $ | $ 27 | |||||||||
Maximum Payout/Notional Amount by Period of Expiration | ||||||||||||
2020 | $ 91,814 | $17,891 | $2,044 | |||||||||
2021 - 2022 | 76,693 | – | 1,714 | |||||||||
2023 - 2024 | 19,377 | – | 2,219 | |||||||||
2025 - thereafter | 36,317 | – | 149 | |||||||||
Total | $224,201 | $17,891 | $6,126 |
In the table above:
• | The maximum payout is based on the notional amount of the contract and does not represent anticipated losses. |
• | Amounts exclude certain commitments to issue standby letters of credit that are included in lending commitments. See the tables in “Commitments” above for a summary of the firm’s commitments. |
• | The carrying value for derivatives included derivative assets of $1.67 billion as of March 2020 and $1.56 billion as of December 2019, and derivative liabilities of $9.64 billion as of March 2020 and $5.38 billion as of December 2019. |
Derivative Guarantees.
Derivatives are accounted for at fair value and therefore the carrying value is considered the best indication of payment/performance risk for individual contracts. However, the carrying values in the table above exclude the effect of counterparty and cash collateral netting.
Securities Lending Indemnifications.
Goldman Sachs March 2020 Form 10-Q | 66 |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
Other Financial Guarantees.
Guarantees of Securities Issued by Trusts.
,
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 14 for further information about the transactions involving Goldman Sachs Capital I and the APEX 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.
The firm may also be liable to some clients or other parties for losses arising from its custodial role or caused by acts or omissions of third-party service providers, including
sub-custodians
and third-party brokers. In certain cases, the firm has the right to seek indemnification from these third-party service providers for certain relevant losses incurred by the firm. 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 and other loss scenarios.In connection with the firm’s 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 consolidated balance sheets as of both March 2020 and December 2019.
Other Representations, Warranties and Indemnifications.
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 consolidated balance sheets as of both March 2020 and December 2019.
67 | Goldman Sachs March 2020 Form 10-Q |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
Guarantees of Subsidiaries.
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 obligations are also obligations of consolidated subsidiaries, Group Inc.’s liabilities as guarantor are not separately disclosed.Note 19.
Shareholders’ Equity
Common Equity
As of both March 2020 and December 2019, the firm had 4.00 billion authorized shares of common stock and 200 million authorized shares of nonvoting common stock, each with a par value of $0.01 per share.
The firm’s share repurchase program is intended to help maintain the appropriate level of common equity. The share repurchase program is effected primarily through regular open-market purchases (which may include repurchase plans designed to comply with Rule
10b5-1
and accelerated share repurchases), the amounts and timing of which are determined primarily by the firm’s current and projected capital position, and capital deployment opportunities, but which may also be influenced by general market conditions and the prevailing price and trading volumes of the firm’s common stock. Prior to repurchasing common stock, the firm must receive confirmation that the FRB does not object to such capital action.The table below presents information about common stock repurchases.
Three Months Ended March | ||||||||
in millions, except per share amounts | 2020 | 2019 | ||||||
Common share repurchases | 8.2 | 6.3 | ||||||
Average cost per share | $236.35 | $197.08 | ||||||
Total cost of common share repurchases | $ 1,928 | $ 1,250 |
Pursuant to the terms of certain share-based compensation plans, employees may remit shares to the firm or the firm may cancel share-based awards to satisfy statutory employee tax withholding requirements. Under these plans, during the three months ended March 2020, 3,476 shares were remitted with a total value of $0.9 million and the firm cancelled 3.3 million share-based awards with a total value of $803 million.
The table below presents common stock dividends declared.
Three Months Ended March | ||||||||
2020 | 2019 | |||||||
Dividends declared per common share | $1.25 | $0.80 |
On April 14, 2020
, the Board of Directors of Group Inc. declared a dividend of
$1.25
per common share to be paid on
June 29, 2020
to common shareholders of record on
June 1, 2020.
Preferred Equity
The tables below present information about the perpetual preferred stock issued and outstanding as of
March 2020
.Series | Shares Authorized | Shares Issued | Shares Outstanding | Depositary Shares Per Share | ||||||||||||
A | 50,000 | 30,000 | 29,999 | 1,000 | ||||||||||||
C | 25,000 | 8,000 | 8,000 | 1,000 | ||||||||||||
D | 60,000 | 54,000 | 53,999 | 1,000 | ||||||||||||
E | 17,500 | 7,667 | 7,667 | N/A | ||||||||||||
F | 5,000 | 1,615 | 1,615 | N/A | ||||||||||||
J | 46,000 | 40,000 | 40,000 | 1,000 | ||||||||||||
K | 32,200 | 28,000 | 28,000 | 1,000 | ||||||||||||
M | 80,000 | 80,000 | 80,000 | 25 | ||||||||||||
N | 31,050 | 27,000 | 27,000 | 1,000 | ||||||||||||
O | 26,000 | 26,000 | 26,000 | 25 | ||||||||||||
P | 66,000 | 60,000 | 60,000 | 25 | ||||||||||||
Q | 20,000 | 20,000 | 20,000 | 25 | ||||||||||||
R | 24,000 | 24,000 | 24,000 | 25 | ||||||||||||
S | 14,000 | 14,000 | 14,000 | 25 | ||||||||||||
Total | 496,750 | 420,282 | 420,280 | |||||||||||||
Series | Earliest Redemption Date | Liquidation Preference | Redemption Value ($ in millions) | |||||||||||||
A | Currently redeemable | $ 25,000 | $ 750 | |||||||||||||
C | Currently redeemable | $ 25,000 | 200 | |||||||||||||
D | Currently redeemable | $ 25,000 | 1,350 | |||||||||||||
E | Currently redeemable | $100,000 | 767 | |||||||||||||
F | Currently redeemable | $100,000 | 161 | |||||||||||||
J | May 10, 2023 | $ 25,000 | 1,000 | |||||||||||||
K | May 10, 2024 | $ 25,000 | 700 | |||||||||||||
M | May 10, 2020 | $ 25,000 | 2,000 | |||||||||||||
N | May 10, 2021 | $ 25,000 | 675 | |||||||||||||
O | November 10, 2026 | $ 25,000 | 650 | |||||||||||||
P | November 10, 2022 | $ 25,000 | 1,500 | |||||||||||||
Q | August 10, 2024 | $ 25,000 | 500 | |||||||||||||
R | February 10, 2025 | $ 25,000 | 600 | |||||||||||||
S | February 10, 2025 | $ 25,000 | 350 | |||||||||||||
Total | $11,203 |
Goldman Sachs March 2020 Form 10-Q | 68 |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
In the tables above:
• | All shares have a par value of $0.01 per share and, where applicable, each share is represented by the specified number of depositary shares. |
• | The earliest redemption date represents the date on which each share of non-cumulative Preferred Stock is redeemable at the firm’s option. |
• | Prior to redeeming preferred stock, the firm must receive confirmation that the FRB does not object to such action. |
• | In January 2020, the firm issued 14,000 shares of Series S 4.40% Fixed-Rate Reset Non-Cumulative Preferred Stock (Series S Preferred Stock). |
• | The redemption price per share for Series A through F and Series Q through S Preferred Stock is the liquidation preference plus declared and unpaid dividends. The redemption price per share for Series J through P Preferred Stock is the liquidation preference plus accrued and unpaid dividends. Each share of Series E and Series F Preferred Stock is redeemable at the firm’s option, subject to certain covenant restrictions governing the firm’s ability to redeem the preferred stock without issuing common stock or other instruments with equity-like characteristics. See Note 14 for information about the replacement capital covenants applicable to the Series E and Series F Preferred Stock. |
• | All series of preferred stock are pari passu and have a preference over the firm’s common stock on liquidation. |
• | 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 the first quarter of 2020, the firm redeemed the remaining 14,000 outstanding shares of its Series L 5.70%
Non-Cumulative
Preferred Stock (Series L Preferred Stock) with a redemption value of $350 million ($25,000 per share), plus accrued and unpaid dividends. The difference between the redemption value and net carrying value at the time of this redemption was $1 million, which was recorded as an addition to preferred stock dividends in 2020.In 2019, the firm redeemed 38,000 shares of its outstanding Series L Preferred Stock with a redemption value of $950 million ($25,000 per share), plus accrued and unpaid dividends. In addition, in 2019, the firm redeemed the remaining 6,000 outstanding shares of its Series B 6.20%
Non-Cumulative
Preferred Stock (Series B Preferred Stock) with a redemption value of $150 million ($25,000 per share). The difference between the redemption value and net carrying value at the time of these redemptions was $9 million, which was recorded as an addition to preferred stock dividends in 2019.The table below presents the dividend rates of perpetual preferred stock as of
March 2020
.Series | Per Annum Dividend Rate | |||
A | 3 month LIBOR + 0.75%, with floor of 3.75%, payable quarterly | |||
C | 3 month LIBOR + 0.75%, with floor of 4.00%, payable quarterly | |||
D | 3 month LIBOR + 0.67%, with floor of 4.00%, payable quarterly | |||
E | 3 month LIBOR + 0.7675%, with floor of 4.00%, payable quarterly | |||
F | 3 month LIBOR + 0.77%, with floor of 4.00%, payable quarterly | |||
J | 5.50% to, but excluding, May 10, 2023; 3 month LIBOR + 3.64% thereafter, payable quarterly | |||
K | 6.375% to, but excluding, May 10, 2024; 3 month LIBOR + 3.55% thereafter, payable quarterly | |||
M | 5.375%, payable semi-annually, from issuance date to, but excluding, May 10, 2020; 3 month LIBOR + 3.922%, payable quarterly, thereafter | |||
N | 6.30%, payable quarterly | |||
O | 5.30%, payable semi-annually, from issuance date to, but excluding, November 10, 2026; 3 month LIBOR + 3.834%, payable quarterly, thereafter | |||
P | 5.00%, payable semi-annually, from issuance date to, but excluding, November 10, 2022; 3 month LIBOR + 2.874%, payable quarterly, thereafter | |||
Q | 5.50%, payable semi-annually, from issuance date to, but excluding, August 10, 2024; 5 year treasury rate + 3.623%, payable semi-annually, thereafter | |||
R | 4.95%, payable semi-annually, from issuance date to, but excluding, February 10, 2025; 5 year treasury rate + 3.224%, payable semi-annually, thereafter | |||
S | 4.40%, payable semi-annually, from issuance date to, but excluding, February 10, 2025; 5 year treasury rate + 2.85%, payable semi-annually thereafter |
In the table above, dividends on each series of preferred stock are payable in arrears for the periods specified.
The table below presents preferred stock dividends declared.
2020 | 2019 | |||||||||||||||||
Series | per share | $ in millions | per share | $ in millions | ||||||||||||||
Three Months Ended March | ||||||||||||||||||
A | $ | $ 7 | $234.38 | $ 7 | ||||||||||||||
B | $ | – | $387.50 | 2 | ||||||||||||||
C | $ | 2 | $250.00 | 2 | ||||||||||||||
D | $ | 13 | $250.00 | 13 | ||||||||||||||
E | $1,011.11 | 7 | $977.78 | 7 | ||||||||||||||
F | $1,011.11 | 2 | $977.78 | 2 | ||||||||||||||
J | $ | 14 | $343.75 | 14 | ||||||||||||||
K | $ | 11 | $398.44 | 11 | ||||||||||||||
L | $ | 4 | $ | – | ||||||||||||||
N | $ | 11 | $393.75 | 11 | ||||||||||||||
Q | $ | 18 | $ | – | ||||||||||||||
Total | $89 | $69 |
69 | Goldman Sachs March 2020 Form 10-Q |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
On April 6, 2020, Group Inc. declared dividends of $236.98 per share of Series A Preferred Stock, $252.78 per share of Series C Preferred Stock, $252.78 per share of Series D Preferred Stock, $343.75 per share of Series J Preferred Stock, $398.44 per share of Series K Preferred Stock, $671.88 per share of Series M Preferred Stock, $393.75 per share of Series N Preferred Stock, $662.50 per share of Series O Preferred Stock and $625.00 per share of Series P Preferred Stock to be paid on May 11, 2020 to preferred shareholders of record on April 26, 2020. In addition, the firm declared dividends of $1,011.11 per share of Series E Preferred Stock and Series F Preferred Stock to be paid on June 1, 2020 to preferred shareholders of record on May 16, 2020.
Accumulated Other Comprehensive Income/(Loss)
The table below presents changes in the accumulated other comprehensive income/(loss), net of tax, by type.
$ in millions | Beginning balance | Other comprehensive income/(loss) adjustments, net of tax | Ending balance | |||||||||
Three Months Ended March 2020 | ||||||||||||
Currency translation | $ (616 | ) | $ | ) | $ | ) | ||||||
Debt valuation adjustment | (572 | ) | 2,914 | 2,342 | ||||||||
Pension and postretirement liabilities | (342 | ) | 7 | (335 | ) | |||||||
Available-for-sale securities | 46 | 517 | 563 | |||||||||
Total | $(1,484 | ) | $ | $1,937 | ||||||||
Three Months Ended March 2019 | ||||||||||||
Currency translation | $ | ) | $ 4 | $ (617 | ) | |||||||
Debt valuation adjustment | 1,507 | (1,417 | ) | 90 | ||||||||
Pension and postretirement liabilities | (81 | ) | (7 | ) | (88 | ) | ||||||
Available-for-sale securities | (112 | ) | 114 | 2 | ||||||||
Total | $ | $(1,306 | ) | $ (613 | ) |
Note 20.
Regulation and Capital Adequacy
The FRB is the primary regulator of Group Inc., a bank holding company (BHC) under the U.S. Bank Holding Company Act of 1956 and a financial holding company under amendments to this Act. The firm is subject to consolidated regulatory capital requirements which are calculated in accordance with the regulations of the FRB (Capital Framework).
The capital requirements are expressed as risk-based capital and leverage ratios that compare measures of regulatory capital to risk-weighted assets (RWAs), average assets and
off-balance
sheet exposures. Failure to comply with these capital requirements could result in restrictions being imposed by the firm’s regulators and could limit the firm’s ability to repurchase shares, pay dividends and make certain discretionary compensation payments. The firm’s capital levels are also subject to qualitative judgments by the regulators about components of capital, risk weightings and other factors. Furthermore, certain of the firm’s subsidiaries are subject to separate regulations and capital requirements.Capital Framework
The regulations under the Capital Framework are largely based on the Basel Committee on Banking Supervision’s (Basel Committee) capital framework for strengthening international capital standards (Basel III) and also implement certain provisions of the Dodd-Frank Act. Under the Capital Framework, the firm is an “Advanced approach” banking organization and has been designated as a global systemically important bank
(G-SIB).
The capital requirements calculated in accordance with the Capital Framework include the minimum risk-based capital and leverage ratios. In addition, the risk-based capital requirements include the capital conservation buffer, countercyclical capital buffer and the
G-SIB
surcharge, all of which must consist entirely of capital that qualifies as Common Equity Tier 1 (CET1) capital.The firm calculates its CET1 capital, Tier 1 capital and Total capital ratios in accordance with (i) the Standardized approach and market risk rules set out in the Capital Framework (together, the Standardized Capital Rules) and (ii) the Advanced approach and market risk rules set out in the Capital Framework (together, the Advanced Capital Rules). The lower of each risk-based capital ratio calculated in (i) and (ii) is the ratio against which the firm’s compliance with its risk-based capital requirements is assessed. Under the Capital Framework, the firm is also subject to leverage requirements which consist of a minimum Tier 1 leverage ratio and a minimum supplementary leverage ratio (SLR), as well as the SLR buffer.
Consolidated Regulatory Risk-Based Capital and Leverage Ratios
The table below presents the risk-based capital and leverage requirements.
Requirements | ||||
Risk-based capital requirements | ||||
CET1 capital ratio | 9.5% | |||
Tier 1 capital ratio | 11.0% | |||
Total capital ratio | 13.0% | |||
Leverage requirements | ||||
Tier 1 leverage ratio | 4.0% | |||
SLR | 5.0% |
In the table above:
• | The CET1 capital ratio requirement includes a minimum of 4.5%, the Tier 1 capital ratio requirement includes a minimum of 6.0% and the Total capital ratio requirement includes a minimum of 8.0%. The requirements also include the capital conservation buffer of 2.5%, the G-SIB surcharge of 2.5% (Method 2) and the countercyclical capital buffer, which the FRB has set to 0 percent. |
Goldman Sachs March 2020 Form 10-Q | 70 |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
• | The G-SIB surcharge is updated annually based on financial data from the prior year and is generally applicable for the following year. TheG-SIB surcharge is calculated using two methodologies, the higher of which is reflected in the firm’s risk-based capital requirements. The first calculation (Method 1) is based on the Basel Committee’s methodology which, among other factors, relies upon measures of the size, activity and complexity of eachG-SIB. The second calculation (Method 2) uses similar inputs but includes a measure of reliance on short-term wholesale funding. |
• | The Tier 1 leverage ratio requirement is a minimum of 4%. The SLR requirement of 5% includes a minimum of 3% and a 2% buffer applicable to G-SIBs. |
The table below presents information about risk-based capital ratios.
$ in millions | Standardized | Advanced | ||||||
As of March 2020 | ||||||||
CET1 capital | $ 74,550 | $ 74,550 | ||||||
Tier 1 capital | $ 85,589 | $ 85,589 | ||||||
Tier 2 capital | $ 15,131 | $ 13,470 | ||||||
Total capital | $100,720 | $ 99,059 | ||||||
RWAs | $594,484 | $605,926 | ||||||
CET1 capital ratio | 12.5% | 12.3% | ||||||
Tier 1 capital ratio | 14.4% | 14.1% | ||||||
Total capital ratio | 16.9% | 16.3% | ||||||
As of December 2019 | ||||||||
CET1 capital | $ 74,850 | $ 74,850 | ||||||
Tier 1 capital | $ 85,440 | $ 85,440 | ||||||
Tier 2 capital | $ 14,925 | $ 13,473 | ||||||
Total capital | $100,365 | $ 98,913 | ||||||
RWAs | $563,575 | $544,653 | ||||||
CET1 capital ratio | 13.3% | 13.7% | ||||||
Tier 1 capital ratio | 15.2% | 15.7% | ||||||
Total capital ratio | 17.8% | 18.2% |
In the table above:
• | The lower of the Standardized or Advanced ratio is the ratio against which the firm’s compliance with the capital requirements is assessed under the risk-based Capital Rules, and therefore, the Advanced ratios applied to the firm as of March 2020 and the Standardized ratios applied to the firm as of December 2019. |
• | As permitted by the FRB, the firm has elected to temporarily delay the estimated effects of adopting CECL on regulatory capital until January 2022 and to subsequently phase-in the effects through January 2025. In addition, during 2020 and 2021, the firm has elected to increase regulatory capital by 25% of the increase in the allowance for credit losses since January 1, 2020, as permitted by the rules issued by the FRB. The impact of this increase will also be phased in over the three-year transition period. Reflecting the full impact of CECL as of March 2020 would not have had a material impact on the firm’s Advanced risk-based capital ratios. |
• | The FRB permits banking organizations to exclude assets acquired in connection with their participation in the Federal Reserve’s Money Market Mutual Fund Liquidity Facility (MMLF) from their calculation of risk-based capital and leverage ratios. The firm has opted to exclude such assets from the calculations of these ratios as of March 2020. |
The table below presents information about leverage ratios.
For the Three Months Ended or as of | ||||||||
$ in millions | March 2020 | December 2019 | ||||||
Tier 1 capital | $ 85,589 | $ 85,440 | ||||||
Average total assets | $1,048,847 | $ 983,909 | ||||||
Deductions from Tier 1 capital | (4,887 | ) | (5,275 | ) | ||||
Average adjusted total assets | 1,043,960 | 978,634 | ||||||
Average off-balance sheet exposures | 394,906 | 396,833 | ||||||
Total leverage exposure | $1,438,866 | $1,375,467 | ||||||
Tier 1 leverage ratio | 8.2% | 8.7% | ||||||
SLR | 5.9% | 6.2% |
In the table above:
• | Average total assets represents the average daily assets for the quarter adjusted for the impact of CECL transition and exclusion of assets acquired in connection with the firm’s participation in the Federal Reserve’s MMLF. |
• | Average off-balance sheet exposures represents the monthly average and consists of derivatives, securities financing transactions, commitments and guarantees. |
• | Tier 1 leverage ratio is calculated as Tier 1 capital divided by average adjusted total assets. |
• | SLR is calculated as Tier 1 capital divided by total leverage exposure. |
71 | Goldman Sachs March 2020 Form 10-Q |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
Risk-Based Capital.
As of | ||||||||
$ in millions | March 2020 | December 2019 | ||||||
Common shareholders’ equity | $ 81,176 | $ 79,062 | ||||||
Impact of CECL transition | 819 | – | ||||||
Deduction for goodwill | (3,528 | ) | (3,529 | ) | ||||
Deduction for identifiable intangible assets | (584 | ) | (604 | ) | ||||
Other adjustments | (3,333 | ) | (79 | ) | ||||
CET1 capital | 74,550 | 74,850 | ||||||
Preferred stock | 11,203 | 11,203 | ||||||
Deduction for investments in covered funds | (157 | ) | (610 | ) | ||||
Other adjustments | (7 | ) | (3 | ) | ||||
Tier 1 capital | $ 85,589 | $ 85,440 | ||||||
Standardized Tier 2 and Total capital | ||||||||
Tier 1 capital | $ 85,589 | $ 85,440 | ||||||
Qualifying subordinated debt | 12,820 | 12,847 | ||||||
Junior subordinated debt | 188 | 284 | ||||||
Allowance for credit losses | 2,174 | 1,802 | ||||||
Other adjustments | (51 | ) | (8 | ) | ||||
Standardized Tier 2 capital | 15,131 | 14,925 | ||||||
Standardized Total capital | $100,720 | $100,365 | ||||||
Advanced Tier 2 and Total capital | ||||||||
Tier 1 capital | $ 85,589 | $ 85,440 | ||||||
Standardized Tier 2 capital | 15,131 | 14,925 | ||||||
Allowance for credit losses | (2,174 | ) | (1,802 | ) | ||||
Other adjustments | 513 | 350 | ||||||
Advanced Tier 2 capital | 13,470 | 13,473 | ||||||
Advanced Total capital | $ 99,059 | $ 98,913 |
In the table above:
• | Impact of CECL transition represents the impact of adoption as of January 1, 2020 and the impact of increasing regulatory capital by 25% of the increase in allowance for credit losses since January 1, 2020. The allowance for credit losses within Standardized and Advanced Tier 2 capital also reflects the impact of these adjustments. |
• | Deduction for goodwill was net of deferred tax liabilities of $668 million as of March 2020 and $667 million as of December 2019. |
• | Deduction for identifiable intangible assets was net of deferred tax liabilities of $30 million as of March 2020 and $37 million as of December 2019. |
• | Deduction for investments in covered funds represents the firm’s aggregate investments in applicable covered funds, excluding investments that are subject to an extended conformance period. See Note 8 for further information about the Volcker Rule. |
• | Other adjustments within CET1 capital and Tier 1 capital primarily include credit valuation adjustments on derivative liabilities, the overfunded portion of the firm’s defined benefit pension plan obligation net of associated deferred tax liabilities, disallowed deferred tax assets, debt valuation adjustments and other required credit risk-based deductions. Other adjustments within Advanced Tier 2 capital include eligible credit reserves. |
• | Qualifying subordinated debt is subordinated debt issued by Group Inc. with an original maturity of five years or greater. The outstanding amount of subordinated debt qualifying for Tier 2 capital is reduced upon reaching a remaining maturity of five years. See Note 14 for further information about the firm’s subordinated debt. |
• | Junior subordinated debt is debt issued to a Trust. As of March 2020, 20% of this debt was included in Tier 2 capital and 80% was phased out of regulatory capital. As of December 2019, 30% of this debt was included in Tier 2 capital and 70% was phased out of regulatory capital. Junior subordinated debt is reduced by the amount of Trust Preferred securities purchased by the firm and will be fully phased out of Tier 2 capital by 2022 at a rate of 10% per year. See Note 14 for further information about the firm’s junior subordinated debt and Trust Preferred securities. |
Goldman Sachs March 2020 Form 10-Q | 72 |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
The table below presents changes in CET1 capital, Tier 1 capital and Tier 2 capital.
$ in millions | Standardized | Advanced | ||||||
Three Months Ended March 2020 | ||||||||
CET1 capital | ||||||||
Beginning balance | $ 74,850 | $74,850 | ||||||
Change in: | ||||||||
Common shareholders’ equity | 2,114 | 2,114 | ||||||
Impact of CECL transition | 819 | 819 | ||||||
Deduction for goodwill | 1 | 1 | ||||||
Deduction for identifiable intangible assets | 20 | 20 | ||||||
Other adjustments | (3,254 | ) | (3,254 | ) | ||||
Ending balance | $ 74,550 | $74,550 | ||||||
Tier 1 capital | ||||||||
Beginning balance | $ 85,440 | $85,440 | ||||||
Change in: | ||||||||
CET1 capital | (300 | ) | (300 | ) | ||||
Deduction for investments in covered funds | 453 | 453 | ||||||
Other adjustments | (4 | ) | (4 | ) | ||||
Ending balance | 85,589 | 85,589 | ||||||
Tier 2 capital | ||||||||
Beginning balance | 14,925 | 13,473 | ||||||
Change in: | ||||||||
Qualifying subordinated debt | (27 | ) | (27 | ) | ||||
Junior subordinated debt | (96 | ) | (96 | ) | ||||
Allowance for credit losses | 372 | – | ||||||
Other adjustments | (43 | ) | 120 | |||||
Ending balance | 15,131 | 13,470 | ||||||
Total capital | $100,720 | $99,059 | ||||||
Year Ended December 2019 | ||||||||
CET1 capital | ||||||||
Beginning balance | $ 73,116 | $73,116 | ||||||
Change in: | ||||||||
Common shareholders’ equity | 80 | 80 | ||||||
Deduction for goodwill | (432 | ) | (432 | ) | ||||
Deduction for identifiable intangible assets | (307 | ) | (307 | ) | ||||
Other adjustments | 2,393 | 2,393 | ||||||
Ending balance | $ 74,850 | $74,850 | ||||||
Tier 1 capital | ||||||||
Beginning balance | $ 83,702 | $83,702 | ||||||
Change in: | ||||||||
CET1 capital | 1,734 | 1,734 | ||||||
Deduction for investments in covered funds | 5 | 5 | ||||||
Other adjustments | (1 | ) | (1 | ) | ||||
Ending balance | 85,440 | 85,440 | ||||||
Tier 2 capital | ||||||||
Beginning balance | 14,926 | 13,743 | ||||||
Change in: | ||||||||
Qualifying subordinated debt | (300 | ) | (300 | ) | ||||
Junior subordinated debt | (158 | ) | (158 | ) | ||||
Allowance for credit losses | 449 | – | ||||||
Other adjustments | 8 | 188 | ||||||
Ending balance | 14,925 | 13,473 | ||||||
Total capital | $100,365 | $98,913 |
RWAs.
Credit Risk
Credit RWAs are calculated based on measures of exposure, which are then risk weighted under the Standardized and Advanced Capital Rules:
• | The Standardized Capital Rules apply prescribed risk-weights, which depend largely on the type of counterparty. The exposure measure for derivatives and securities financing transactions are based on specific formulas which take certain factors into consideration. |
• | Under the Advanced Capital Rules, the firm computes risk-weights for wholesale and retail credit exposures in accordance with the Advanced Internal Ratings-Based approach. The exposure measures for derivatives and securities financing transactions are computed utilizing internal models. |
• | For both Standardized and Advanced credit RWAs, the risk-weights for securitizations and equities are based on specific required formulaic approaches. |
73 | Goldman Sachs March 2020 Form 10-Q |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
Market Risk
RWAs for market risk in accordance with the Standardized and Advanced Capital Rules are generally consistent. Market RWAs are calculated based on measures of exposure which include the following:
• | Value-at-Risk (VaR) is the potential loss in value of trading assets and liabilities, as well as certain investments, loans, and other financial assets and liabilities accounted for at fair value, due to adverse market movements over a defined time horizon with a specified confidence level. |
For both risk management purposes and regulatory capital calculations
,
the firm uses a single VaR model which captures risks including those related to interest rates, equity prices, currency rates and commodity prices. However, VaR used for regulatory capital requirements (regulatory VaR) differs from risk management VaR due to different time horizons and confidence levels(10-day
and 99% for regulatory VaR vs.one-day
and 95% for risk management VaR), as well as differences in the scope of positions on which VaR is calculated. In addition, the daily net revenues used to determine risk management VaR exceptions (i.e., comparing the daily net revenues to the VaR measure calculated as of the end of the prior business day) include intraday activity, whereas the Capital Framework requires that intraday activity be excluded from daily net revenues when calculating regulatory VaR exceptions. Intraday activity includes bid/offer net revenues, which are more likely than not to be positive by their nature. As a result, there may be differences in the number of VaR exceptions and the amount of daily net revenues calculated for regulatory VaR compared to the amounts calculated for risk management VaR.The firm’s positional losses observed on a single day exceeded its 99%
one-day
regulatory VaR on six occasions during the three months ended March 2020 and exceeded its 99%one-day
VaR on one occasion during the year ended December 2019. There was no change in the VaR multiplier used to calculate Market RWAs;• | Stressed VaR is the potential loss in value of trading assets and liabilities, as well as certain investments, loans, and other financial assets and liabilities accounted for at fair value, during a period of significant market stress; |
• | Incremental risk is the potential loss in value of non-securitized positions due to the default or credit migration of issuers of financial instruments over aone-year time horizon; |
• | Comprehensive risk is the potential loss in value, due to price risk and defaults, within the firm’s credit correlation positions; and |
• | Specific risk is the risk of loss on a position that could result from factors other than broad market movements, including event risk, default risk and idiosyncratic risk. The standardized measurement method is used to determine specific risk RWAs, by applying supervisory defined risk-weighting factors after applicable netting is performed. |
Operational Risk
Operational RWAs are only required to be included under the Advanced Capital Rules. The firm utilizes an internal risk-based model to quantify Operational RWAs.
The table below presents information about RWAs.
$ in millions | Standardized | Advanced | ||||||
As of March 2020 | ||||||||
Credit RWAs | ||||||||
Derivatives | $134,778 | $104,638 | ||||||
Commitments, guarantees and loans | 189,300 | 148,986 | ||||||
Securities financing transactions | 59,729 | 12,515 | ||||||
Equity investments | 50,881 | 52,999 | ||||||
Other | 74,574 | 82,753 | ||||||
Total Credit RWAs | 509,262 | 401,891 | ||||||
Market RWAs | ||||||||
Regulatory VaR | 13,465 | 13,465 | ||||||
Stressed VaR | 45,608 | 45,608 | ||||||
Incremental risk | 5,088 | 5,088 | ||||||
Comprehensive risk | 2,186 | 2,186 | ||||||
Specific risk | 18,875 | 18,875 | ||||||
Total Market RWAs | 85,222 | 85,222 | ||||||
Total Operational RWAs | – | 118,813 | ||||||
Total RWAs | $594,484 | $605,926 | ||||||
As of December 2019 | ||||||||
Credit RWAs | ||||||||
Derivatives | $120,906 | $ 72,631 | ||||||
Commitments, guarantees and loans | 179,740 | 134,456 | ||||||
Securities financing transactions | 65,867 | 13,834 | ||||||
Equity investments | 56,814 | 61,892 | ||||||
Other | 75,660 | 78,266 | ||||||
Total Credit RWAs | 498,987 | 361,079 | ||||||
Market RWAs | ||||||||
Regulatory VaR | 8,933 | 8,933 | ||||||
Stressed VaR | 30,911 | 30,911 | ||||||
Incremental risk | 4,308 | 4,308 | ||||||
Comprehensive risk | 1,393 | 1,191 | ||||||
Specific risk | 19,043 | 19,043 | ||||||
Total Market RWAs | 64,588 | 64,386 | ||||||
Total Operational RWAs | – | 119,188 | ||||||
Total RWAs | $563,575 | $544,653 |
In the table above:
• | Securities financing transactions represents resale and repurchase agreements and securities borrowed and loaned transactions. |
• | Other includes receivables, certain debt securities, cash and cash equivalents and other assets. |
Goldman Sachs March 2020 Form 10-Q | 74 |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
The table below presents changes in RWAs.
$ in millions | Standardized | Advanced | ||||||
Three Months Ended March 2020 | ||||||||
RWAs | ||||||||
Beginning balance | $563,575 | $544,653 | ||||||
Credit RWAs | ||||||||
Change in: | ||||||||
Derivatives | 13,872 | 32,007 | ||||||
Commitments, guarantees and loans | 9,560 | 14,530 | ||||||
Securities financing transactions | (6,138 | ) | (1,319 | ) | ||||
Equity investments | (5,933 | ) | (8,893 | ) | ||||
Other | (1,086 | ) | 4,487 | |||||
Change in Credit RWAs | 10,275 | 40,812 | ||||||
Market RWAs | ||||||||
Change in: | ||||||||
Regulatory VaR | 4,532 | 4,532 | ||||||
Stressed VaR | 14,697 | 14,697 | ||||||
Incremental risk | 780 | 780 | ||||||
Comprehensive risk | 793 | 995 | ||||||
Specific risk | (168 | ) | (168 | ) | ||||
Change in Market RWAs | 20,634 | 20,836 | ||||||
Change in Operational RWAs | – | (375 | ) | |||||
Ending balance | $594,484 | $605,926 | ||||||
Year Ended December 2019 | ||||||||
RWAs | ||||||||
Beginning balance | $547,910 | $558,111 | ||||||
Credit RWAs | ||||||||
Change in: | ||||||||
Derivatives | (1,605 | ) | (9,670 | ) | ||||
Commitments, guarantees and loans | 19,435 | (8,900 | ) | |||||
Securities financing transactions | (496 | ) | (4,425 | ) | ||||
Equity investments | 3,251 | 6,738 | ||||||
Other | 5,064 | 8,585 | ||||||
Change in Credit RWAs | 25,649 | (7,672 | ) | |||||
Market RWAs | ||||||||
Change in: | ||||||||
Regulatory VaR | 1,151 | 1,151 | ||||||
Stressed VaR | 2,959 | 2,959 | ||||||
Incremental risk | (6,161 | ) | (6,161 | ) | ||||
Comprehensive risk | (1,377 | ) | (1,579 | ) | ||||
Specific risk | (6,556 | ) | (6,556 | ) | ||||
Change in Market RWAs | (9,984 | ) | (10,186 | ) | ||||
Change in Operational RWAs | – | 4,400 | ||||||
Ending balance | $563,575 | $544,653 |
RWAs Rollforward Commentary
Three Months Ended March 2020.
billion compared with December 2019, primarily reflecting an increase in derivatives, principally due to increased exposure, and an increase in commitments, guarantees and loans, principally due to increased lending activity. This increase was partially offset by decreased securities financing transactions and equity investments, primarily due to reduced exposures. Standardized Market RWAs as of March 2020 increased by
$20.63 billion compared with December 2019, primarily reflecting an increase in stressed VaR, principally due to increased risk exposures, and an increase in regulatory VaR, principally due to market volatility.
Advanced Credit RWAs as of March 2020 increased by $40.81 billion compared with December 2019, primarily reflecting an increase in derivatives, principally due to increased exposure
including the impact of higher levels of volatility
and counterparty credit risk, and an increase in commitments, guarantees and loans, principally due to increased lending activity. This increase was partially offset by decreased equity investments, primarily due to reduced exposures. Advanced Market RWAs as of March 2020 increased by $20.84 billion compared with December 2019, primarily reflecting an increase in stressed VaR, principally due to increased risk exposures, and an increase in regulatory VaR, principally due to market volatility. Advanced Operational RWAs as of March 2020 were essentially unchanged compared with December 2019.
Year Ended December 2019.
right-of-use
assets upon adoption of ASU No. 2016-02
and an increase in corporate debt exposures. Standardized Market RWAs as of December 2019 decreased by $9.98 billion compared with December 2018, primarily reflecting a decrease in specific risk, principally due to reduced exposures, and a decrease in incremental risk, principally due to reduced exposures and changes in risk measurements.Advanced Credit RWAs as of December 2019 decreased by $7.67 billion compared with December 2018. Beginning in the fourth quarter of 2019, the firm made changes to the calculation of the loss given default for certain wholesale exposures which resulted in a decrease in credit RWAs, primarily in commitments, guarantees and loans and derivatives. This decrease was partially offset by an increase in other credit RWAs, principally due to the recognition of operating lease
right-of-use
assets upon adoption of ASU No. 2016-02
and an increase in corporate debt exposures. Advanced Market RWAs as of December 2019 decreased by $10.19 billion compared with December 2018, primarily reflecting a decrease in specific risk, principally due to reduced exposures, and a decrease in incremental risk, principally due to reduced exposures and changes in risk measurements. Advanced Operational RWAs as of December 2019 increased by $4.40 billion compared with December 2018, associated with litigation and regulatory proceedings.75 | Goldman Sachs March 2020 Form 10-Q |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
Bank Subsidiaries
Regulatory Capital Ratios.
Under the regulatory framework for prompt corrective action applicable to GS Bank USA, in order to meet the quantitative requirements for being a “well-capitalized” depository institution, GS Bank USA must also meet the “well-capitalized” requirements in the table below.
GS Bank USA’s capital levels and prompt corrective action classification are also subject to qualitative judgments by the regulators about components of capital, risk weightings and other factors. Failure to comply with these capital requirements, including a breach of the buffers described above, could result in restrictions being imposed by GS Bank USA’s regulators.
Similar to the firm, GS Bank USA is required to calculate each of the CET1 capital, Tier 1 capital and Total capital ratios in accordance with both the Standardized and Advanced Capital Rules. The lower of each risk-based capital ratio calculated in accordance with the Standardized and Advanced Capital Rules is the ratio against which GS Bank USA’s compliance with its risk-based capital requirements is assessed.
The table below presents GS Bank USA’s risk-based capital, leverage and “well-capitalized” requirements.
Requirements | “Well-capitalized” Requirements | |||||||
Risk-based capital requirements | ||||||||
CET1 capital ratio | 7.0% | 6.5% | ||||||
Tier 1 capital ratio | 8.5% | 8.0% | ||||||
Total capital ratio | 10.5% | 10.0% | ||||||
Leverage requirements | ||||||||
Tier 1 leverage ratio | 4.0% | 5.0% | ||||||
SLR | 3.0% | 6.0% |
In the table above:
• | The CET1 capital ratio requirement includes a minimum of 4.5%, the Tier 1 capital ratio requirement includes a minimum of 6.0% and the Total capital ratio requirement includes a minimum of 8.0%. The requirements also include the capital conservation buffer of 2.5% and the countercyclical capital buffer, which the FRB has set to 0 percent. |
• | The “well-capitalized” requirements are the binding requirements for leverage ratios. |
The table below presents information about GS Bank USA’s risk-based capital ratios.
$ in millions | Standardized | Advanced | ||||||
As of March 2020 | ||||||||
CET1 capital | $ 29,760 | $ 29,760 | ||||||
Tier 1 capital | $ 29,760 | $ 29,760 | ||||||
Tier 2 capital | $ 5,710 | $ 4,644 | ||||||
Total capital | $ 35,470 | $ 34,404 | ||||||
RWAs | $272,752 | $164,238 | ||||||
CET1 capital ratio | 10.9% | 18.1% | ||||||
Tier 1 capital ratio | 10.9% | 18.1% | ||||||
Total capital ratio | 13.0% | 20.9% | ||||||
As of December 2019 | ||||||||
CET1 capital | $ 29,176 | $ 29,176 | ||||||
Tier 1 capital | $ 29,176 | $ 29,176 | ||||||
Tier 2 capital | $ 5,293 | $ 4,486 | ||||||
Total capital | $ 34,469 | $ 33,662 | ||||||
RWAs | $258,541 | $135,596 | ||||||
CET1 capital ratio | 11.3% | 21.5% | ||||||
Tier 1 capital ratio | 11.3% | 21.5% | ||||||
Total capital ratio | 13.3% | 24.8% |
In the table above:
• | The lower of the Standardized or Advanced ratio is the ratio against which GS Bank USA’s compliance with the capital requirements is assessed under the risk-based Capital Rules, and therefore, the Standardized ratios applied to GS Bank USA as of both March 2020 and December 2019. |
• | As permitted by the FRB, GS Bank USA has elected to temporarily delay the estimated effects of adopting CECL on regulatory capital until January 2022 and to subsequently phase-in the effects through January 2025. In addition, during 2020 and 2021, GS Bank USA has elected to increase regulatory capital by 25% of the increase in the allowance for credit losses since January 1, 2020, as permitted by the rules issued by the FRB. The impact of this increase will also be phased in over the three-year transition period. Reflecting the full impact of CECL as of March 2020 would not have had a material impact on GS Bank USA’s Standardized risk-based capital ratios. |
Goldman Sachs March 2020 Form 10-Q | 76 |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
• | The Standardized risk-based capital ratios and the Advanced risk-based capital ratios both decreased from December 2019 to March 2020, primarily due to an increase in Credit RWAs and Market RWAs. |
The table below presents information about GS Bank USA’s leverage ratios.
For the Three Months Ended or as of | ||||||||
$ in millions | March 2020 | December 2019 | ||||||
Tier 1 capital | $ 29,760 | $ 29,176 | ||||||
Average adjusted total assets | $243,007 | $220,974 | ||||||
Total leverage exposure | $425,724 | $413,852 | ||||||
Tier 1 leverage ratio | 12.2% | 13.2% | ||||||
SLR | 7.0% | 7.0% |
In the table above:
• | Tier 1 leverage ratio is calculated as Tier 1 capital divided by average adjusted total assets. |
• | SLR is calculated as Tier 1 capital divided by total leverage exposure. |
The firm’s principal
non-U.S.
bank subsidiary, GSIB, is a wholly-owned credit institution, regulated by the Prudential Regulation Authority and the Financial Conduct Authority and is subject to regulatory capital requirements. As of both March 2020 and December 2019, GSIB was in compliance with its regulatory capital requirements.Other.
Restrictions on Payments
Group Inc. may be limited in its ability to access capital held at certain subsidiaries as a result of regulatory, tax or other constraints. These limitations include provisions of applicable law and regulations and other regulatory restrictions that limit the ability of those subsidiaries to declare and pay dividends without prior regulatory approval (e.g., dividends that may be paid by GS Bank USA are limited to the lesser of the amounts calculated under a recent earnings test and an undivided profits test) even if the relevant subsidiary would satisfy the equity capital requirements applicable to it after giving effect to the dividend. For example, the FRB, 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 regulator’s opinion, payment of a dividend would constitute an unsafe or unsound practice in light of the financial condition of the banking organization.
In addition,
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.
Group Inc.’s equity investment in subsidiaries was $95.59 billion as of March 2020 and $95.68 billion as of December 2019, of which Group Inc. was required to maintain $63.09 billion as of March 2020 and $57.58 billion as of December 2019, of minimum equity capital in its regulated subsidiaries in order to satisfy the regulatory requirements of such subsidiaries.
Group Inc.’s capital invested in certain
non-U.S.
subsidiaries is exposed to foreign exchange risk, substantially all of which is managed through a combination of derivatives andnon-U.S.
denominated debt. See Note 7 for information about the firm’s net investment hedges used to hedge this risk.77 | Goldman Sachs March 2020 Form 10-Q |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
Note 21.
Earnings Per Common Share
Basic earnings per common share (EPS) is calculated by dividing net earnings to common by the weighted average number of common shares outstanding and RSUs for which the delivery of the underlying common stock is not subject to satisfaction of future service or performance conditions (collectively, basic shares). Diluted EPS includes the determinants of basic EPS and, in addition, reflects the dilutive effect of the common stock deliverable for RSUs for which the delivery of the underlying common stock is subject to satisfaction of future service or performance conditions.
The table below presents information about basic and diluted EPS.
Three Months Ended March | ||||||||
in millions, except per share amounts | 2020 | 2019 | ||||||
Net earnings to common | $1,123 | $2,182 | ||||||
Weighted average basic shares | 358.0 | 379.8 | ||||||
Effect of dilutive RSUs | 3.1 | 2.6 | ||||||
Weighted average diluted shares | 361.1 | 382.4 | ||||||
Basic EPS | $ 3.12 | $ 5.73 | ||||||
Diluted EPS | $ 3.11 | $ 5.71 |
In the table above:
• | Net earnings to common represents net earnings applicable to common shareholders, which is calculated as net earnings less preferred stock dividends. |
• | Unvested share-based awards that have non-forfeitable rights to dividends or dividend equivalents are treated as a separate class of securities under thetwo-class method. Distributed earnings allocated to these securities reduce net earnings to common to calculate basic EPS. The impact of applying this methodology was a reduction in basic EPS of $0.02 for both the three months ended March 2020 and March 2019. |
• | Diluted EPS does not include antidilutive RSUs of 0.1 million for the three months ended March 2020 and 0.2 million for the three months ended March 2019. |
Note 22.
Transactions with Affiliated Funds
The firm has formed 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 information about affiliated funds.
Three Months Ended March | ||||||||
$ in millions | 2020 | 2019 | ||||||
Fees earned from funds | $ 921 | $ 706 |
As of | ||||||||
$ in millions | March 2020 | December 2019 | ||||||
Fees receivable from funds | $ 877 | $ 780 | ||||||
Aggregate carrying value of interests in funds | $4,031 | $5,490 |
The firm may periodically determine to waive certain management fees on selected money market funds. Management fees waived were $12 million for the three months ended March 2020 and $10 million for the three months ended March 2019.
The Volcker Rule restricts the firm from providing financial support to covered funds (as defined in the rule) after the expiration of the conformance period. As a general matter, in the ordinary course of business, the firm does not expect to provide additional voluntary financial support to any covered funds, but may choose to do so with respect to funds that are not subject to the Volcker Rule. However, any such support is not expected to be material to the results of operations of the firm.
In March 2020, GS Bank USA and unaffiliated entities purchased certificates of deposit and commercial paper from two money market funds managed by the firm. These funds are not covered funds under the Volcker Rule. GS Bank USA’s purchase price of
$1.84
billion represented the fair value of these securities, which also closely approximated their face values. These purchases were made to promote liquidity in the short-term credit markets and to increase the funds’ weekly liquid assets. These securities are included within investments in the consolidated balance sheets. Group Inc. has provided a guarantee to GS Bank USA in connection with these securities. See Note 18 for information about guarantees provided by Group Inc. to subsidiaries. In addition, the firm had an outstanding guarantee, as permitted under the Volcker Rule, on behalf of its funds of
$87
million as of both March 2020 and December 2019. The firm has voluntarily provided this guarantee in connection with a financing agreement with a third-party lender executed by one of the firm’s real estate funds that is not covered by the Volcker Rule. As of and during March 2020 and December 2019, except as noted above, the firm has not provided any additional financial support to its affiliated funds.
In addition, in the ordinary course of business, the firm may also engage in other activities with its affiliated funds, including, among others, securities lending, trade execution, market-making, custody, and acquisition and bridge financing. See Note 18 for information about the firm’s investment commitments related to these funds.
Goldman Sachs March 2020 Form 10-Q | 78 |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
Note 23.
Interest Income and Interest Expense
Interest is recorded over the life of the instrument on an accrual basis based on contractual interest rates.
The table below presents sources of interest income and interest expense.
Three Months Ended March | ||||||||
$ in millions | 2020 | 2019 | ||||||
Deposits with banks | $ 205 | $ 377 | ||||||
Collateralized agreements | 534 | 1,304 | ||||||
Trading assets | 1,573 | 1,388 | ||||||
Investments | 471 | 395 | ||||||
Loans | 1,316 | 1,319 | ||||||
Other interest | 651 | 814 | ||||||
Total interest income | 4,750 | 5,597 | ||||||
Deposits | 818 | 857 | ||||||
Collateralized financings | 448 | 669 | ||||||
Trading liabilities | 314 | 366 | ||||||
Short-term borrowings | 141 | 142 | ||||||
Long-term borrowings | 1,105 | 1,384 | ||||||
Other interest | 611 | 961 | ||||||
Total interest expense | 3,437 | 4,379 | ||||||
Net interest income | $1,313 | $1,218 |
In the table above:
• | Collateralized agreements includes rebates paid and interest income on securities borrowed. |
• | Loans excludes interest on loans held for sale that are accounted for at the lower of cost or fair value. Such interest is included within other interest. |
• | Other interest income includes interest income on customer debit balances, other interest-earning assets and loans held for sale that are accounted for at the lower of cost or fair value. |
• | Collateralized financings consists of repurchase agreements and securities loaned. |
• | Short- and long-term borrowings include both secured and unsecured borrowings. |
• | Other interest expense includes rebates received on other interest-bearing liabilities and interest expense on customer credit balances. |
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 and primarily relate to the ability to utilize losses in various tax jurisdictions. Tax assets are included in other assets and tax liabilities are included in other liabilities.
Unrecognized Tax Benefits
The firm recognizes tax positions in the consolidated 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 consolidated financial statements.
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 and various states, such as New York. The tax years under examination vary by jurisdiction. 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.
79 | Goldman Sachs March 2020 Form 10-Q |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
The table below presents the earliest tax years that remain subject to examination by major jurisdiction.
Jurisdiction | As of March 2020 | |||
U.S. Federal | 2011 | |||
New York State and City | 2011 | |||
United Kingdom | 2017 | |||
Japan | 2014 | |||
Hong Kong | 2013 |
U.S. Federal examinations of 2011 and 2012 began in 2013. The firm has been accepted into the Compliance Assurance Process program by the IRS for each of the tax years from 2013 through 2020. This program allows 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 through 2018 tax years remain subject to post-filing review.
New York State and City examinations (excluding GS Bank USA) of 2011 through 2014 began in 2017. New York State and City examinations for GS Bank USA have been completed through 2014.
All years including and subsequent to the years in the table 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.
Note 25.
Business Segments
The firm reports its activities in the following four business segments: Investment Banking, Global Markets, Asset Management and Consumer & Wealth Management. See Note 1 for information about 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 global core liquid assets and cash, secured client financing and other assets), revenues and expenses among the four business segments. Due to the integrated nature of these segments, estimates and judgments are made in allocating certain assets, revenues and expenses. The allocation process is based on the manner in which management currently views the performance of the segments.
The allocation of common shareholders’ equity and preferred stock dividends to each segment is based on the estimated amount of equity required to support the activities of the segment under relevant regulatory capital requirements.
Net earnings for each segment is calculated by applying the firmwide tax rate to each segment’s
pre-tax
earnings.Management believes that this allocation provides a reasonable representation of each segment’s contribution to consolidated net earnings to common, return on average common equity and total assets. Transactions between segments are based on specific criteria or approximate third-party rates.
Goldman Sachs March 2020 Form 10-Q | 80 |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
Segment Results
The table below presents a summary of the firm’s segment results.
Three Months Ended March | ||||||||
$ in millions | 2020 | 2019 | ||||||
Investment Banking | ||||||||
Non-interest revenues | $ | $ 1,627 | ||||||
Net interest income | 138 | 119 | ||||||
Total net revenues | 2,184 | 1,746 | ||||||
Provision for credit losses | 622 | 86 | ||||||
Operating expenses | 1,169 | 1,005 | ||||||
Pre-tax earnings | $ | $ 655 | ||||||
Net earnings | $ | $ 543 | ||||||
Net earnings to common | $ | $ 535 | ||||||
Average common equity | $ | $11,496 | ||||||
Return on average common equity | 12.1% | 18.6% | ||||||
Global Markets | ||||||||
Non-interest revenues | $ | $ 3,483 | ||||||
Net interest income | 511 | 557 | ||||||
Total net revenues | 5,163 | 4,040 | ||||||
Provision for credit losses | 68 | 3 | ||||||
Operating expenses | 2,847 | 2,748 | ||||||
Pre-tax earnings | $ | $ 1,289 | ||||||
Net earnings | $ | $ 1,068 | ||||||
Net earnings to common | $ | $ 1,020 | ||||||
Average common equity | $ | $40,705 | ||||||
Return on average common equity | 19.7% | 10.0% | ||||||
Asset Management | ||||||||
Non-interest revenues | $ | ) | $ 1,646 | |||||
Net interest income | 171 | 147 | ||||||
Total net revenues | (96 | ) | 1,793 | |||||
Provision for credit losses | 79 | 13 | ||||||
Operating expenses | 1,198 | 1,103 | ||||||
Pre-tax earnings/(loss) | $ | ) | $ 677 | |||||
Net earnings/(loss) | $ | ) | $ 559 | |||||
Net earnings/(loss) to common | $ | ) | $ 549 | |||||
Average common equity | $ | $20,365 | ||||||
Return on average common equity | (23.6)% | 10.8% | ||||||
Consumer & Wealth Management | ||||||||
Non-interest revenues | $ | $ 833 | ||||||
Net interest income | 493 | 395 | ||||||
Total net revenues | 1,492 | 1,228 | ||||||
Provision for credit losses | 168 | 122 | ||||||
Operating expenses | 1,244 | 1,008 | ||||||
Pre-tax earnings | $ | $ 98 | ||||||
Net earnings | $ | $ 81 | ||||||
Net earnings to common | $ | $ 78 | ||||||
Average common equity | $ | $ 5,859 | ||||||
Return on average common equity | 3.8% | 5.3% | ||||||
Total | ||||||||
Non-interest revenues | $ | $ 7,589 | ||||||
Net interest income | 1,313 | 1,218 | ||||||
Total net revenues | 8,743 | 8,807 | ||||||
Provision for credit losses | 937 | 224 | ||||||
Operating expenses | 6,458 | 5,864 | ||||||
Pre-tax earnings | $ | $ 2,719 | ||||||
Net earnings | $ | $ 2,251 | ||||||
Net earnings to common | $ | $ 2,182 | ||||||
Average common equity | $ | $78,425 | ||||||
Return on average common equity | 5.7% | 11.1% |
In the table above:
• | 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 expense to specific positions in relation to the cash generated by, or funding requirements of, such positions. Net interest is included in segment net revenues as it is consistent with how management assesses segment performance. |
• | Overhead expenses not directly allocable to specific segments are allocated ratably based on direct segment expenses. |
The table below presents depreciation and amortization expense by segment.
Three Months Ended March | ||||||||
$ in millions | 2020 | 2019 | ||||||
Investment Banking | $ 39 | $ 29 | ||||||
Global Markets | 133 | 147 | ||||||
Asset Management | 170 | 137 | ||||||
Consumer & Wealth Management | 95 | 55 | ||||||
Total | $437 | $368 |
Segment Assets
The table below presents assets by segment.
As of | ||||||||
$ in millions | March 2020 | December 2019 | ||||||
Investment Banking | $ 105,059 | $ 92,009 | ||||||
Global Markets | 800,476 | 725,060 | ||||||
Asset Management | 92,636 | 92,102 | ||||||
Consumer & Wealth Management | 91,585 | 83,797 | ||||||
Total | $1,089,756 | $992,968 |
The table below presents gross loans by segment and loan type.
As of | ||||||||
$ in millions | March 2020 | December 2019 | ||||||
Corporate | $ 48,121 | $ 27,035 | ||||||
Investment Banking | 48,121 | 27,035 | ||||||
Corporate | 12,881 | 11,852 | ||||||
Real estate | 12,787 | 15,671 | ||||||
Other | 4,873 | 3,756 | ||||||
Global Markets | 30,541 | 31,279 | ||||||
Corporate | 7,528 | 7,420 | ||||||
Real estate | 8,456 | 9,030 | ||||||
Other | 751 | 1,036 | ||||||
Asset Management | 16,735 | 17,486 | ||||||
Wealth management | 29,017 | 27,940 | ||||||
Installment | 4,826 | 4,747 | ||||||
Credit cards | 2,081 | 1,858 | ||||||
Consumer & Wealth Management | 35,924 | 34,545 | ||||||
Total | $ 131,321 | $110,345 |
81 | Goldman Sachs March 2020 Form 10-Q |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
The table below presents the allowance for loan losses by segment.
As of | ||||||||
$ in millions | March 2020 | December 2019 | ||||||
Investment Banking | $1,174 | $ 470 | ||||||
Global Markets | 269 | 168 | ||||||
Asset Management | 489 | 385 | ||||||
Consumer & Wealth Management | 936 | 418 | ||||||
Total | $2,868 | $1,441 |
See Note 9 for further information about loans.
Geographic Information
Due to the highly integrated nature of international financial markets, the firm manages its businesses based on the profitability of the enterprise as a whole. The methodology for allocating profitability to geographic regions is dependent on estimates and management judgment because a significant portion of the firm’s activities require cross-border coordination in order to facilitate the needs of the firm’s clients. Geographic results are generally allocated as follows:
• | Investment Banking: location of the client and investment banking team. |
• | Global Markets: FICC and Equities intermediation: location of the market-making desk; FICC and Equities financing (excluding prime brokerage financing): location of the desk; prime brokerage financing: location of the primary market for the underlying security. |
• | Asset Management (excluding Equity investments and Lending and debt investments): location of the sales team; Equity investments: location of the investment; Lending and debt investments: location of the client. |
• | Consumer & Wealth Management: Wealth management: location of the sales team; Consumer banking: location of the client. |
The table below presents total net revenues and
pre-tax
earnings by geographic region.$ in millions | 2020 | 2019 | ||||||||||||||
Three Months Ended March | ||||||||||||||||
Americas | $5,171 | 59% | $5,245 | 60% | ||||||||||||
EMEA | 2,108 | 24% | 2,459 | 28% | ||||||||||||
Asia | 1,464 | 17% | 1,103 | 12% | ||||||||||||
Total net revenues | $8,743 | 100% | $8,807 | 100% | ||||||||||||
Americas | $ 551 | 41% | $1,488 | 55% | ||||||||||||
EMEA | 436 | 32% | 911 | 33% | ||||||||||||
Asia | 361 | 27% | 320 | 12% | ||||||||||||
Total pre-tax earnings | $1,348 | 100% | $2,719 | 100% |
In the table above:
• | Results in Americas were primarily attributable to the U.S. |
• | Asia includes Australia and New Zealand. |
Note 26.
Credit Concentrations
The firm’s concentrations of credit risk arise from its market making, client facilitation, investing, underwriting, lending and collateralized transactions, and cash management activities, and may be impacted by changes in economic, industry or political factors. These activities expose the firm to many different industries and counterparties, and may also subject the firm to a concentration of credit risk to a particular central bank, counterparty, borrower or issuer, including sovereign issuers, or to a particular clearing house or exchange. The firm seeks to mitigate credit risk by actively monitoring exposures and obtaining collateral from counterparties as deemed appropriate.
The firm measures and monitors its credit exposure based on amounts owed to the firm after taking into account risk mitigants that
the firm considers when determining credit risk. Such risk mitigants include netting and collateral arrangements and economic hedges, such as credit derivatives, futures and forward contracts. Netting and collateral agreements 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.
The table below presents the credit concentrations included in trading cash instruments and investments.
As of | ||||||||
$ in millions | March 2020 | December 2019 | ||||||
U.S. government and agency obligations | $162,690 | $167,097 | ||||||
Percentage of total assets | 14.9% | 16.8% | ||||||
Non-U.S. government and agency obligations | $ 47,457 | $ 44,875 | ||||||
Percentage of total assets | 4.4% | 4.5% |
Goldman Sachs March 2020 Form 10-Q | 82 |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
In addition, the firm had $64.10 billion as of March 2020 and $96.97 billion as of December 2019 of cash deposits held at central banks (included in cash and cash equivalents), of which $34.16 billion as of March 2020 and $50.55 billion as of December 2019 was held at the Federal Reserve Bank of New York.
As of both March 2020 and December 2019, the firm did not have credit exposure to any other counterparty that exceeded 2% of total assets.
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 agency obligations and
non-U.S.
government and agency obligations. See Note 11 for further information about collateralized agreements and financings.The table below presents U.S. government and agency obligations and
non-U.S.
government and agency obligations that collateralize resale agreements and securities borrowed transactions.As of | ||||||||
$ in millions | March 2020 | December 2019 | ||||||
U.S. government and agency obligations | $80,136 | $49,396 | ||||||
Non-U.S. government and agency obligations | $72,573 | $55,889 |
In the table above:
• | Non-U.S. government and agency obligations primarily consists of securities issued by the governments of Japan, France, the U.K. and Germany. |
• | Given that 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. |
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.
With respect to matters described below for which management has been able to estimate a range of reasonably possible loss where (i) actual or potential plaintiffs have claimed an amount of money damages, (ii) the firm is being, or threatened to be, sued by purchasers in a securities offering and is not being indemnified by a party that the firm believes will pay the full amount of 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 difference between the initial sales price of the securities that the firm sold in such offering and the estimated lowest subsequent price of such securities prior to the action being commenced and (c) in the case of (iii), the price that purchasers paid for the securities less the estimated value, if any, as of March 2020 of the relevant securities, in each of cases (i), (ii) and (iii), taking into account any other factors believed to be relevant to the particular matter or matters of that type. As of the date hereof, the firm has estimated the upper end of the range of reasonably possible aggregate loss for such matters and for any other matters described below where management has been able to estimate a range of reasonably possible aggregate loss to be approximately $3.2 billion in excess of the aggregate reserves for such matters.
83 | Goldman Sachs March 2020 Form 10-Q |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
Management is generally unable to estimate a range of reasonably possible loss for matters other than those included in the estimate above, including where (i) actual or potential plaintiffs have not claimed an amount of money damages, except in those instances where management can otherwise determine an appropriate amount, (ii) matters are in early stages, (iii) matters relate to regulatory investigations or reviews, except in those instances where management can otherwise determine an appropriate amount, (iv) there is uncertainty as to the likelihood of a class being certified or the ultimate size of the class, (v) there is uncertainty as to the outcome of pending appeals or motions, (vi) there are significant factual issues to be resolved, and/or (vii) there are novel legal issues presented. For example, the firm’s potential liabilities with respect to the investigations and reviews described below in “Regulatory Investigations and Reviews and Related Litigation” generally are not included in management’s estimate of reasonably possible loss. However, management does not believe, based on currently available information, that the outcomes of such other matters 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. See Note 18 for further information about mortgage-related contingencies.
1Malaysia Development Berhad (1MDB)-Related Matters
The firm has received subpoenas and requests for documents and information from various governmental and regulatory bodies and self-regulatory organizations as part of investigations and reviews relating to financing transactions and other matters involving 1MDB, a sovereign wealth fund in Malaysia. Subsidiaries of the firm acted as arrangers or purchasers of approximately $6.5 billion of debt securities of 1MDB.
On November 1, 2018, the U.S. Department of Justice (DOJ) unsealed a criminal information and guilty plea by Tim Leissner, a former participating managing director of the firm, and an indictment against Ng Chong Hwa, a former managing director of the firm, and Low Taek Jho. Leissner pleaded guilty to a
two-count
criminal information charging him with conspiring to launder money and conspiring to violate the U.S. Foreign Corrupt Practices Act’s (FCPA) anti-bribery and internal accounting controls provisions. Low and Ng were charged in a three-count indictment with conspiring to launder money and conspiring to violate the FCPA’s anti-bribery provisions. On August 28, 2018, Leissner’s guilty plea was accepted by the U.S. District Court for the Eastern District of New York and Leissner was adjudicated guilty on both counts. Ng was also charged in this indictment with conspiring to violate the FCPA’s internal accounting controls provisions. The charging documents state, among other things, that Leissner and Ng participated in a conspiracy to misappropriate proceeds of the 1MDB offerings for themselves and to pay bribes to various government officials to obtain and retain 1MDB business for the firm. The plea and charging documents indicate that Leissner and Ng knowingly and willfully circumvented the firm’s system of internal accounting controls, in part by repeatedly lying to control personnel and internal committees that reviewed these offerings. The indictment of Ng and Low alleges that the firm’s system of internal accounting controls could be easily circumvented and that the firm’s business culture, particularly in Southeast Asia, at times prioritized consummation of deals ahead of the proper operation of its compliance functions. On May 6, 2019, Ng pleaded not guilty to the DOJ’s criminal charges. On February 4, 2020, the FRB disclosed that Andrea Vella, a former participating managing director whom the DOJ had previously referred to as an unindictedco-conspirator,
had agreed, without admitting or denying the FRB’s allegations, to a consent order that prohibited him from participating in the banking industry. No other penalties were imposed by the consent order.Goldman Sachs March 2020 Form 10-Q | 84 |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
On December 17, 2018, the Attorney General of Malaysia filed criminal charges in Malaysia against GSI, as the arranger of three offerings of debt securities of 1MDB, aggregating approximately $6.5 billion in principal amount, for alleged disclosure deficiencies in the offering documents relating to, among other things, the use of proceeds for the debt securities, as well as against Goldman Sachs (Asia) LLC (GS Asia) and Goldman Sachs (Singapore) PTE (GS Singapore). Criminal charges have also been filed against Leissner, Low, Ng and Jasmine Loo Ai Swan. In a related press release, the Attorney General of Malaysia indicated that prosecutors in Malaysia will seek criminal fines against the accused in excess of $2.7 billion plus the $600 million of fees received in connection with the debt offerings. On August 9, 2019, the Attorney General of Malaysia announced that criminal charges had also been filed against seventeen current and former directors of GSI, GS Asia and GS Singapore.
The Malaysia Securities Commission issued notices to show cause against Goldman Sachs (Malaysia) Sdn Bhd (GS Malaysia) in December 2018 and March 2019 that (i) allege possible violations of Malaysian securities laws and (ii) indicate that the Malaysia Securities Commission is considering whether to revoke GS Malaysia’s license to conduct corporate finance and fund management activities in Malaysia.
The firm has received multiple demands, beginning in November 2018, from alleged shareholders under Section 220 of the Delaware General Corporation Law for books and records relating to, among other things, the firm’s involvement with 1MDB and the firm’s compliance procedures. On December 13, 2019, an alleged shareholder filed a lawsuit in the Court of Chancery of the State of Delaware seeking books and records relating to, among other things, the firm’s involvement with 1MDB and the firm’s compliance procedures. The parties have agreed to stay proceedings pending resolution of the books and records demand.
On February 19, 2019, a purported shareholder derivative action relating to 1MDB was filed in the U.S. District Court for the Southern District of New York against Group Inc. and the directors at the time and a former chairman and chief executive officer of the firm. The amended complaint filed on July 12, 2019, which seeks unspecified damages, disgorgement and injunctive relief, alleges breaches of fiduciary duties, including in connection with alleged insider trading by certain current and former directors, unjust enrichment and violations of the anti-fraud provisions of the Exchange Act, including in connection with Group Inc.’s common stock repurchases and solicitation of proxies. Defendants moved to dismiss this action on September 12, 2019.
Beginning in March 2019, the firm has also received demands from alleged shareholders to investigate and pursue claims against certain current and former directors and executive officers based on their oversight and public disclosures regarding 1MDB and related internal controls.
On November 21, 2018, a summons with notice was filed in New York Supreme Court, County of New York, by International Petroleum Investment Company, which guaranteed certain debt securities issued by 1MDB, and its subsidiary Aabar Investments PJS. The summons with notice makes unspecified claims relating to 1MDB and seeks unspecified compensatory and punitive damages and other relief against Group Inc., GSI, GS Asia, GS Singapore, GS Malaysia, Leissner, Ng, and Vella, as well as individuals (who are not current or former employees of the firm) previously associated with the plaintiffs.
On December 20, 2018, a putative securities class action lawsuit was filed in the U.S. District Court for the Southern District of New York against Group Inc. and certain former officers of the firm alleging violations of the anti-fraud provisions of the Exchange Act with respect to Group Inc.’s disclosures concerning 1MDB and seeking unspecified damages. The plaintiffs filed the second amended complaint on October 28, 2019, which the defendants moved to dismiss on January 9, 2020.
The firm is cooperating with the DOJ and all other governmental and regulatory investigations relating to 1MDB. The firm is also engaged in discussions with certain governmental and regulatory authorities with respect to potential resolution of their investigations and proceedings. There can be no assurance that the discussions will lead to resolution of any of those matters. Any such resolution, as well as proceedings by the DOJ or other governmental or regulatory authorities, could result in the imposition of significant fines, penalties and other sanctions against the firm, including restrictions on the firm’s activities.
Mortgage-Related Matters
Beginning in April 2010, a number of purported securities law class actions were 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 collateralized debt obligation market, and the firm’s conflict of interest management.
85 | Goldman Sachs March 2020 Form 10-Q |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
The consolidated amended complaint filed on July 25, 2011, which names as defendants Group Inc. and certain current and former officers and employees of Group Inc. and its affiliates, generally alleges violations of Sections 10(b) and 20(a) of the Exchange Act and seeks unspecified damages. The defendants have moved for summary judgment. On April 7, 2020, the Second Circuit Court of Appeals affirmed the district court’s August 14, 2018 grant of class certification.
Beginning on February 15, 2019, a summons with notice and a complaint were filed against Goldman Sachs Mortgage Company and GS Mortgage Securities Corp. by U.S. Bank National Association, as trustee for two residential mortgage-backed securitization trusts that issued $1.7 billion of securities, and the cases are pending in the U.S. District Court for the Southern District of New York. The summons with notice and complaint generally allege that mortgage loans in the trusts failed to conform to applicable representations and warranties and seek specific performance or, alternatively, compensatory damages and other relief. Defendants moved to dismiss the complaint on September 23, 2019.
The firm continues to receive requests for information, including from certain regulators, relating to mortgage-related activities.
Director Compensation-Related Litigation
On May 9, 2017, Group Inc. and certain of its current and former directors were named as defendants in a purported direct and derivative shareholder action in the Court of Chancery of the State of Delaware (a similar purported derivative action, filed in June 2015, alleging excessive director compensation over the period 2012 to 2014 was voluntarily dismissed without prejudice in December 2016). The complaint alleges that excessive compensation has been paid to the
non-employee
director defendants since 2015, and that certain disclosures in connection with soliciting shareholder approval of the stock incentive plans were deficient. The complaint asserts claims for breaches of fiduciary duties and seeks, among other things, rescission or in some cases rescissory damages, disgorgement, and shareholder votes on several matters. On October 23, 2018, the court declined to approve the parties’ proposed settlement. On May 31, 2019, the court dismissed the disclosure-related claims, but permitted thenon-employee
director compensation claim to proceed. The parties have filed a proposed settlement with the Delaware court, which is subject to court approval. As part of the proposed settlement, the firm has agreed to certain changes to its Non-Employee Director Compensation Program.Currencies-Related Litigation
GS&Co. and Group Inc. are among the defendants named in putative class actions filed in the U.S. District Court for the Southern District of New York beginning in September 2016 on behalf of putative indirect purchasers of foreign exchange instruments. On August 5, 2019, the plaintiffs filed a third consolidated amended complaint generally alleging a conspiracy to manipulate the foreign currency exchange markets, asserting claims under various state antitrust laws and state consumer protection laws and seeking treble damages in an unspecified amount. In February 2020, the parties reached a settlement in principle, subject to documentation and court approval. The firm has reserved the full amount of its proposed contribution to the settlement.
GS&Co. and Group Inc. are among the defendants named in an action filed in the U.S. District Court for the Southern District of New York on November 7, 2018 by certain direct purchasers of foreign exchange instruments that opted out of a class settlement reached with, among others, GS&Co. and Group Inc. The second amended complaint, filed on June 11, 2019, generally alleges that the defendants violated federal antitrust law and state common law in connection with an alleged conspiracy to manipulate the foreign currency exchange markets and seeks declaratory and injunctive relief, as well as unspecified amounts of compensatory, punitive, treble and other damages. Defendants moved to dismiss on July 25, 2019.
Financial Advisory Services
Group Inc. and certain of its affiliates are from time to time 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.
Goldman Sachs March 2020 Form 10-Q | 86 |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
Underwriting Litigation
Firm affiliates are among the defendants in a number of proceedings in connection with securities offerings. In these proceedings, including those described below, the plaintiffs assert class action or individual claims under federal and state securities laws and in some cases other applicable laws, allege that the offering documents for the securities that they purchased contained material misstatements and omissions, and generally seek compensatory and rescissory damages in unspecified amounts. Certain of these proceedings involve additional allegations.
Adeptus Health Inc.
SunEdison, Inc.
, S
unEdison filed for Chapter 11 bankruptcy. The pending cases were transferred to the U.S. District Court for the Southern District of New York and on March 17, 2017, plaintiffs in the putative class action filed a consolidated amended complaint. GS&Co., as underwriter, sold
138,890shares of SunEdison convertible preferred stock in the offering, representing an aggregate offering price of approximately $
139 million. On April 10, 2018 and April 17, 2018, certain plaintiffs in the individual actions filed amended complaints. The defendants have reached a settlement with certain plaintiffs in the individual actions and a settlement of the class action, which the court approved on October 25, 2019. The firm has paid the full amount of its contribution to the settlement. Defendants moved to dismiss the remaining individual actions on December 18, 2019.
Valeant Pharmaceuticals International, Inc.
non-U.S.
purchasers in the offerings. Defendants’ motion for leave to appeal the certification was denied on November 30, 2017.GS&Co. and GS Canada, as sole underwriters, sold 5,334,897 shares of common stock in the June 2013 offering to
non-U.S.
purchasers representing an aggregate offering price of approximately $453 million and, as initial purchasers, had a proportional share of sales tonon-U.S.
purchasers of approximately CAD14.2 million in principal amount of senior notes in the June 2013 and November 2013 Rule 144A offerings.87 | Goldman Sachs March 2020 Form 10-Q |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
Snap Inc.
,
and the U.S. District Court for the Central District of California beginning in May 2017, relating to Snap Inc.’s $3.91 billion March 2017 initial public offering. In addition to the underwriters, the defendants include Snap Inc. and certain of its officers and directors. GS&Co. underwrote 57,040,000 shares of common stock representing an aggregate offering price of approximately $970 million. The underwriter defendants, including GS&Co., were voluntarily dismissed from the district court action on September 18, 2018. In the district court action, defendants moved for summary judgment on December 19, 2019, following the court’s November 20, 2019 order approving plaintiffs’ motion for class certification. The state court actions have been stayed. On January 17, 2020, the parties reached a settlement in principle that would resolve all actions, subject to documentation and court approval.Sea Limited.
Altice USA, Inc.
,
and the U.S. District Court for the Eastern District of New York beginning in June 2018, relating to Altice USA, Inc.’s (Altice) $2.15 billion June 2017 initial public offering. In addition to the underwriters, the defendants include Altice and certain of its officers and directors. GS&Co. underwrote 12,280,042 shares of common stock representing an aggregate offering price of approximately $368 million. On May 10, 2019, plaintiffs in the district court filed an amended complaint, and on June 27, 2019, plaintiffs in the state court action filed a consolidated amended complaint. On July 23, 2019, defendants moved to dismiss the amended complaint in the state court action. On October 14, 2019, defendants moved to dismiss the complaint in the district court action.Camping World Holdings, Inc.
the Illinois state court action on April 19, 2019 and the Illinois district court action on May 17, 2019. The Illinois state court action has been stayed pending resolution of the motions to dismiss in the Illinois district court action. On April 7, 2020, the Illinois district court preliminarily approved a settlement among the parties to the Illinois district court action, which would resolve this action without any contribution by GS&Co. On April 22, 2020, the New York state court granted in part and denied in part the underwriter defendants’ motion to dismiss with leave to amend.
Alnylam Pharmaceuticals, Inc.
Goldman Sachs March 2020 Form 10-Q | 88 |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
Uber Technologies, Inc.
Venator Materials PLC.
XP Inc.
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.
Securities Lending Antitrust Litigation
Group Inc. and GS&Co. are among the defendants named in a putative antitrust class action and three individual actions relating to securities lending practices filed in the U.S. District Court for the Southern District of New York beginning in August 2017. The complaints generally assert claims under federal and state antitrust law and state common law in connection with an alleged conspiracy among the defendants to preclude the development of electronic platforms for securities lending transactions. The individual complaints also assert claims for tortious interference with business relations and under state trade practices law and, in the second and third individual actions, unjust enrichment under state common law. The complaints seek declaratory and injunctive relief, as well as unspecified amounts of compensatory, treble, punitive and other damages. Group Inc. was voluntarily dismissed from the putative class action on January 26, 2018. Defendants’ motion to dismiss the class action complaint was denied on September 27, 2018. Defendants moved to dismiss the second individual action on December 21, 2018. Defendants’ motion to dismiss the first individual action was granted on August 7, 2019.
89 | Goldman Sachs March 2020 Form 10-Q |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
Interest Rate Swap Antitrust Litigation
Group Inc., GS&Co., GSI, GS Bank USA and Goldman Sachs Financial Markets, L.P. (GSFM) are among the defendants named in a putative antitrust class action relating to the trading of interest rate swaps, filed in November 2015 and consolidated in the U.S. District Court for the Southern District of New York. The same Goldman Sachs entities also are among the defendants named in two antitrust actions relating to the trading of interest rate swaps, commenced in April 2016 and June 2018, respectively, in the U.S. District Court for the Southern District of New York by three operators of swap execution facilities and certain of their affiliates. These actions have been consolidated for pretrial proceedings. The complaints generally assert claims under federal antitrust law and state common law in connection with an alleged conspiracy among the defendants to preclude exchange trading of interest rate swaps. The complaints in the individual actions also assert claims under state antitrust law. The complaints seek declaratory and injunctive relief, as well as treble damages in an unspecified amount. Defendants moved to dismiss the class and the first individual action and the district court dismissed the state common law claims asserted by the plaintiffs in the first individual action and otherwise limited the state common law claim in the putative class action and the antitrust claims in both actions to the period from 2013 to 2016. On November 20, 2018, the court granted in part and denied in part the defendants’ motion to dismiss the second individual action, dismissing the state common law claims for unjust enrichment and tortious interference, but denying dismissal of the federal and state antitrust claims. On March 13, 2019, the court denied the plaintiffs’ motion in the putative class action to amend their complaint to add allegations related to 2008-2012 conduct, but granted the motion to add limited allegations from 2013-2016, which the plaintiffs added in a fourth consolidated amended complaint filed on March 22, 2019. The plaintiffs in the putative class action moved for class certification on March 7, 2019.
GSE Bonds Antitrust Litigation
GS&Co. is among the dealers named as defendants in numerous putative antitrust class actions relating to debt securities issued by Federal National Mortgage Association, Federal Home Loan Mortgage Corporation, Federal Farm Credit Banks Funding Corporation and Federal Home Loan Banks (collectively, the GSEs), filed beginning in February 2019 and consolidated in the U.S. District Court for the Southern District of New York. The third consolidated amended complaint, filed on September 10, 2019, asserts claims under federal antitrust law in connection with an alleged conspiracy among the defendants to manipulate the secondary market for debt securities issued by the GSEs. The complaint seeks declaratory and injunctive relief, as well as treble damages in unspecified amounts. On December 12, 2019, the court preliminarily approved a settlement between the firm and class plaintiffs. The firm has reserved the full amount of its contribution to the settlement. Beginning in September 2019, the State of Louisiana and the City of Baton Rouge filed complaints in the U.S. District Court for the Middle District of Louisiana against the class defendants and a number of dealers alleging the same claims as in the class action. In January 2020, the State of Louisiana and City of Baton Rouge voluntarily dismissed their actions with prejudice against GS&Co. in favor of participating in the class settlement.
Variable Rate Demand Obligations Antitrust Litigation
GS&Co. is among the defendants named in a putative class action relating to variable rate demand obligations (VRDOs), filed beginning in February 2019 under separate complaints and consolidated in the U.S. District Court for the Southern District of New York. The consolidated amended complaint, filed on May 31, 2019, generally asserts claims under federal antitrust law and state common law in connection with an alleged conspiracy among the defendants to manipulate the market for VRDOs. The complaint seeks declaratory and injunctive relief, as well as unspecified amounts of compensatory, treble and other damages. Defendants moved to dismiss on July 30, 2019.
Goldman Sachs March 2020 Form 10-Q | 90 |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
Commodities-Related Litigation
GSI is among the defendants named in putative class actions relating to trading in platinum and palladium, filed beginning on November 25, 2014 and most recently amended on May 15, 2017, in the U.S. District Court for the Southern District of New York. The amended complaint generally alleges that the defendants violated federal antitrust laws and the Commodity Exchange Act in connection with an alleged conspiracy to manipulate a benchmark for physical platinum and palladium prices and seek declaratory and injunctive relief, as well as treble damages in an unspecified amount. On March 29, 2020, the court granted the defendants’ motions to dismiss and for reconsideration, resulting in the dismissal of all claims. Plaintiffs have been granted leave to replead.
GS&Co., GSI, J. Aron & Company and Metro, a previously consolidated subsidiary of Group Inc. that was sold in the fourth quarter of 2014, are among the defendants in a number of putative class and individual actions filed beginning on August 1, 2013 and consolidated in the U.S. District Court for the Southern District of New York. The complaints generally allege violations of federal antitrust laws and state laws in connection with the storage of aluminum and aluminum trading. The complaints seek declaratory, injunctive and other equitable relief, as well as unspecified monetary damages, including treble damages. In December 2016, the district court granted defendants’ motions to dismiss as to all remaining claims. Certain plaintiffs subsequently appealed in December 2016. On August 27, 2019, the Second Circuit vacated the district court’s dismissals and remanded the case to district court for further proceedings.
Group Inc., GS&Co., GSI, J. Aron & Company and Metro are among the defendants in an action filed on February 27, 2020 in the High Court of Justice, Business and Property Courts of England and Wales. The particulars of claim seeks unspecified compensatory and exemplary damages based on alleged violations of U.K. and E.U. competition laws in connection with the storage and trading of aluminum.
U.S. Treasury Securities Litigation
GS&Co. is among the primary dealers named as defendants in several putative class actions relating to the market for U.S. Treasury securities, filed beginning in July 2015 and consolidated in the U.S. District Court for the Southern District of New York. GS&Co. is also among the primary dealers named as defendants in a similar individual action filed in the U.S. District Court for the Southern District of New York on August 25, 2017. The consolidated class action complaint, filed on December 29, 2017, generally alleges that the defendants violated antitrust laws in connection with an alleged conspiracy to manipulate the when-issued market and auctions for U.S. Treasury securities and that certain defendants, including GS&Co., colluded to preclude trading of U.S. Treasury securities on electronic trading platforms in order to impede competition in the bidding process. The individual action alleges a similar conspiracy regarding manipulation of the when-issued market and auctions, as well as related futures and options in violation of the Commodity Exchange Act. The complaints seek declaratory and injunctive relief, treble damages in an unspecified amount and restitution. Defendants moved to dismiss on February 23, 2018.
Corporate Bonds Antitrust Litigation
Group Inc. and GS&Co. are among the dealers named as defendants in a putative class action relating to the secondary market for odd-lot corporate bonds, filed on April 21, 2020 in the U.S. District Court for the Southern District of New York. The complaint asserts claims under federal antitrust law in connection with alleged anti-competitive conduct by the defendants in the secondary market for odd-lots of corporate bonds, and seeks declaratory and injunctive relief, as well as unspecified monetary damages, including treble and punitive damages and restitution.
Employment-Related Matters
On September 15, 2010, a putative class action was filed in the U.S. District Court for the Southern District of New York by three female former employees. The complaint, as subsequently amended, alleges that Group Inc. and GS&Co. have systematically discriminated against female employees in respect of compensation, promotion and performance evaluations. The complaint alleges a class consisting of all female employees employed at specified levels in specified areas 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.
91 | Goldman Sachs March 2020 Form 10-Q |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
On March 30, 2018, the district court certified a damages class as to the plaintiffs’ disparate impact and treatment claims. On September 4, 2018, the Second Circuit Court of Appeals denied defendants’ petition for interlocutory review of the district court’s class certification decision and subsequently denied defendants’ petition for rehearing. On September 27, 2018, plaintiffs advised the district court that they would not seek to certify a class for injunctive and declaratory relief. On March 26, 2020, the Magistrate Judge in the district court granted in part a motion to compel arbitration as to class members who are parties to certain agreements with Group Inc. and/or GS&Co. in which they agreed to arbitrate employment-related disputes. On April 16, 2020, plaintiffs submitted objections to the Magistrate Judge’s order and defendants submitted conditional objections in the event that the district judge overturns any portion of the Magistrate Judge’s order.
Regulatory Investigations and Reviews and Related Litigation
Group Inc. and certain of its affiliates are subject to a number of other investigations and reviews by, and in some cases have received subpoenas and requests for documents and information from, various governmental and regulatory bodies and self-regulatory organizations and litigation and shareholder requests relating to various matters relating to the firm’s businesses and operations, including:
• | The public offering process; |
• | The firm’s investment management and financial advisory services; |
• | Conflicts of interest; |
• | Research practices, including research independence and interactions between research analysts and other firm personnel, including investment banking personnel, as well as third parties; |
• | Transactions involving government-related financings and other matters, 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, municipal advisory services and the possible impact of credit default swap transactions on municipal issuers; |
• | Credit cards, unsecured installment and residential mortgage lending and servicing, and compliance with related consumer laws; |
• | The offering, auction, sales, trading and clearance of corporate and government securities, currencies, commodities and other financial products and related sales and other communications and activities, as well as the firm’s supervision and controls relating to such activities, including compliance with applicable short sale rules, algorithmic, high-frequency and quantitative trading, the firm’s U.S. alternative trading system (dark pool), futures trading, options trading, when-issued trading, transaction reporting, technology systems and controls, securities lending practices, trading and clearance of credit derivative instruments and interest rate swaps, commodities activities and metals storage, private placement practices, allocations of and trading in securities, and trading activities and communications in connection with the establishment of benchmark rates, such as currency rates; |
• | Compliance with the FCPA; |
• | The firm’s hiring and compensation practices; |
• | The firm’s system of risk management and controls; and |
• | Insider trading, the potential misuse and dissemination of material nonpublic information regarding corporate and governmental developments and the effectiveness of the firm’s insider trading controls and information barriers. |
The firm is cooperating with all such governmental and regulatory investigations and reviews.
Goldman Sachs March 2020 Form 10-Q | 92 |
Report of Independent Registered Public Accounting Firm
To
the Board of Directors and the Shareholders of The Goldman Sachs Group, Inc.:
Results of Review of Interim Financial Statements
We have reviewed the accompanying consolidated balance sheet of The Goldman Sachs Group, Inc. and its subsidiaries (the Company) as of March 31, 2020, the related consolidated statements of earnings, comprehensive income, changes in shareholders’ equity and cash flows for the three month periods ended March 31, 2020 and 2019, including the related notes (collectively referred to as the “interim financial statements”). Based on our reviews, we are not aware of any material modifications that should be made to the accompanying interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.
We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheet of the Company as of December 31, 2019, 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 20, 2020, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance
sheet as of December 31, 2019 is fairly stated in all material respects in relation to the consolidated balance sheet from which it has been derived.
Basis for Review Results
These interim financial statements are the responsibility of the Company’s management. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our review in accordance with the standards of the PCAOB. 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 PCAOB, 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.
/s/ PricewaterhouseCoopers LLP
New York, New York
April 30, 2020
93 | Goldman Sachs March 2020 Form 10-Q |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Statistical Disclosures
Distribution of Assets, Liabilities and Shareholders’ Equity
The tables below present information about average balances, interest and average interest rates.
Average Balance for the Three Months Ended March | ||||||||
$ in millions | 2020 | 2019 | ||||||
Assets | ||||||||
U.S. | $ | $ 52,559 | ||||||
Non-U.S. | 54,102 | 51,998 | ||||||
Total deposits with banks | 95,351 | 104,557 | ||||||
U.S. | 137,105 | 171,446 | ||||||
Non-U.S. | 123,218 | 131,874 | ||||||
Total collateralized agreements | 260,323 | 303,320 | ||||||
U.S. | 195,854 | 132,752 | ||||||
Non-U.S. | 117,488 | 106,227 | ||||||
Total trading assets | 313,342 | 238,979 | ||||||
U.S. | 43,979 | 35,102 | ||||||
Non-U.S. | 17,435 | 13,581 | ||||||
Total investments | 61,414 | 48,683 | ||||||
U.S. | 88,534 | 85,073 | ||||||
Non-U.S. | 17,066 | 10,534 | ||||||
Total loans | 105,600 | 95,607 | ||||||
U.S. | 50,888 | 39,685 | ||||||
Non-U.S. | 43,570 | 33,832 | ||||||
Total other interest-earning assets | 94,458 | 73,517 | ||||||
Total interest-earning assets | 930,488 | 864,663 | ||||||
Cash and due from banks | 12,232 | 9,222 | ||||||
Other non-interest-earning assets | 105,947 | 80,581 | ||||||
Total assets | $1,048,667 | $954,466 | ||||||
Liabilities | ||||||||
U.S. | $ 153,771 | $126,643 | ||||||
Non-U.S. | 45,418 | 32,572 | ||||||
Total interest-bearing deposits | 199,189 | 159,215 | ||||||
U.S. | 88,223 | 52,995 | ||||||
Non-U.S. | 36,884 | 36,312 | ||||||
Total collateralized financings | 125,107 | 89,307 | ||||||
U.S. | 27,626 | 32,475 | ||||||
Non-U.S. | 47,948 | 47,087 | ||||||
Total trading liabilities | 75,574 | 79,562 | ||||||
U.S. | 34,241 | 32,877 | ||||||
Non-U.S. | 18,399 | 16,000 | ||||||
Total short-term borrowings | 52,640 | 48,877 | ||||||
U.S. | 197,063 | 208,876 | ||||||
Non-U.S. | 27,294 | 29,114 | ||||||
Total long-term borrowings | 224,357 | 237,990 | ||||||
U.S. | 128,285 | 128,337 | ||||||
Non-U.S. | 65,702 | 54,984 | ||||||
Total other interest-bearing liabilities | 193,987 | 183,321 | ||||||
Total interest-bearing liabilities | 870,854 | 798,272 | ||||||
Non-interest-bearing deposits | 6,325 | 4,933 | ||||||
Other non-interest-bearing liabilities | 81,022 | 61,633 | ||||||
Total liabilities | 958,201 | 864,838 | ||||||
Shareholders’ equity | ||||||||
Preferred stock | 11,203 | 11,203 | ||||||
Common stock | 79,263 | 78,425 | ||||||
Total shareholders’ equity | 90,466 | 89,628 | ||||||
Total liabilities and shareholders’ equity | $1,048,667 | $954,466 | ||||||
Percentage of interest-earning assets and interest-bearing liabilities attributable to non-U.S. operations | ||||||||
Assets | 40.07% | 40.25% | ||||||
Liabilities | 27.75% | 27.07% |
Interest for the Three Months Ended March | ||||||||
$ in millions | 2020 | 2019 | ||||||
Assets | ||||||||
U.S. | $ | $ 296 | ||||||
Non-U.S. | 54 | 81 | ||||||
Total deposits with banks | 205 | 377 | ||||||
U.S. | 440 | 1,175 | ||||||
Non-U.S. | 94 | 129 | ||||||
Total collateralized agreements | 534 | 1,304 | ||||||
U.S. | 1,067 | 869 | ||||||
Non-U.S. | 506 | 519 | ||||||
Total trading assets | 1,573 | 1,388 | ||||||
U.S. | 334 | 290 | ||||||
Non-U.S. | 137 | 105 | ||||||
Total investments | 471 | 395 | ||||||
U.S. | 1,123 | 1,167 | ||||||
Non-U.S. | 193 | 152 | ||||||
Total loans | 1,316 | 1,319 | ||||||
U.S. | 453 | 562 | ||||||
Non-U.S. | 198 | 252 | ||||||
Total other interest-earning assets | 651 | 814 | ||||||
Total interest-earning assets | $4,750 | $5,597 | ||||||
Liabilities | ||||||||
U.S. | $ 685 | $ 758 | ||||||
Non-U.S. | 133 | 99 | ||||||
Total interest-bearing deposits | 818 | 857 | ||||||
U.S. | 400 | 591 | ||||||
Non-U.S. | 48 | 78 | ||||||
Total collateralized financings | 448 | 669 | ||||||
U.S. | 105 | 158 | ||||||
Non-U.S. | 209 | 208 | ||||||
Total trading liabilities | 314 | 366 | ||||||
U.S. | 135 | 136 | ||||||
Non-U.S. | 6 | 6 | ||||||
Total short-term borrowings | 141 | 142 | ||||||
U.S. | 1,074 | 1,369 | ||||||
Non-U.S. | 31 | 15 | ||||||
Total long-term borrowings | 1,105 | 1,384 | ||||||
U.S. | 452 | 1,237 | ||||||
Non-U.S. | 159 | (276 | ) | |||||
Total other interest-bearing liabilities | 611 | 961 | ||||||
Total interest-bearing liabilities | $3,437 | $4,379 | ||||||
Net interest income | ||||||||
U.S. | $ 717 | $ 110 | ||||||
Non-U.S. | 596 | 1,108 | ||||||
Net interest income | $1,313 | $1,218 |
Goldman Sachs March 2020 Form 10-Q | 94 |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Statistical Disclosures
Annualized Average Rate for the Three Months Ended March | ||||||||
2020 | 2019 | |||||||
Assets | ||||||||
U.S. | 1.47% | 2.34% | ||||||
Non-U.S. | 0.40% | 0.65% | ||||||
Total deposits with banks | 0.86% | 1.50% | ||||||
U.S. | 1.29% | 2.84% | ||||||
Non-U.S. | 0.31% | 0.41% | ||||||
Total collateralized agreements | 0.83% | 1.78% | ||||||
U.S. | 2.19% | 2.72% | ||||||
Non-U.S. | 1.73% | 2.03% | ||||||
Total trading assets | 2.02% | 2.41% | ||||||
U.S. | 3.05% | 3.43% | ||||||
Non-U.S. | 3.16% | 3.21% | ||||||
Total investments | 3.08% | 3.37% | ||||||
U.S. | 5.10% | 5.69% | ||||||
Non-U.S. | 4.55% | 5.98% | ||||||
Total loans | 5.01% | 5.72% | ||||||
U.S. | 3.58% | 5.87% | ||||||
Non-U.S. | 1.83% | 3.09% | ||||||
Total other interest-earning assets | 2.77% | 4.59% | ||||||
Total interest-earning assets | 2.05% | 2.68% | ||||||
Liabilities | ||||||||
U.S. | 1.79% | 2.48% | ||||||
Non-U.S. | 1.18% | 1.26% | ||||||
Total interest-bearing deposits | 1.65% | 2.23% | ||||||
U.S. | 1.82% | 4.63% | ||||||
Non-U.S. | 0.52% | 0.89% | ||||||
Total collateralized financings | 1.44% | 3.11% | ||||||
U.S. | 1.53% | 2.02% | ||||||
Non-U.S. | 1.75% | 1.83% | ||||||
Total trading liabilities | 1.67% | 1.91% | ||||||
U.S. | 1.59% | 1.72% | ||||||
Non-U.S. | 0.13% | 0.16% | ||||||
Total short-term borrowings | 1.08% | 1.21% | ||||||
U.S. | 2.19% | 2.72% | ||||||
Non-U.S. | 0.46% | 0.21% | ||||||
Total long-term borrowings | 1.98% | 2.41% | ||||||
U.S. | 1.42% | 4.00% | ||||||
Non-U.S. | 0.97% | (2.08)% | ||||||
Total other interest-bearing liabilities | 1.27% | 2.17% | ||||||
Total interest-bearing liabilities | 1.59% | 2.28% | ||||||
Interest rate spread | 0.46% | 0.40% | ||||||
U.S. | 0.52% | 0.09% | ||||||
Non-U.S. | 0.64% | 1.32% | ||||||
Net yield on interest-earning assets | 0.57% | 0.58% |
In the tables above:
• | Assets, liabilities and interest are classified as U.S. and non-U.S. based on the location of the legal entity in which the assets and liabilities are held. |
• | Derivative instruments and commodities are included in other non-interest-earning assets and othernon-interest- bearing liabilities. |
• | Total other interest-earning assets primarily consists of receivables from customers and counterparties. |
• | Collateralized financings consists of securities sold under agreements to repurchase and securities loaned. |
• | Substantially all of the total other interest-bearing liabilities consists of payables to customers and counterparties. |
• | Interest rates for borrowings include the effects of interest rate swaps accounted for as hedges. |
• | Total loans exclude loans held for sale that are accounted for at the lower of cost or fair value. Such loans are included within other interest-earning assets. |
• | Total short- and long-term borrowings include both secured and unsecured borrowings. |
95 | Goldman Sachs March 2020 Form 10-Q |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations |
Introduction
The Goldman Sachs Group, Inc. (Group Inc. or parent company), a Delaware corporation, together with its consolidated subsidiaries, is a leading global 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 individuals. Founded in 1869, we are headquartered in New York and maintain offices in all major financial centers around the world. We report our activities in four business segments: Investment Banking, Global Markets, Asset Management, and Consumer & Wealth Management. See “Results of Operations” for further information about our business segments.
When we use the terms “we,” “us” and “our,” we mean Group Inc. and its consolidated subsidiaries. When we use the term “our subsidiaries,” we mean the consolidated subsidiaries of Group Inc.
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, 2019. References to “the 2019 Form 10-K”
are to our Annual Report on Form 10-K
for the year ended December 31, 2019. References to “this Form 10-Q”
are to our Quarterly Report on Form 10-Q
for the quarterly period ended March 31, 2020. All references to “the consolidated financial statements” or “Statistical Disclosures” are to Part I, Item 1 of this Form 10-Q.
The consolidated financial statements are unaudited. All references to March 2020 and March 2019 refer to our periods ended, or the dates, as the context requires, March 31, 2020 and March 31, 2019, respectively. All references to December 2019 refer to the date December 31, 2019. Any reference to a future year refers to a year ending on December 31 of that year. Beginning in the fourth quarter of 2019, we changed our business segments and balance sheet presentation to better reflect the nature of our activities. Reclassifications have been made to previously reported amounts to conform to the current presentation. See Note 2 to the consolidated financial statements in Part II, Item 8 of the 2019 Form 10-K
for further information.Executive Overview
In response to the global outbreak of the coronavirus
(COVID-19)
pandemic, we are harnessing our resources, experience and network to help where we can, working with public and private clients to partner on initiatives with a focus on community assistance, economic support for businesses, and serving our clients and customers. Through the first quarter of 2020, we have announced a number of important initiatives to support our employees, clients and the broader public duringthis crisis, reinforcing our core values of partnership, client service, integrity and excellence:
Employees and Vendors
• | Activated our global Business Continuity Planning (BCP) strategy, with approximately 98% of global employees working remotely. |
• | Extended 10 days of family leave to our people globally to care for family members due to COVID-19 -related illness or childcare needs. |
• | Introduced telemedicine benefit to employees and covered dependents and waived all costs for 2020. |
• | Provided access to global patient advocacy teams to help employees and their families gain access to appropriate care for COVID-19. |
• | Partnered with our vendors to ensure that workers dedicated to us continue to receive their full pay and benefits, even if their shifts are temporarily reduced or eliminated. |
• | Launched virtual volunteer opportunities for our people to support their communities remotely. |
• | Honoring the full financial commitment to our 2,800 summer interns who will have a truncated program. |
Goldman Sachs March 2020 Form 10-Q | 96 |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
Clients
• | Announced a COVID-19 Customer Assistance Program, giving consumers the flexibility to defer a Marcus loan or Apple Card payment for up to two months at no cost and access funds in Marcus certificates of deposit early with no penalty. |
• | Leveraging our digital banking model to provide uninterrupted customer service, including rapid response times through virtual call centers. |
• | Continuing to provide savings products with attractive interest rates. |
• | Led more than $15 billion of “Fight COVID-19” bonds. |
• | Funded $19 billion of loans to corporate clients. |
• | Bookrunner on more than $200 billion of total investment-grade issuance during the first quarter of 2020. |
• | Working in partnership with central banks, governments and regulators to support financial system. |
Communities
• | Announced an approximate $550 million commitment to COVID-19 relief efforts through mid-April 2020, including (i) $500 million of emergency loan capital for underserved small businesses through Community Development Financial Institutions (CDFIs) and other mission-driven lenders across the U.S.; (ii) $25 million in grants to CDFIs and mission-driven lending partners to enable them to hire necessary staff and set up additional operations; (iii) $30 millionCOVID-19 relief effort; and (iv) city/state-specificCOVID-19 public-private partnerships in New York, Texas, Ohio, Rhode Island, Chicago and Baltimore. |
• | Launched a U.S. Small Business Resource Center and emergency coaching sessions to 10,000 Small Businesses and 10,000 Women graduates. |
• | Donated over 2.5 million surgical masks and 700,000 N95 masks across the U.S. and Europe. |
• | Working with the National Health Service to deliver technical and data support related to the spread of COVID-19. |
During the first quarter of 2020, we successfully executed on our BCP strategy amid the
COVID-19
pandemic, providing clients with advice, execution and liquidity. As for our financial performance, we generated net earnings of $1.21 billion for the first quarter of 2020, a decrease of 46%, compared with $2.25 billion for the first quarter of 2019. Diluted earnings per common share was $3.11 for the first quarter of 2020, a decrease of 46%, compared with $5.71 for the first quarter of 2019. Annualized return on average common shareholders’ equity (ROE) was 5.7% for the first quarter of 2020, compared with 11.1% for the first quarter of 2019. Book value per common share was $228.21 as of March 2020, 4.4% higher compared with December 2019.Net revenues were $8.74 billion for the first quarter of 2020, essentially unchanged compared with the first quarter of 2019. Net revenues in Asset Management were significantly lower, due to significant net losses in Lending and debt investments and net losses in Equity investments, reflecting the impact of macroeconomic uncertainty and the challenging operating environment on asset prices. However, fees earned from our institutional and third-party distribution asset management clients were higher compared with the first quarter of 2019. The decrease in Asset Management revenues was largely offset by significantly higher net revenues in both Fixed Income, Currency and Commodities (FICC) and Equities within Global Markets, driven by strong activity as we extended balance sheet and liquidity to clients during volatile market conditions. In addition, net revenues were significantly higher in Investment Banking, reflecting gains on hedges related to our relationship lending activities, and in Consumer & Wealth Management, reflecting strength in both Consumer banking and Wealth management as we continued to advise our clients and accelerated growth in consumer deposits.
Provision for credit losses was $937 million for the first quarter of 2020, compared with $224 million for the first quarter of 2019, reflecting the challenging economic environment, loan growth and the impact of accounting for credit losses under the Current Expected Credit Losses (CECL) standard. See Note 3 to the consolidated financial statements for further information about ASU No.
2016-13,
“Financial Instruments — Credit Losses (Topic 326) — Measurement of Credit Losses on Financial Instruments.”Operating expenses were $6.46 billion for the first quarter of 2020, 10% higher than the first quarter of 2019, primarily due to significantly higher brokerage, clearing, exchange and distribution fees, net provisions for litigation and regulatory proceedings, and expenses related to consolidated investments. Our efficiency ratio (total operating expenses divided by total net revenues) for the first quarter of 2020 was 73.9%, compared with 66.6% for the first quarter of 2019.
We returned $2.38 billion of capital to common shareholders during the first quarter of 2020, including $1.93 billion of common share repurchases and $449 million of common stock dividends. As of March 2020, our Common Equity Tier 1 (CET1) capital ratio as calculated in accordance with the Advanced Capital Rules was 12.3% and as calculated in accordance with the Standardized Capital Rules was 12.5%. See Note 20 to the consolidated financial statements for further information about our capital ratios.
97 | Goldman Sachs March 2020 Form 10-Q |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
Business Environment
The beginning of the first quarter of 2020 was characterized by favorable market conditions, reflecting continued economic growth and strong consumer sentiment. However, in March, the spread of
COVID-19
across the globe and the dramatic measures taken to contain it, including the temporary closures ofnon-essential
businesses andstay-at-home
requirements, caused a sharp contraction in global economic activity, high levels of volatility across most financial assets and global markets, an unprecedented decline in global equity prices, and a significant widening of credit spreads. Global central banks responded quickly with accommodative monetary policy by reducing policy interest rates and increasing large scale asset purchases, and the establishment of a number of facilities to support the functioning of markets and to provide liquidity to the market. In addition, governments globally intervened with fiscal policy to mitigate the impact, including the Coronavirus Aid, Relief, and Economic Security (CARES) Act in the U.S., which aimed to provide economic relief to businesses and individuals.The beginning of the second quarter of 2020 continued to be impacted by the
COVID-19
pandemic, reflecting continued declines in recent economic indicators, particularly in advanced economies, and a historic increase in initial jobless claims in the U.S. To alleviate the economic impact, global central banks continued their quantitative easing, while signaling that they would do more if needed, and the U.S. government approved additional fiscal measures to support small businesses and individuals. This intervention helped equity prices recover and credit spreads tightenmoderately compared
with the end of the first quarter of 2020. However, the pace of industry-wide announced mergers and acquisitions activity has slowed, volatility in the equity markets, although declining, has remained elevated, and commodities markets experienced significant turmoil, as oil prices declined significantly due to an unprecedented surplus in net supply. See “Results of Operations — Segment Operating Results” for further information about the operating environment for each of our business segments.Critical Accounting Policies
Fair Value
Fair Value Hierarchy.
marked-to-market),
with related gains or losses generally recognized in our consolidated statements of earnings. The use of fair value to measure financial instruments is fundamental to our risk management practices and is our most critical accounting policy.The fair value of a financial instrument is the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. We measure certain financial assets and liabilities as a portfolio (i.e., based on its net exposure to market and/or credit risks). In determining fair value, the hierarchy under U.S. generally accepted accounting principles (U.S. GAAP) gives (i) the highest priority to unadjusted quoted prices in active markets for identical, unrestricted assets or liabilities (level 1 inputs), (ii) the next priority to inputs other than level 1 inputs that are observable, either directly or indirectly (level 2 inputs), and (iii) the lowest priority to inputs that cannot be observed in market activity (level 3 inputs). In evaluating the significance of a valuation input, we consider, among other factors, a portfolio’s net risk exposure to that input. Assets and liabilities are classified in their entirety based on the lowest level of input that is significant to their fair value measurement.
The fair values for substantially all of our financial assets and liabilities are based on observable prices and inputs and are classified in levels 1 and 2 of the fair value hierarchy. Certain level 2 and level 3 financial assets and liabilities may require appropriate valuation adjustments that a market participant would require to arrive at fair value for factors, such as counterparty and our credit quality, funding risk, transfer restrictions, liquidity and bid/offer spreads.
Instruments classified in level 3 of the fair value hierarchy are those which require one or more significant inputs that are not observable. Level 3 financial assets represented 2.8% as of March 2020 and 2.3% as of December 2019, of our total assets. See Notes 4 through 10 to the consolidated financial statements for further information about level 3 financial assets, including changes in level 3 financial assets and related fair value measurements. Absent evidence to the contrary, instruments classified in level 3 of the fair value hierarchy are initially valued at transaction price, which is considered to be the best initial estimate of fair value. Subsequent to the transaction date, we use other methodologies to determine fair value, which vary based on the type of instrument. Estimating the fair value of level 3 financial instruments requires judgments to be made. These judgments include:
• | Determining the appropriate valuation methodology and/or model for each type of level 3 financial instrument; |
• | Determining model inputs based on an evaluation of all relevant empirical market data, including prices evidenced by market transactions, interest rates, credit spreads, volatilities and correlations; and |
• | Determining appropriate valuation adjustments, including those related to illiquidity or counterparty credit quality. |
Regardless of the methodology, valuation inputs and assumptions are only changed when corroborated by substantive evidence.
Goldman Sachs March 2020 Form 10-Q | 98 |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
Controls Over Valuation of Financial Instruments.
Price Verification.
• | Trade Comparison. |
• | External Price Comparison. |
• | Calibration to Market Comparables. |
• | Relative Value Analyses. |
• | Collateral Analyses. |
• | Execution of Trades. |
• | Backtesting. |
See Note 4 to the consolidated financial statements for further information about fair value measurements.
Review of Net Revenues.
Review of Valuation Models.
Model Risk Management” for further information about the review and validation of our valuation models.
Allowance for Credit Losses
We estimate and record an allowance for credit losses related to our loans held for investment and accounted for at amortized cost. We adopted ASU No.
2016-13
in January 2020, which replaced the probable incurred credit loss model for recognizing credit losses with the current expected credit losses (CECL) model. As a result, our allowance for credit losses effective January 2020, reflects our estimate of credit losses over the remaining expected life of such loans and also takes into account forecasts of future economic conditions. See Note 3 to the consolidated financial statements for further information about adoption of ASU No. 2016-13.
To determine the allowance for credit losses, we classify our loans into wholesale and retail portfolios. These portfolios represent the level at which we have developed and documented our methodology to determine the allowance for credit losses. The allowance for credit losses is measured on a collective basis for loans that exhibit similar risk characteristics using a modeled approach and asset-specific basis for loans that do not share similar risk characteristics. The determination of allowance for credit losses entails significant judgment on various risk factors, including industry default and loss data, current macroeconomic indicators, borrower’s capacity to meet its financial obligations, borrower’s country of risk, loan seniority and collateral type. In addition, for loans backed by real estate, risk factors includeloan-to-value
ratio, debt service ratio and home price index. Risk factors for installment and credit card loans include Fair Isaac Corporation (FICO) credit scores and delinquency status.99 | Goldman Sachs March 2020 Form 10-Q |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
Our estimate of credit losses entails judgment about collectability at the reporting dates, and there are uncertainties inherent in those judgments. While we use the best information available to determine this estimate, future adjustments to the allowance may be necessary based on, among other things, changes in the economic environment or variances between actual results and the original assumptions used. Loans are charged off against the allowance for loan losses when deemed to be uncollectible.
We also record an allowance for losses on lending commitments which are held for investment and accounted for at amortized cost. Such allowance is determined using the same methodology as the allowance for loan losses, while also taking into consideration the probability of drawdowns or funding, and is included in other liabilities. See Note 9 to the consolidated financial statements for further information about the allowance for credit losses.
Use of Estimates
U.S. GAAP requires us to make certain estimates and assumptions. In addition to the estimates we make in connection with fair value measurements and the allowance for credit losses on loans and lending commitments held for investment and accounted for at amortized cost, the use of estimates and assumptions is also important in determining discretionary compensation accruals, the accounting for goodwill and identifiable intangible assets, provisions for losses that may arise from litigation and regulatory proceedings (including governmental investigations), and provisions for losses that may arise from 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 estimatedyear-end
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.Goodwill is assessed for impairment annually in the fourth quarter or more frequently if events occur or circumstances change that indicate an impairment may exist. When assessing goodwill for impairment, first, a qualitative assessment can be made to determine whether it is more likely than not that the estimated fair value of a reporting unit is less than its estimated carrying value. If the results of the qualitative assessment are not conclusive, a quantitative goodwill test is performed. Alternatively, a quantitative goodwill test can be performed without performing a qualitative assessment.
Estimating the fair value of our reporting units requires judgment. Critical inputs to the fair value estimates include projected earnings and allocated equity. There is inherent uncertainty in the projected earnings. The estimated carrying value of each reporting unit reflects an allocation of total shareholders’ equity and represents the estimated amount of total shareholders’ equity required to support the activities of the reporting unit under currently applicable regulatory capital requirements. See Note 12 to the consolidated financial statements for further information about goodwill. If we experience a prolonged or severe period of weakness in the business environment, financial markets, our performance or our common stock price, or additional increases in capital requirements, our goodwill could be impaired in the future.
Identifiable intangible assets are tested for impairment whenever events or changes in circumstances suggest that an asset’s or asset group’s carrying value may not be fully recoverable. Judgment is required to evaluate whether indications of potential impairment have occurred, and to test intangible assets for impairment, if required. An impairment is recognized if the total of the estimated undiscounted cash flows relating to the asset or asset group is less than the corresponding carrying value. See Note 12 to the consolidated financial statements for further information about identifiable intangible assets.
We also estimate and provide for potential losses that may arise out of litigation and regulatory proceedings to the extent that such losses are probable and can be reasonably estimated. In addition, we estimate the upper end of the range of reasonably possible aggregate loss in excess of the related reserves for litigation and regulatory proceedings where we believe the risk of loss is more than slight. See Notes 18 and 27 to the consolidated financial statements for information about certain judicial, litigation and regulatory proceedings. Significant judgment is required in making these estimates and our final liabilities may ultimately be materially different. Our total estimated liability in respect of litigation and regulatory proceedings is determined on a
case-by-case
basis and represents an estimate of probable losses after considering, among other factors, the progress of each case, proceeding or investigation, our experience and the experience of others in similar cases, proceedings or investigations, and the opinions and views of legal counsel.In accounting for income taxes, we recognize tax positions in the financial statements only when it is more likely than not that the position will be sustained on examination by the relevant taxing authority based on the technical merits of the position. See Note 24 to the consolidated financial statements for further information about income taxes.
Goldman Sachs March 2020 Form 10-Q | 100 |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
Recent Accounting Developments
See Note 3 to the consolidated financial statements for information about Recent Accounting Developments.
Results of Operations
The composition of our net revenues has varied over time as financial markets and the scope of our operations have changed. The composition of net revenues can also vary over the shorter term due to fluctuations in U.S. and global economic and market conditions. See “Risk Factors” in Part II, Item 1A of this Form 10-Q and in Part I, Item 1A of the 2019 Form
10-K
for further information about the impact of economic and market conditions on our results of operations.Financial Overview
The table below presents an overview of our financial results and selected financial ratios.
Three Months Ended March | ||||||||
$ in millions, except per share amounts | 2020 | 2019 | ||||||
Net revenues | $8,743 | $8,807 | ||||||
Pre-tax earnings | $1,348 | $2,719 | ||||||
Net earnings | $1,213 | $2,251 | ||||||
Net earnings to common | $1,123 | $2,182 | ||||||
Diluted earnings per common share | $ 3.11 | $ 5.71 | ||||||
Annualized ROE | 5.7% | 11.1% | ||||||
Annualized ROTE | 6.0% | 11.7% | ||||||
Annualized net earnings to average total assets | 0.5% | 0.9% | ||||||
Annualized return on average total shareholders’ equity | 5.4% | 10.0% | ||||||
Average equity to average assets | 8.6% | 9.4% | ||||||
Dividend payout ratio | 40.2% | 14.0% |
In the table above:
• | Net earnings to common represents net earnings applicable to common shareholders, which is calculated as net earnings less preferred stock dividends. |
• | Average equity to average assets is calculated by dividing average total shareholders’ equity by average total assets. |
• | Dividend payout ratio is calculated by dividing dividends declared per common share by diluted earnings per common share. |
• | Annualized ROE is calculated by dividing annualized net earnings to common by average monthly common shareholders’ equity. Tangible common shareholders’ equity is calculated as total shareholders’ equity less preferred stock, goodwill and identifiable intangible assets. Annualized return on average tangible common shareholders’ equity (ROTE) is calculated by dividing annualized net earnings to common by average monthly tangible common shareholders’ equity. We believe that tangible common shareholders’ equity is meaningful because it is a measure that we and investors use to assess capital adequacy and that ROTE is meaningful because it measures the performance of businesses consistently, whether they were acquired or developed internally. Tangible common shareholders’ equity and ROTE are non-GAAP measures and may not be comparable to similarnon-GAAP measures used by other companies. Annualized return on average total shareholders’ equity is calculated by dividing annualized net earnings by average monthly total shareholders’ equity. |
The table below presents our average equity and the reconciliation of average common shareholders’ equity to average tangible common shareholders’ equity. |
Average for the Three Months Ended March | ||||||||
$ in millions | 2020 | 2019 | ||||||
Total shareholders’ equity | $ 90,466 | $ 89,628 | ||||||
Preferred stock | (11,203 | ) | (11,203 | ) | ||||
Common shareholders’ equity | $ 79,263 | $ 78,425 | ||||||
Goodwill and identifiable intangible assets | (4,821 | ) | (4,096 | ) | ||||
Tangible common shareholders’ equity | $ 74,442 | $ 74,329 |
Net Revenues
The table below presents our net revenues by line item.
Three Months Ended March | ||||||||
$ in millions | 2020 | 2019 | ||||||
Investment banking | $1,742 | $1,618 | ||||||
Investment management | 1,768 | 1,436 | ||||||
Commissions and fees | 1,020 | 745 | ||||||
Market making | 3,682 | 2,723 | ||||||
Other principal transactions | (782 | ) | 1,067 | |||||
Total non-interest revenues | 7,430 | 7,589 | ||||||
Interest income | 4,750 | 5,597 | ||||||
Interest expense | 3,437 | 4,379 | ||||||
Net interest income | 1,313 | 1,218 | ||||||
Total net revenues | $8,743 | $8,807 |
In the table above:
• | Investment banking consists of revenues (excluding net interest) from financial advisory and underwriting assignments. These activities are included in our Investment Banking segment. |
101 | Goldman Sachs March 2020 Form 10-Q |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
• | Investment management consists of revenues (excluding net interest) from providing asset management services across all major asset classes to a diverse set of asset management clients (included in our Asset Management segment), as well as asset management services, wealth advisory services and certain transaction services for wealth management clients (included in our Consumer & Wealth Management segment). |
• | Commissions and fees consists of revenues from executing and clearing client transactions on major stock, options and futures exchanges worldwide, as well as over-the-counter (OTC) transactions. These activities are included in our Global Markets and Consumer & Wealth Management segments. |
• | Market making consists of revenues (excluding net interest) from client execution activities related to making markets in interest rate products, credit products, mortgages, currencies, commodities and equity products. These activities are included in our Global Markets segment. |
• | Other principal transactions consists of revenues (excluding net interest) from our equity investing activities, including revenues related to our consolidated investments (included in our Asset Management segment), and lending activities (included across our four segments). |
Operating Environment.
COVID-19
across the globe caused a sharp contraction in global economic activity, high levels of volatility across most financial assets and global markets, an unprecedented decline in global equity prices, and a significant widening of credit spreads. Market-making activities operated in an environment characterized by strong client activity and higher levels of volatility compared with the fourth quarter of 2019, as clients reacted to the significant decline in near-term global economic activity and the accommodative monetary policies set by global central banks. Investment banking activities reflected decreases in industry-wide announced and completed mergers and acquisitions activity and industry-wide equity underwriting transactions, while industry-wide investment-grade activity increased. Credit spreads widened during the first quarter of 2020 and global equity markets were lower compared with the end of the fourth quarter of 2019.If the COVID-19 pandemic persists, it may lead to a decline in market-making activity levels, continued declines in investment banking transaction levels, global equity markets and assets under supervision, and the further widening of credit spreads. As a result, net revenues and the provision for credit losses would likely be negatively impacted. See “Segment Operating Results” for information about the operating environment and material trends and uncertainties that may impact our results of operations.
Three Months Ended March 2020 versus March 2019
Net revenues in the consolidated statements of earnings were $8.74 billion for the first quarter of 2020, essentially unchanged compared with the first quarter of 2019, reflecting significant net losses in other principal transactions, largely offset by significantly higher market marking revenues, investment management revenues and commissions and fees, and higher investment banking revenues and net interest income.
Non-Interest Revenues.
Investment management revenues in the consolidated statements of earnings were $1.77 billion for the first quarter of 2020, 23% higher than the first quarter of 2019, due to significantly higher incentive fees, driven by harvesting, and higher management and other fees (including the impact of the consolidation of United Capital Financial Partners, Inc. (United Capital)), reflecting the impact of higher average assets under supervision, partially offset by a lower average effective fee due to shifts in the mix of client assets and strategies.
Commissions and fees in the consolidated statements of earnings were $1.02 billion for the first quarter of 2020, 37% higher than the first quarter of 2019, reflecting an increase in our listed cash equity, options and futures volumes, generally consistent with market volumes.
Market making revenues in the consolidated statements of earnings were $3.68 billion for the first quarter of 2020, 35% higher than the first quarter of 2019, primarily due to significantly higher revenues in interest rate products, equity products and currencies, and higher revenues in commodities and credit products, partially offset by significantly lower results in mortgages.
Other principal transactions revenues in the consolidated statements of earnings were $(782) million for the first quarter of 2020, compared with $1.07 billion for the first quarter of 2019, reflecting significant net losses across debt securities, as well as significant
mark-to-market
net losses from investments in public equities and significantly lower net gains from investments in private equities. These decreases were partially offset by significantly higher revenues related to relationship lending activities, reflecting the impact of changes in credit spreads on hedges.Goldman Sachs March 2020 Form 10-Q | 102 |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
Net Interest Income.
Provision for Credit Losses
Provision for credit losses consists of provision for credit losses on loans and lending commitments held for investment and accounted for at amortized cost. See Note 9 to the consolidated financial statements for further information about the provision for credit losses.
The table below presents our provision for credit losses.
Three Months Ended March | ||||||||
$ in millions | 2020 | 2019 | ||||||
Provision for credit losses | $937 | $224 |
Three Months Ended March 2020 versus March 2019.
COVID-19
pandemic on the broader economic environment. In addition, the first quarter of 2020 included provisions related to growth in corporate loans and credit card loans, and the impact of accounting for credit losses under the CECL standard. See Note 3 to the consolidated financial statements for further information about ASU No. 2016-13.
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.The table below presents our operating expenses by line item and headcount.
Three Months Ended March | ||||||||
$ in millions | 2020 | 2019 | ||||||
Compensation and benefits | $ 3,235 | $ 3,259 | ||||||
Brokerage, clearing, exchange and distribution fees | 975 | 762 | ||||||
Market development | 153 | 184 | ||||||
Communications and technology | 321 | 286 | ||||||
Depreciation and amortization | 437 | 368 | ||||||
Occupancy | 238 | 225 | ||||||
Professional fees | 347 | 298 | ||||||
Other expenses | 752 | 482 | ||||||
Total operating expenses | $ 6,458 | $ 5,864 | ||||||
Headcount at period-end | 38,500 | 35,900 |
Three Months Ended March 2020 versus March 2019.
The increase in operating expenses compared with the first quarter of 2019 was primarily due to significantly higher brokerage, clearing, exchange and distribution fees (reflecting an increase in activity levels), net provisions for litigation and regulatory proceedings, and expenses related to consolidated investments, including impairments (increase was primarily in depreciation and amortization, occupancy and other expenses). In addition, technology expenses and professional fees were higher. The first quarter of 2020 also included higher expenses related to our credit card activities (increases were primarily in professional fees and other expenses) and the impact of the consolidation of United Capital. Compensation and benefits expenses were essentially unchanged, while market development expenses were lower.
Net provisions for litigation and regulatory proceedings for the first quarter of 2020 were $184 million compared with $37 million for the first quarter of 2019.
As of March 2020, headcount was essentially unchanged compared with the end of 2019.
103 | Goldman Sachs March 2020 Form 10-Q |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
Provision for Taxes
The effective income tax rate for the first quarter of 2020 was 10.0%, down from the full year tax rate of 20.0% for 2019, primarily due to tax benefits on the settlement of employee share-based awards and the impact of lower
pre-tax
earnings on permanent tax benefits in the first quarter of 2020.The CARES Act was enacted on March 27, 2020. The CARES Act includes retroactive and prospective provisions enacted to provide income tax relief and liquidity to businesses affected by the
COVID-19
pandemic. The legislation includes corporate income tax provisions that temporarily allow for the carryback of net operating losses and remove limitations on the use of loss carryforwards, increase interest expense deduction limitations and allow accelerated depreciation deductions on certain asset improvements. The CARES Act did not have a material impact on our effective tax rate for the first quarter of 2020.The U.S. Internal Revenue Service and the U.S. Department of the Treasury have released final and proposed regulations relating to the implementation of Global Intangible Low Taxed Income and Base Erosion and Anti-Abuse Tax. These final and proposed regulations did not have a material impact on our effective tax rate for the first quarter of 2020.
On March 19, 2020, the U.K. government published Finance Bill
2019-21
(Finance Bill). The Finance Bill includes a repeal of a previously enacted two percentage point decrease in the corporate income tax rate that was scheduled to become effective April 1, 2020. Following Royal Assent, the Finance Bill will be enacted as Finance Act 2020. The impact of this legislation on our provision for income taxes and income tax assets and liabilities will be recognized upon enactment. We do not expect this legislation to have a material impact on our effective tax rate for 2020.Based on the first quarter of 2020, we expect our 2020 tax rate to be below 20%, excluding the impact of any
non-deductible
litigation.Segment Assets and Operating Results
Segment Assets.
As of | ||||||||
$ in millions | March 2020 | December 2019 | ||||||
Investment Banking | $ 105,059 | $ 92,009 | ||||||
Global Markets | 800,476 | 725,060 | ||||||
Asset Management | 92,636 | 92,102 | ||||||
Consumer & Wealth Management | 91,585 | 83,797 | ||||||
Total | $1,089,756 | $992,968 |
The allocation process for segment assets is based on the activities of these segments. The allocation of assets includes allocation of global core liquid assets (GCLA) (which consists of unencumbered, highly liquid securities and cash), which is generally included within cash and cash equivalents, collateralized agreements and trading assets on our balance sheet. Due to the integrated nature of these segments, estimates and judgments are made in allocating these assets. See “Risk Management — Liquidity Risk Management” for further information about our GCLA.
Segment Operating Results.
Three Months Ended March | ||||||||
$ in millions | 2020 | 2019 | ||||||
Investment Banking | ||||||||
Net revenues | $ 2,184 | $ 1,746 | ||||||
Provision for credit losses | 622 | 86 | ||||||
Operating expenses | 1,169 | 1,005 | ||||||
Pre-tax earnings | $ | $ | ||||||
Net earnings to common | $ | $ | ||||||
Average common equity | $11,308 | $11,496 | ||||||
Return on average common equity | 12.1% | 18.6% | ||||||
Global Markets | ||||||||
Net revenues | $ 5,163 | $ 4,040 | ||||||
Provision for credit losses | 68 | 3 | ||||||
Operating expenses | 2,847 | 2,748 | ||||||
Pre-tax earnings | $ 2,248 | $ 1,289 | ||||||
Net earnings to common | $ 1,964 | $ 1,020 | ||||||
Average common equity | $39,797 | $40,705 | ||||||
Return on average common equity | 19.7% | 10.0% | ||||||
Asset Management | ||||||||
Net revenues | $ | ) | $ 1,793 | |||||
Provision for credit losses | 79 | 13 | ||||||
Operating expenses | 1,198 | 1,103 | ||||||
Pre-tax earnings/(loss) | $ | ) | $ | |||||
Net earnings/(loss) to common | $ | ) | $ | |||||
Average common equity | $21,156 | $20,365 | ||||||
Return on average common equity | (23.6 | )% | 10.8% | |||||
Consumer & Wealth Management | ||||||||
Net revenues | $ 1,492 | $ 1,228 | ||||||
Provision for credit losses | 168 | 122 | ||||||
Operating expenses | 1,244 | 1,008 | ||||||
Pre-tax earnings | $ | $ 98 | ||||||
Net earnings to common | $ | $ 78 | ||||||
Average common equity | $ 7,002 | $ 5,859 | ||||||
Return on average common equity | 3.8% | 5.3% | ||||||
Total net revenues | $ 8,743 | $ 8,807 | ||||||
Total provision for credit losses | 937 | 224 | ||||||
Total operating expenses | 6,458 | 5,864 | ||||||
Total pre-tax earnings | $ 1,348 | $ 2,719 | ||||||
Net earnings to common | $ 1,123 | $ 2,182 | ||||||
Average common equity | $79,263 | $78,425 | ||||||
Return on average common equity | 5.7% | 11.1% |
Goldman Sachs March 2020 Form 10-Q | 104 |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
Net revenues in our segments include allocations of interest income and expense to specific positions in relation to the cash generated by, or funding requirements of, such positions. See Note 25 to the consolidated financial statements for further information about our business segments.
The allocation of common shareholders’ equity and preferred stock dividends to each segment is based on the estimated amount of equity required to support the activities of the segment under relevant regulatory capital requirements. Net earnings for each segment is calculated by applying the firmwide tax rate to each segment’s
pre-tax
earnings.Compensation and benefits expenses within our segments reflect, among other factors, our overall performance, as well as the performance of individual businesses. Consequently,
pre-tax
margins in one segment of our business may be significantly affected by the performance of our other business segments. A description of segment operating results follows.Investment Banking
Investment Banking generates revenues from the following:
• | Financial advisory. |
• | Underwriting. |
• | Corporate lending. |
The table below presents our Investment Banking assets.
As of | ||||||||
$ in millions | March 2020 | December 2019 | ||||||
Cash and cash equivalents | $ 15,425 | $25,301 | ||||||
Collateralized agreements | 21,305 | 13,376 | ||||||
Customer and other receivables | 3,469 | 3,576 | ||||||
Trading assets | 15,585 | 20,737 | ||||||
Investments | 696 | 854 | ||||||
Loans | 46,947 | 26,565 | ||||||
Other assets | 1,632 | 1,600 | ||||||
Total assets | $105,059 | $92,009 |
The table below presents our Investment Banking operating results.
Three Months Ended March | ||||||||
$ in millions | 2020 | 2019 | ||||||
Financial advisory | $ 781 | $ 874 | ||||||
Equity underwriting | 378 | 262 | ||||||
Debt underwriting | 583 | 482 | ||||||
Underwriting | 961 | 744 | ||||||
Corporate lending | 442 | 128 | ||||||
Net revenues | 2,184 | 1,746 | ||||||
Provision for credit losses | 622 | 86 | ||||||
Operating expenses | 1,169 | 1,005 | ||||||
Pre-tax earnings | 393 | 655 | ||||||
Provision for taxes | 39 | 112 | ||||||
Net earnings | 354 | 543 | ||||||
Preferred stock dividends | 11 | 8 | ||||||
Net earnings to common | $ 343 | $ 535 | ||||||
Average common equity | $11,308 | $11,496 | ||||||
Return on average common equity | 12.1% | 18.6% |
The table below presents our financial advisory and underwriting transaction volumes.
Three Months Ended March | ||||||||
$ in billions | 2020 | 2019 | ||||||
Announced mergers and acquisitions | $ 245 | $ 393 | ||||||
Completed mergers and acquisitions | $ 196 | $ 372 | ||||||
Equity and equity-related offerings | $ 12 | $ 16 | ||||||
Debt offerings | $ 91 | $ 70 |
In the table above:
• | Volumes are per Dealogic. |
• | Announced and completed mergers and acquisitions volumes are based on full credit to each of the advisors in a transaction. Equity and equity-related offerings and debt offerings are based on full credit for single book managers and equal credit for joint book managers. Transaction volumes may not be indicative of net revenues in a given period. In addition, transaction volumes for prior periods may vary from amounts previously reported due to the subsequent withdrawal or a change in the value of a transaction. |
• | Equity and equity-related offerings includes Rule 144A and public common stock offerings, convertible offerings and rights offerings. |
• | Debt offerings includes non-convertible preferred stock, mortgage-backed securities, asset-backed securities and taxable municipal debt. Includes publicly registered and Rule 144A issues and excludes leveraged loans. |
105 | Goldman Sachs March 2020 Form 10-Q |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
Operating Environment.
COVID-19
pandemic. Industry-wide announced and completed mergers and acquisitions activity decreased compared with the fourth quarter of 2019. In underwriting, industry-wide equity underwriting transactions decreased, reflecting a decline in initial public offerings, and industry-wide debt underwriting activity reflected a decrease in acquisition-related financing, but a significant increase in investment-grade activity, all compared with the fourth quarter of 2019. In credit markets, spreads widened, particularly towards the end of the quarter, and corporate clients borrowed under revolving lines of credit to address liquidity needs. In the future, if industry-wide mergers and acquisitions transactions, equity underwriting transactions or debt underwriting transactions continue to decline, or credit spreads tighten, net revenues in Investment Banking would likely be negatively impacted. In addition, a continued deterioration in the creditworthiness of borrowers would negatively impact the provision for credit losses.Three Months Ended March
2020 versus March
2019.
The increase in Corporate lending net revenues was due to significantly higher net revenues related to relationship lending activities, reflecting the impact of changes in credit spreads on hedges. The first quarter of 2020 included approximately $375 million of net gains related to these hedges. The increase in Underwriting net revenues was due to significantly higher net revenues in Equity underwriting, primarily from initial public offerings and convertible offerings, and in Debt underwriting, driven by asset-backed and leveraged finance activity. The decrease in Financial advisory net revenues reflected a decrease in industry-wide completed mergers and acquisitions transactions.
Provision for credit losses was $622 million for the first quarter of 2020, compared with $86 million for the first quarter of 2019, primarily due to draws on committed corporate lines, continued pressure in the energy sector, and the impact of the
COVID-19
pandemic on the broader economic environment. In addition, the first quarter of 2020 included the impact of accounting for credit losses under the CECL standard. See Note 3 to the consolidated financial statements for further information about ASU No. 2016-13.
Operating expenses were $1.17 billion for the first quarter of 2020, 16% higher than the first quarter of 2019, primarily due to higher net provisions for litigation and regulatory proceedings.
Pre-tax
earnings were $393 million for the first quarter of 2020, 40% lower than the first quarter of 2019.As of March 2020, our investment banking transaction backlog decreased compared with December 2019, due to lower estimated net revenues from potential advisory transactions and potential debt underwriting transactions, particularly from acquisition-related financing. These decreases were partially offset by higher estimated net revenues from potential equity underwriting transactions, primarily from secondary and initial public offerings.
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, which we expect to occur in light of the impact of the COVID-19 pandemic on mergers and acquisitions. 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.
Global Markets
Our Global Markets segment consists of:
FICC
.
• | FICC intermediation. |
Interest Rate Products.
Credit Products.
Mortgages.
Currencies.
G-10
currencies and emerging-market products.Goldman Sachs March 2020 Form 10-Q | 106 |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
Commodities.
For further information about market-making activities, see “Market-Making Activities” below.
• | FICC financing. |
Equities.
• | Equities intermediation. over-the-counter (OTC) derivative instruments, on a global basis. We also structure and make markets in derivatives on indices, industry sectors, financial measures and individual company stocks. Our exchange-based market-making activities include making markets in stocks and ETFs, futures and options on major exchanges worldwide. In addition, we generate commissions and fees from executing and clearing institutional client transactions on major stock, options and futures exchanges worldwide, as well as OTC transactions. For further information about market-making activities, see “Market-Making Activities” below. |
• | Equities financing. broker-to-broker securities lending and third-party agency lending activities. We provide financing to our clients for their securities trading activities through margin loans that are collateralized by securities, cash or other acceptable collateral. In addition, we execute swap transactions to provide our clients with exposure to securities and indices. |
Market-Making Activities
As a market maker, we facilitate transactions in both liquid and less liquid markets, primarily for institutional clients, such as corporations, financial institutions, investment funds and governments, to assist clients in meeting their investment objectives and in managing their risks. In this role, we seek to earn the difference between the price at which a market participant is willing to sell an instrument to us and the price at which another market participant is willing to buy it from us, and vice versa (i.e., bid/offer spread). In addition, we maintain (i) market-making positions, typically for a short period of time, in response to, or in anticipation of, client demand, and (ii) positions to actively manage our risk exposures that arise from these market-making activities (collectively, inventory). Our inventory is recorded in trading assets (long positions) or trading liabilities (short positions) in our consolidated balance sheets.
Our results are influenced by a combination of interconnected drivers, including (i) client activity levels and transactional bid/offer spreads (collectively, client activity), and (ii) changes in the fair value of our inventory and interest income and interest expense related to the holding, hedging and funding of our inventory (collectively, market-making inventory changes). Due to the integrated nature of our market-making activities, disaggregation of net revenues into client activity and market-making inventory changes is judgmental and has inherent complexities and limitations.
The amount and composition of our net revenues vary over time as these drivers are impacted by multiple interrelated factors affecting economic and market conditions, including volatility and liquidity in the market, changes in interest rates, currency exchange rates, credit spreads, equity prices and commodity prices, investor confidence, and other macroeconomic concerns and uncertainties.
In general, assuming all other market-making conditions remain constant, increases in client activity levels or bid/offer spreads tend to result in increases in net revenues, and decreases tend to have the opposite effect. However, changes in market-making conditions can materially impact client activity levels and bid/offer spreads, as well as the fair value of our inventory. For example, a decrease in liquidity in the market could have the impact of (i) increasing our bid/offer spread, (ii) decreasing investor confidence and thereby decreasing client activity levels, and (iii) widening of credit spreads on our inventory positions.
107 | Goldman Sachs March 2020 Form 10-Q |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
The table below presents our Global Markets assets.
As of | ||||||||
$ in millions | March 2020 | December 2019 | ||||||
Cash and cash equivalents | $ 68,511 | $ 82,819 | ||||||
Collateralized agreements | 207,297 | 196,278 | ||||||
Customer and other receivables | 109,941 | 63,277 | ||||||
Trading assets | 341,644 | 316,242 | ||||||
Investments | 33,774 | 25,937 | ||||||
Loans | 30,272 | 31,111 | ||||||
Other assets | 9,037 | 9,396 | ||||||
Total assets | $800,476 | $725,060 |
The table below presents our Global Markets operating results.
Three Months Ended March | ||||||||
$ in millions | 2020 | 2019 | ||||||
FICC intermediation | $ 2,537 | $ 1,872 | ||||||
FICC financing | 432 | 366 | ||||||
FICC | 2,969 | 2,238 | ||||||
Equities intermediation | 1,528 | 1,161 | ||||||
Equities financing | 666 | 641 | ||||||
Equities | 2,194 | 1,802 | ||||||
Net revenues | 5,163 | 4,040 | ||||||
Provision for credit losses | 68 | 3 | ||||||
Operating expenses | 2,847 | 2,748 | ||||||
Pre-tax earnings | 2,248 | 1,289 | ||||||
Provision for taxes | 225 | 221 | ||||||
Net earnings | 2,023 | 1,068 | ||||||
Preferred stock dividends | 59 | 48 | ||||||
Net earnings to common | $ 1,964 | $ 1,020 | ||||||
Average common equity | $ 39,797 | $ 40,705 | ||||||
Return on average common equity | 19.7% | 10.0% |
In the table above, net revenues for the three months ended March 2020 included gains of approximately $180 million (of the total gains of approximately $265 million for the firm) related to sales of
available-for-sale
securities, of which approximately 50% was recorded in each of FICC and Equities.The table below presents our Global Markets net revenues by line item in the consolidated statements of earnings.
$ in millions | FICC | Equities | Global Markets | |||||||||
Three Months Ended March 2020 | ||||||||||||
Market making | $2,334 | $1,348 | $3,682 | |||||||||
Commissions and fees | – | 980 | 980 | |||||||||
Other principal transactions | (20 | ) | 10 | (10 | ) | |||||||
Net interest income | 655 | (144 | ) | 511 | ||||||||
Total net revenues | $2,969 | $2,194 | $5,163 | |||||||||
Three Months Ended March 2019 | ||||||||||||
Market making | $1,702 | $1,021 | $2,723 | |||||||||
Commissions and fees | – | 714 | 714 | |||||||||
Other principal transactions | 11 | 35 | 46 | |||||||||
Net interest income | 525 | 32 | 557 | |||||||||
Total net revenues | $2,238 | $1,802 | $4,040 |
In the table above:
• | The difference between commissions and fees and those in the consolidated statements of earnings represents commissions and fees included in our Consumer & Wealth Management segment. |
• | See “Net Revenues” for further information about market making revenues, commissions and fees, other principal transactions revenues and net interest income. See Note 25 to the consolidated financial statements for net interest income by business segment. |
• | The primary driver of net revenues for FICC intermediation was client activity. |
Operating Environment.
COVID-19
pandemic as clients reacted to the significant decline in near-term global economic activity and the accommodative monetary policies set by global central banks. Global equity markets decreased during the first quarter of 2020 (with the MSCI World Index down 22%) and credit spreads widened (with U.S. investment-grade wider byapproximately 150 basis points and high-yield credit spreads wider by approximately 375 basis points), both particularly towards the end of the quarter. If macroeconomic concerns lead to a decline in activity levels or volatility, net revenues in Global Markets would likely be negatively impacted.
Three Months Ended March
2020 versus March
2019.
Net revenues in FICC were $2.97 billion, 33% higher than the first quarter of 2019, due to significantly higher net revenues in FICC intermediation, reflecting significantly higher client activity, partially offset by the impact of challenging market-making conditions on our inventory, and higher net revenues in FICC financing, driven by repurchase agreements.
The following provides information about our FICC intermediation net revenues by business, compared with results in the first quarter of 2019:
• | Net revenues in currencies were significantly higher, driven by higher client activity. |
• | Net revenues in credit products were significantly higher and commodities were higher, reflecting higher client activity, partially offset by the impact of challenging market-making conditions on our inventory. |
• | Net revenues in interest rate products were slightly higher, reflecting higher client activity, largely offset by the impact of challenging market-making conditions on our inventory. |
Goldman Sachs March 2020 Form 10-Q | 108 |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
• | Net revenues in mortgages were significantly lower, driven by the impact of challenging market-making conditions on our inventory. |
Net revenues in Equities were $2.19 billion, 22% higher than the first quarter of 2019, due to significantly higher net revenues in Equities intermediation, driven by derivatives, and slightly higher net revenues in Equities financing, reflecting higher average customer balances.
Provision for credit losses was $68 million for the first quarter of 2020, compared with $3 million for the first quarter of 2019, reflecting the impact of the
COVID-19
pandemic on the broader economic environment.Operating expenses were $2.85 billion for the first quarter of 2020, 4% higher than the first quarter of 2019, due to significantly higher brokerage, clearing, exchange and distribution fees and higher net provisions for litigation and regulatory proceedings, partially offset by decreased compensation and benefits expenses.
Pre-tax
earnings were $2.25 billion for the first quarter of 2020, 74% higher than the first quarter of 2019.Asset Management
We manage client assets across a broad range of investment strategies and asset classes for a diverse set of institutional clients and a network of third-party distributors around the world, including equity, fixed income and alternative investments. We provide investment solutions including those managed on a fiduciary basis by our portfolio managers, as well as those managed by a variety of third-party managers. We offer our investment solutions in a variety of structures, including separately managed accounts, mutual funds, private partnerships and other comingled vehicles. These solutions begin with identifying clients’ objectives and continue through portfolio construction, ongoing asset allocation and risk management and investment realization.
In addition to managing client assets, we invest in alternative investments across a range of asset classes that seek to deliver long-term accretive risk-adjusted returns. Our investing activities, which are typically longer term, include investments in corporate equity, credit, real estate and infrastructure assets.
Asset Management generates revenues from the following:
• | Management and other fees. |
• | Incentive fees. |
• | Equity investments. |
• | Lending and debt investments. |
The table below presents our Asset Management assets.
As of | ||||||||
$ in millions | March 2020 | December 2019 | ||||||
Cash and cash equivalents | $ 5,336 | $ 6,756 | ||||||
Collateralized agreements | 7,011 | 3,433 | ||||||
Customer and other receivables | 1,880 | 1,579 | ||||||
Trading assets | 5,035 | 5,266 | ||||||
Investments | 34,176 | 37,096 | ||||||
Loans | 16,246 | 17,101 | ||||||
Other assets | 22,952 | 20,871 | ||||||
Total assets | $ 92,636 | $92,102 |
The table below presents our Asset Management operating results.
Three Months Ended March | ||||||||
$ in millions | 2020 | 2019 | ||||||
Management and other fees | $ 640 | $ 607 | ||||||
Incentive fees | 154 | 30 | ||||||
Equity investments | (22 | ) | 805 | |||||
Lending and debt investments | (868 | ) | 351 | |||||
Net revenues | (96 | ) | 1,793 | |||||
Provision for credit losses | 79 | 13 | ||||||
Operating expenses | 1,198 | 1,103 | ||||||
Pre-tax earnings/(loss) | (1,373 | ) | 677 | |||||
Provision/(benefit) for taxes | (137 | ) | 118 | |||||
Net earnings/(loss) | (1,236 | ) | 559 | |||||
Preferred stock dividends | 14 | 10 | ||||||
Net earnings/(loss) to common | $ | ) | $ 549 | |||||
Average common equity | $ 21,156 | $20,365 | ||||||
Return on average common equity | (23.6)% | 10.8% |
109 | Goldman Sachs March 2020 Form 10-Q |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
Operating Environment.
COVID-19
pandemic led to lower global equity prices and wider credit spreads, particularly in March, compared to the end of the fourth quarter of 2019, as well as uncertainty in the economic outlook. If the COVID-19 pandemic persists, asset prices may continue to decline, credit spreads may continue to widen, investors may continue to favor asset classes that typically generate lower fees and investors may withdraw their assets. As a result, net revenues in Asset Management would likely continue to be negatively impacted.Three Months Ended March
2020 versus March
2019.
As a result of the challenging operating environment, Lending and debt investments reflected significant net losses across debt securities, particularly within our private credit group and multi-strategy investing portfolios. Equity investments reflected $484 million in mark-
to-market
net losses from investments in public equities partially offset by $462 million of net gains from investments in private equities. The results from investments in private equities included approximately $775 million of net gains from pending and completed sales and approximately $200 million of operating net revenues from CIEs, partially offset by approximately $500 million of mark-downs. Net revenues in Equity investments for the first quarter of 2020 included net losses of $573 million from corporate investments, which were largely offset by net gains of $551 million from real estate investments.The increase in Incentive fees was driven by harvesting and the increase in Management and other fees reflected the impact of higher average assets under supervision, partially offset by a lower average effective fee due to shifts in the mix of client assets and strategies.
Provision for credit losses was $79 million for the first quarter of 2020, compared with $13 million for the first quarter of 2019, reflecting the impact of the
COVID-19
pandemic on the broader economic environment.Operating expenses were $1.20 billion for the first quarter of 2020, 9% higher than the first quarter of 2019, due to higher expenses related to consolidated investments, including impairments.
Pre-tax
loss was $1.37 billion for the first quarter of 2020, compared withpre-tax
earnings of $677 million for the first quarter of 2019.Consumer & Wealth Management
Consumer & Wealth Management helps clients achieve their individual financial goals by providing a broad range of wealth advisory and banking services, including financial planning, investment management, deposit taking, and lending. Services are offered through our global network of advisors and via our digital platforms.
Wealth Management.
We offer personalized financial planning inclusive of income and liability management, compensation and benefits analysis, trust and estate structuring, tax optimization, philanthropic giving, and asset protection. We also provide customized investment advisory solutions, and offer structuring and execution capabilities in security and derivative products across all major global markets. We leverage a broad, open-architecture investment platform and our global execution capabilities to help clients achieve their investment goals. In addition, we offer clients a full range of private banking services, including a variety of deposit alternatives and loans that our clients use to finance investments in both financial and nonfinancial assets, bridge cash flow timing gaps or provide liquidity and flexibility for other needs.
Wealth management generates revenues from the following:
• | Management and other fees. |
• | Incentive fees. |
• | Private banking and lending. |
Goldman Sachs March 2020 Form 10-Q | 110 |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
Consumer Banking.
and credit cards to finance the purchases of goods or services. We also accept deposits through Marcus, primarily through Goldman Sachs Bank USA (GS Bank USA) and Goldman Sachs International Bank (GSIB), that are used as a source of funding. These deposits include savings and time deposits which provide us with a diversified source of funding that reduces our reliance on wholesale funding.
Consumer banking revenues consist of net interest income earned on unsecured loans issued to consumers through Marcus and credit card lending activities, and net interest income allocated to consumer deposits.
The table below presents our Consumer & Wealth Management assets.
As of | ||||||||
$ in millions | March 2020 | December 2019 | ||||||
Cash and cash equivalents | $16,217 | $18,670 | ||||||
Collateralized agreements | 18,390 | 8,675 | ||||||
Customer and other receivables | 5,637 | 6,173 | ||||||
Trading assets | 13,207 | 13,087 | ||||||
Investments | 48 | 50 | ||||||
Loans | 34,988 | 34,127 | ||||||
Other assets | 3,098 | 3,015 | ||||||
Total assets | $91,585 | $83,797 |
The table below presents our Consumer & Wealth Management operating results.
Three Months Ended March | ||||||||
$ in millions | 2020 | 2019 | ||||||
Management and other fees | $ | $ 794 | ||||||
Incentive fees | 69 | 28 | ||||||
Private banking and lending | 182 | 203 | ||||||
Wealth management | 1,210 | 1,025 | ||||||
Consumer banking | 282 | 203 | ||||||
Net revenues | 1,492 | 1,228 | ||||||
Provision for credit losses | 168 | 122 | ||||||
Operating expenses | 1,244 | 1,008 | ||||||
Pre-tax earnings | 80 | 98 | ||||||
Provision for taxes | 8 | 17 | ||||||
Net earnings | 72 | 81 | ||||||
Preferred stock dividends | 6 | 3 | ||||||
Net earnings to common | $ | $ 78 | ||||||
Average common equity | $ 7,002 | $ 5,859 | ||||||
Return on average common equity | 3.8% | 5.3% |
Operating Environment.
COVID-19
pandemic led to lower global equity prices, particularly in March, compared to the end of the fourth quarter of 2019, which affected the market levels of our long-term assets under supervision. Our consumer banking activities reflected continued increases in deposits, while loan balances remained stable. If the COVID-19 pandemic persists, asset prices may continue to decline, investors may continue to favor asset classes that typically generate lower fees, investors may withdraw their assets and consumers may withdraw their deposits or consumer credit may deteriorate. As a result, net revenues and the provision for credit losses in Consumer & Wealth Management would likely continue to be negatively impacted.Three Months Ended March
2020 and March
2019.
Net revenues in Wealth management were $1.21 billion, 18% higher than the first quarter of 2019, due to significantly higher Management and other fees (including the impact of the consolidation of United Capital), primarily reflecting higher average assets under supervision and higher transaction volumes, and higher Incentive fees. Net revenues in Private banking and lending were lower compared with the first quarter of 2019.
Net revenues in Consumer banking were $282 million, 39% higher than the first quarter of 2019, driven by higher net interest income, primarily reflecting an increase in deposit balances and the addition of credit card loans.
Provision for credit losses was $168 million for the first quarter of 2020, 38% higher than the first quarter of 2019, as the first quarter of 2020 included provisions related to credit card loans.
Operating expenses were $1.24 billion for the first quarter of 2020, 23% higher than the first quarter of 2019, primarily due to the impact of the consolidation of United Capital and higher expenses related to our credit card activities.
Pre-tax
earnings were $80 million for the first quarter of 2020, 18% lower than the first quarter of 2019.111 | Goldman Sachs March 2020 Form 10-Q |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
Assets Under Supervision
Assets under supervision includes our institutional clients’ assets and assets sourced through third-party distributors (both included in our Asset Management segment), as well as
high-net-worth
clients’ assets (included in our Consumer & Wealth Management segment), where we earn a fee for managing assets on a discretionary basis. This includes net assets in our mutual funds, hedge funds, credit funds, private equity funds, real estate funds, and separately managed accounts for institutional and individual investors. Assets under supervision also 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.The table below presents information about our firmwide
period-end
assets under supervision by segment, asset class, distribution channel, region and vehicle.As of March | ||||||||
$ in billions | 2020 | 2019 | ||||||
Segment | ||||||||
Asset Management | $1,309 | $1,117 | ||||||
Consumer & Wealth Management | 509 | 482 | ||||||
Total AUS | $1,818 | $1,599 | ||||||
Asset Class | ||||||||
Alternative investments | $ 178 | $ 172 | ||||||
Equity | 335 | 335 | ||||||
Fixed income | 771 | 717 | ||||||
Total long-term AUS | 1,284 | 1,224 | ||||||
Liquidity products | 534 | 375 | ||||||
Total AUS | $1,818 | $1,599 | ||||||
Distribution Channel | ||||||||
Institutional | $ 657 | $ 620 | ||||||
Wealth management | 509 | 482 | ||||||
Third-party distributed | 652 | 497 | ||||||
Total AUS | $1,818 | $1,599 | ||||||
Region | ||||||||
Americas | $1,396 | $1,183 | ||||||
EMEA | 264 | 255 | ||||||
Asia | 158 | 161 | ||||||
Total AUS | $1,818 | $1,599 | ||||||
Vehicle | ||||||||
Separate accounts | $1,001 | $ 927 | ||||||
Public funds | 622 | 510 | ||||||
Private funds and other | 195 | 162 | ||||||
Total AUS | $1,818 | $1,599 |
In the table above:
• | Liquidity products includes money market funds and private bank deposits. |
• | EMEA represents Europe, Middle East and Africa. |
Asset classes, such as alternative investment and equity assets, typically generate higher fees relative to fixed income and liquidity product assets. The average effective management fee (which excludes
non-asset-based
fees) we earned on our firmwide assets under supervision was 31 basis points for the three months ended March 2020 and 33 basis points for the three months ended March 2019. This decrease primarily reflected shifts in the mix of client assets and strategies.We earn management fees on client assets that we manage and also receive incentive fees based on a percentage of a fund’s or a separately managed account’s return, or when the return exceeds a specified benchmark or other performance targets. These incentive fees are recognized when it is probable that a significant reversal of such fees will not occur. Our estimated unrecognized incentive fees were $1.58 billion as of March 2020 and $1.63 billion as of December 2019. Such amounts are based on the completion of the funds’ financial statements, which is generally one quarter in arrears. These fees will be recognized, assuming no decline in fair value, if and when it is probable that a significant reversal of such fees will not occur, which is generally when such fees are no longer subject to fluctuations in the market value of the assets of the funds.
The table below presents changes in our assets under supervision.
Three Months Ended March | ||||||||
$ in billions | 2020 | 2019 | ||||||
Asset Management | ||||||||
Beginning balance | $1,298 | $1,087 | ||||||
Net inflows/(outflows): | ||||||||
Alternative investments | (1 | ) | – | |||||
Equity | 2 | 3 | ||||||
Fixed income | 7 | 18 | ||||||
Total long-term AUS net inflows/(outflows) | 8 | 21 | ||||||
Liquidity products | 66 | (25 | ) | |||||
Total AUS net inflows/(outflows) | 74 | (4 | ) | |||||
Net market appreciation/(depreciation) | (63 | ) | 34 | |||||
Ending balance | $1,309 | $1,117 | ||||||
Consumer & Wealth Management | ||||||||
Beginning balance | $ 561 | $ 455 | ||||||
Net inflows/(outflows): | ||||||||
Alternative investments | – | 1 | ||||||
Equity | 1 | (4 | ) | |||||
Fixed income | (8 | ) | 2 | |||||
Total long-term AUS net inflows/(outflows) | (7 | ) | (1 | ) | ||||
Liquidity products | 6 | 3 | ||||||
Total AUS net inflows/(outflows) | (1 | ) | 2 | |||||
Net market appreciation/(depreciation) | (51 | ) | 25 | |||||
Ending balance | $ 509 | $ 482 | ||||||
Firmwide | ||||||||
Beginning balance | $1,859 | $1,542 | ||||||
Net inflows/(outflows): | ||||||||
Alternative investments | (1 | ) | 1 | |||||
Equity | 3 | (1 | ) | |||||
Fixed income | (1 | ) | 20 | |||||
Total long-term AUS net inflows/(outflows) | 1 | 20 | ||||||
Liquidity products | 72 | �� | (22 | ) | ||||
Total AUS net inflows/(outflows) | 73 | (2 | ) | |||||
Net market appreciation/(depreciation) | (114 | ) | 59 | |||||
Ending balance | $1,818 | $1,599 |
Goldman Sachs March 2020 Form 10-Q | 112 |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
The table below presents information about our average monthly firmwide assets under supervision by segment and asset class.
Average for the Three Months Ended March | ||||||||
$ in billions | 2020 | 2019 | ||||||
Segment | ||||||||
Asset Management | $1,295 | $1,102 | ||||||
Consumer & Wealth Management | 546 | 474 | ||||||
Total AUS | $1,841 | $1,576 | ||||||
Asset Class | ||||||||
Alternative investments | $ 183 | $ 170 | ||||||
Equity | 392 | 324 | ||||||
Fixed income | 796 | 693 | ||||||
Total long-term AUS | 1,371 | 1,187 | ||||||
Liquidity products | 470 | 389 | ||||||
Total AUS | $1,841 | $1,576 |
In addition to our assets under supervision, we have discretion over alternative investments where we currently do not earn management fees
(non-fee-earning
alternative assets).The table below presents information about our assets under supervision for alternative assets,
non-fee-earning
alternative assets and total alternative assets.$ in billions | AUS | Non-fee-earning alternative assets | Total alternative assets | |||||||||
As of March 2020 | ||||||||||||
Corporate equity | $ 80 | $ 40 | $120 | |||||||||
Credit | 15 | 49 | 64 | |||||||||
Real estate | 13 | 45 | 58 | |||||||||
Hedge funds and multi-asset | 70 | 1 | 71 | |||||||||
Other | – | 1 | 1 | |||||||||
Total | $178 | $136 | $314 | |||||||||
As of March 2019 | ||||||||||||
Corporate equity | $ 73 | $ 39 | $112 | |||||||||
Credit | 12 | 45 | 57 | |||||||||
Real estate | 10 | 43 | 53 | |||||||||
Hedge funds and multi-asset | 77 | 1 | 78 | |||||||||
Other | – | 1 | 1 | |||||||||
Total | $172 | $129 | $301 |
In the table above:
• | Substantially all corporate equity is private equity. |
• | Total alternative assets included uncalled capital that is available for future investing of $31 billion as of March 2020 and $24 billion as of March 2019. |
• | Non-fee-earning alternative assets primarily includes investments that we hold on our balance sheet, our unfunded commitments, unfunded commitments of our clients (where we do not charge fees on commitments), credit facilities collateralized by fund assets and employee funds. Our calculation ofnon-fee-earning alternative assets may not be comparable to similar calculations used by other companies. |
The table below presents information about alternative investments in our Asset Management segment that we hold on our balance sheet.
$ in billions | Loans | Debt securities | Equity | Other assets | Total | |||||||||||||||
As of March 2020 | ||||||||||||||||||||
Corporate equity | $ | $ | $16 | $ | $16 | |||||||||||||||
Credit | 8 | 10 | – | – | 18 | |||||||||||||||
Real estate | 8 | 3 | 5 | 19 | 35 | |||||||||||||||
Other | – | – | – | 1 | 1 | |||||||||||||||
Total | $16 | $13 | $21 | $20 | $70 | |||||||||||||||
As of March 2019 | ||||||||||||||||||||
Corporate equity | $ | $ | $18 | $ | $18 | |||||||||||||||
Credit | 6 | 8 | – | – | 14 | |||||||||||||||
Real estate | 8 | 3 | 4 | 15 | 30 | |||||||||||||||
Other | – | – | – | 1 | 1 | |||||||||||||||
Total | $14 | $11 | $22 | $16 | $63 |
In the table above:
• | Corporate equity includes private equity positions of $14 billion as of March 2020 and $17 billion as of March 2019. Corporate equity also includes public equity positions that converted from private equity upon the initial public offering of the underlying company of $2 billion as of March 2020 and $1 billion as of March 2019. |
• | Other assets represents investments held by CIEs, which were funded with liabilities of approximately $11 billion as of March 2020 and $8 billion as of March 2019. Substantially all such liabilities were nonrecourse, thereby reducing our equity at risk. |
The table below presents information about our equity investments by vintage.
$ in billions | As of March 2020 | |||
Equity investments | $21 | |||
2013 or earlier | 36% | |||
2014 - 2016 | 37% | |||
2017 - thereafter | 27% | |||
Total | 100% |
Geographic Data
See Note 25 to the consolidated financial statements for a summary of our total net revenues and
pre-tax
earnings by geographic region.113 | Goldman Sachs March 2020 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 risk management disciplines is our ability to manage the size and composition of our balance sheet. While our asset base changes due to client activity, market fluctuations and business opportunities, the size and composition of our balance sheet also reflects factors including (i) our overall risk tolerance, (ii) the amount of equity capital we hold and (iii) our funding profile, among other factors. See “Equity Capital Management and Regulatory Capital — Equity Capital Management” for information about our equity capital management process.
Although our balance sheet fluctuates on a
day-to-day
basis, our total assets atquarter-end
andyear-end
dates are generally not materially different from those occurring within our reporting periods.In order to ensure appropriate risk management, we seek to maintain a sufficiently liquid balance sheet and have processes in place to dynamically manage our assets and liabilities, which include (i) balance sheet planning, (ii) balance sheet limits, (iii) monitoring of key metrics and (iv) scenario analyses.
Balance Sheet Planning.
• | To develop our balance sheet projections, taking into account the general state of the financial markets and expected business activity levels, as well as regulatory requirements; |
• | To allow Treasury and our independent risk oversight and control functions to objectively evaluate balance sheet limit requests from our revenue-producing units in the context of our overall balance sheet constraints, including our liability profile and equity capital levels, and key metrics; and |
• | To inform the target amount, tenor and type of funding to raise, based on our projected assets and contractual maturities. |
Treasury and our independent risk oversight and control functions, along with our revenue-producing units, review current and prior period information and expectations for the year to prepare our balance sheet plan. The specific information reviewed includes asset and liability size and composition, limit utilization, risk and performance measures, and capital usage.
Our consolidated balance sheet plan, including our balance sheets by business, funding projections and projected key metrics, is reviewed and approved by the Firmwide Asset Liability Committee and the Risk Governance Committee. See “Risk Management — Overview and Structure of Risk Management” for an overview of our risk management structure.
Balance Sheet Limits.
Monitoring of Key Metrics.
Scenario Analyses.
Goldman Sachs March 2020 Form 10-Q | 114 |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
Balance Sheet Analysis and Metrics
As of March 2020, total assets in our consolidated balance sheets were $1.09 trillion, an increase of $96.79 billion from December 2019, primarily reflecting increases in customer and other receivables of $46.32 billion, collateralized agreements of $32.24 billion, trading assets of $20.14 billion, and loans of $19.55 billion, partially offset by a decrease in cash and cash equivalents of $28.06 billion. The increase in customer and other receivables primarily reflected higher client activity. The net increase in collateralized agreements reflected the impact of our activities and our clients’ activities. The increase in trading assets primarily reflected the impact of interest rate and currency movements in derivative instruments. The increase in loans primarily reflected an increase in corporate loans, partially offset by a decrease in residential real estate loans. The decrease in cash and cash equivalents primarily reflected our activities.
As of March 2020, total liabilities in our consolidated balance sheets were $997.38 billion, an increase of $94.67 billion from December 2019, primarily reflecting increases in customer and other payables of $38.36 billion, deposits of $29.98 billion and trading liabilities of $27.52 billion. The increase in customer and other payables primarily reflected higher client activity. The increase in deposits primarily reflected increases in consumer, institutional and transaction banking deposits. The increase in trading liabilities reflected the impact of interest rate and currency movements in derivative instruments.
Our total repurchase agreements, accounted for as collateralized financings, were $95.86 billion as of March 2020 and $117.76 billion as of December 2019, which were 12% lower as of March 2020 and 32% higher as of December 2019 than the average daily amount of repurchase agreements over the respective quarters. As of March 2020, the decrease in our repurchase agreements relative to the average daily amount of repurchase agreements during the quarter resulted from lower levels of our activity and our clients’ activity at the end of the period.
The level of our repurchase agreements fluctuates between and within periods, primarily due to providing clients with access to highly liquid collateral, such as liquid government and agency obligations, through collateralized financing activities.
The table below presents information about our balance sheet and leverage ratios.
As of | ||||||||
$ in millions | March 2020 | December 2019 | ||||||
Total assets | $1,089,756 | $992,968 | ||||||
Unsecured long-term borrowings | $ 225,476 | $207,076 | ||||||
Total shareholders’ equity | $ 92,379 | $ 90,265 | ||||||
Leverage ratio | 11.8x | 11.0x | ||||||
Debt to equity ratio | 2.4x | 2.3x |
In the table above:
• | The leverage ratio equals total assets divided by total shareholders’ equity and measures the proportion of equity and debt we use to finance assets. This ratio is different from the leverage ratios included in Note 20 to the consolidated financial statements. |
• | The debt-to-equity ratio equals unsecured long-term borrowings divided by total shareholders’ equity. |
The table below presents information about our shareholders’ equity and book value per common share, including the reconciliation of common shareholders’ equity to tangible common shareholders’ equity.
As of | ||||||||
$ in millions, except per share amounts | March 2020 | December 2019 | ||||||
Total shareholders’ equity | $ 92,379 | $ 90,265 | ||||||
Preferred stock | (11,203 | ) | (11,203 | ) | ||||
Common shareholders’ equity | 81,176 | 79,062 | ||||||
Goodwill and identifiable intangible assets | (4,810 | ) | (4,837 | ) | ||||
Tangible common shareholders’ equity | $ 76,366 | $ 74,225 | ||||||
Book value per common share | $ 228.21 | $ 218.52 | ||||||
Tangible book value per common share | $ 214.69 | $ 205.15 |
In the table above:
• | Tangible common shareholders’ equity is calculated as total shareholders’ equity less preferred stock, goodwill and identifiable intangible assets. We believe that tangible common shareholders’ equity is meaningful because it is a measure that we and investors use to assess capital adequacy. Tangible common shareholders’ equity is a non-GAAP measure and may not be comparable to similarnon-GAAP measures used by other companies. |
• | Book value per common share and tangible book value per common share are based on common shares outstanding and restricted stock units granted to employees with no future service requirements and not subject to performance conditions (collectively, basic shares) of 355.7 million as of March 2020 and 361.8 million as of December 2019. We believe that tangible book value per common share (tangible common shareholders’ equity divided by basic shares) is meaningful because it is a measure that we and investors use to assess capital adequacy. Tangible book value per common share is a non-GAAP measure and may not be comparable to similarnon-GAAP measures used by other companies. |
115 | Goldman Sachs March 2020 Form 10-Q |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
Funding Sources
Our primary sources of funding are deposits, collateralized financings, unsecured short- and long-term borrowings, and shareholders’ equity. We seek to maintain broad and diversified funding sources globally across products, programs, markets, currencies and creditors to avoid funding concentrations.
The table below presents information about our funding sources.
As of | ||||||||||||||||
$ in millions | March 2020 | December 2019 | ||||||||||||||
Deposits | $219,994 | 31% | $190,019 | 28% | ||||||||||||
Collateralized financings | 146,929 | 20% | 152,018 | 22% | ||||||||||||
Unsecured short-term borrowings | 37,148 | 5% | 48,287 | 7% | ||||||||||||
Unsecured long-term borrowings | 225,476 | 31% | 207,076 | 30% | ||||||||||||
Total shareholders’ equity | 92,379 | 13% | 90,265 | 13% | ||||||||||||
Total | $721,926 | 100% | $687,665 | 100% |
Our funding is primarily raised in U.S. dollar, Euro, British pound and Japanese yen. We generally distribute our funding products through our own sales force and third-party distributors to a large, diverse creditor base in a variety of markets in the Americas, Europe and Asia. We believe that our relationships with our creditors are critical to our liquidity. Our creditors include banks, governments, securities lenders, corporations, pension funds, insurance companies, mutual funds and individuals. We have imposed various internal guidelines to monitor creditor concentration across our funding programs.
Deposits.
Secured Funding.
pre-funding
residual risk through our GCLA.We seek to raise secured funding with a term appropriate for the liquidity of the assets that are being financed, and we seek longer maturities for secured funding collateralized by asset classes that may be harder to fund on a secured basis, especially during times of market stress. Our secured funding, excluding funding collateralized by liquid government and agency obligations, is primarily executed for tenors of one month or greater and is primarily executed through term repurchase agreements and securities loaned contracts.
The weighted average maturity of our secured funding included in collateralized financings in the consolidated balance sheets, excluding funding that can only be collateralized by liquid government and agency obligations
and funding through participation in Federal Reserve facilities,
exceeded 120 days as of March 2020.
Assets that may be harder to fund on a secured basis during times of market stress include certain financial instruments in the following categories: mortgage and other asset-backed loans and securities,
non-investment-grade
corporate debt securities, equity securities and emerging market securities. Assets that are classified in level 3 of the fair value hierarchy are generally funded on an unsecured basis. See Notes 4 through 10 to the consolidated financial statements for further information about the classification of financial instruments in the fair value hierarchy and “Unsecured Long-Term Borrowings” below for further information about the use of unsecured long-term borrowings as a source of funding.We also raise financing through other types of collateralized financings, such as secured loans and notes. GS Bank USA has access to funding from the Federal Home Loan Bank. Our outstanding borrowings against the Federal Home Loan Bank were $4.03 billion as of March 2020 and $527 million as of December 2019.
In an effort to mitigate the financial impact of the
COVID-19
pandemic, central banks around the world have taken aggressive measures to increase liquidity. In the U.S., the Federal Reserve has taken a broad set of actions to support the functioning of financial markets. These actions by the Federal Reserve include establishing a Primary Dealer Credit Facility, which permits broker dealers to borrow against a wide array of collateral, and creating a Money Market Mutual Fund Liquidity Facility, under which banks that purchase assets from money market mutual funds can pledge those assets on a nonrecourse basis to the Federal Reserve. The banking sector, including us, has acted in support of the financial system through active participation in the Federal Reserve’s initiatives.Goldman Sachs March 2020 Form 10-Q | 116 |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
We also have access to funding through the Federal Reserve discount window. While we do not rely on this funding in our liquidity planning and stress testing, we accessed the Federal Reserve discount window during the first quarter of 2020, in line with the commitment announced alongside the nation’s other large banks. The discount window allows the Federal Reserve to lend directly to depository institutions to provide liquidity and stability to the banking system so that they can better serve their individual and corporate clients.
Unsecured Short-Term Borrowings.
non-U.S.
hybrid financial instruments, to finance liquid assets and for other cash management purposes. In light of regulatory developments, Group Inc. no longer issues debt with an original maturity of less than one year, other than to its subsidiaries. See Note 14 to the consolidated financial statements for further information about our unsecured short-term borrowings.Unsecured Long-Term Borrowings.
The table below presents our quarterly unsecured long-term borrowings maturity profile.
$ in millions | First Quarter | Second Quarter | Third Quarter | Fourth Quarter | Total | |||||||||||||||
As of March 2020 | ||||||||||||||||||||
2021 | $ – | $8,754 | $8,019 | $7,880 | $ 24,653 | |||||||||||||||
2022 | $ 6,692 | $6,106 | $6,222 | $6,094 | 25,114 | |||||||||||||||
2023 | $10,043 | $6,241 | $7,986 | $4,337 | 28,607 | |||||||||||||||
2024 | $ 6,075 | $4,049 | $6,005 | $3,033 | 19,162 | |||||||||||||||
2025 | $ 7,038 | $8,044 | $4,418 | $4,220 | 23,720 | |||||||||||||||
2026 - thereafter | 104,220 | |||||||||||||||||||
Total | $225,476 |
The weighted average maturity of our unsecured long-term borrowings as of March 2020 was approximately eight years. To mitigate refinancing risk, we seek to limit the principal amount of debt maturing over the course of any monthly, quarterly or annual time horizon. We enter into interest rate swaps to convert a portion of our unsecured long-term borrowings into floating-rate obligations to manage our exposure to interest rates. See Note 14 to the consolidated financial statements for further information about our unsecured long-term borrowings.
Shareholders’ Equity.
Equity Capital Management and Regulatory Capital
Capital adequacy is of critical importance to us. We have in place a comprehensive capital management policy that provides a framework, defines objectives and establishes guidelines to assist us in maintaining the appropriate level and composition of capital in both
business-as-usual
and stressed conditions.Equity Capital Management
We determine the appropriate amount and composition of our equity capital by considering multiple factors, including our current and future regulatory capital requirements, the results of our capital planning and stress testing process, the results of resolution capital models and other factors, such as rating agency guidelines, subsidiary capital requirements, the business environment and conditions in the financial markets.
We manage our capital requirements and the levels of our capital usage principally by setting limits on the balance sheet and/or limits on risk, in each case at both the firmwide and business levels.
We principally manage the level and composition of our equity capital through issuances and repurchases of our common stock. We may 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. Prior to any repurchases, we must receive confirmation that the Board of Governors of the Federal Reserve System (FRB) does not object to such capital action. See Notes 14 and 19 to the consolidated financial statements for further information about our preferred stock, junior subordinated debt issued to trusts and other subordinated debt.
Capital Planning and Stress Testing Process.
117 | Goldman Sachs March 2020 Form 10-Q |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
Our capital planning process incorporates an internal capital adequacy assessment with the objective of ensuring that we are appropriately capitalized relative to the risks in our businesses. We incorporate stress scenarios into our capital planning process with a goal of holding sufficient capital to ensure we remain adequately capitalized after experiencing a severe stress event. Our assessment of capital adequacy is viewed in tandem with our assessment of liquidity adequacy and is integrated into our overall risk management structure, governance and policy framework.
Our stress tests incorporate our internally designed stress scenarios, including our internally developed severely adverse scenario, and those required under CCAR and DFAST, and are designed to capture our specific vulnerabilities and risks. We provide further information about our stress test processes and a summary of the results on our website as described in “Available Information.”
As required by the FRB’s CCAR rules, we submit an annual capital plan for review by the FRB. The purpose of the FRB’s review is to ensure that we have a robust, forward-looking capital planning process that accounts for our unique risks and that permits continued operation during times of economic and financial stress.
The FRB evaluates us based, in part, on whether we have the capital necessary to continue operating under the baseline and severely adverse scenarios provided by the FRB and those developed internally. This evaluation also takes into account our process for identifying risk, our controls and governance for capital planning, and our guidelines for making capital planning decisions. In addition, the FRB evaluates our plan to make capital distributions (i.e., dividend payments and repurchases or redemptions of stock, subordinated debt or other capital securities) and issue capital, across the range of macroeconomic scenarios and firm-specific assumptions.
With respect to our 2019 CCAR submission, the FRB informed us that it did not object to our capital plan, which includes the return of up to $8.8 billion of capital from the third quarter of 2019 through the second quarter of 2020 (2019 CCAR cycle). The capital plan provides for up to $7.0 billion in repurchases of outstanding common stock and $1.8 billion in total common stock dividends, including an increase in our common stock dividend from $0.85 to $1.25 per share in the third quarter of 2019. During the third and fourth quarters of 2019 and first quarter of 2020, we returned a total of $6.13 billion of capital, including stock repurchases of $4.76 billion and common stock dividends of $1.37 billion. Due to the current market conditions, we, along with other member banks of the Financial Services Forum, have voluntarily decided to temporarily suspend stock repurchases through the end of the 2019 CCAR cycle, and we will continue to evaluate our share repurchases for the remainder of 2020 as circumstances related to the COVID-19 pandemic evolve.
We published a summary of our annual DFAST results in June 2019. See “Available Information.” We submitted our 2020 CCAR capital plan in April 2020 and expect to publish a summary of our annual DFAST results in June 2020. The FRB also conducts its own annual stress tests and publishes a summary of certain results.
GS Bank USA has its own capital planning process, but was not required to conduct its annual stress test in 2019.
Goldman Sachs International (GSI) and GSIB also have their own capital planning and stress testing process, which incorporates internally designed stress tests and those required under the Prudential Regulation Authority’s (PRA) Internal Capital Adequacy Assessment Process.
Goldman Sachs March 2020 Form 10-Q | 118 |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
Contingency Capital Plan.
Capital Attribution.
Share Repurchase Program.
10b5-1
and accelerated share repurchases), the amounts and timing of which are determined primarily by our current and projected capital position and our capital plan submitted to the FRB as part of CCAR. The amounts and timing of the repurchases may also be influenced by general market conditions and the prevailing price and trading volumes of our common stock.On July 15, 2019, the Board of Directors of Group Inc. (Board) authorized the repurchase of an additional 50 million shares of common stock pursuant to our existing share repurchase program; however, we are only permitted to make repurchases to the extent that such repurchases have not been objected to by the FRB. As of March 2020, the remaining share authorization under our existing repurchase program was 49.7 million shares. See “Unregistered Sales of Equity Securities and Use of Proceeds” in Part II, Item 2 of this Form
10-Q
and Note 19 to the consolidated financial statements for further information about our share repurchase program, and see above for information about our capital planning and stress testing process.Resolution Capital Models.
In addition, we have established a triggers and alerts framework, which is designed to provide the Board with information needed to make an informed decision on whether and when to commence bankruptcy proceedings for Group Inc.
Rating Agency Guidelines
The credit rating agencies assign credit ratings to the obligations of Group Inc., which directly issues or guarantees substantially all of our senior unsecured debt obligations. GS&Co. and GSI have been assigned long-term and short-term issuer ratings by certain credit rating agencies. GS Bank USA and GSIB have also been assigned long-term and short-term issuer ratings, as well as ratings on their 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 “Risk Management — Liquidity Risk Management — Credit Ratings” for further information about credit ratings of Group Inc., GS Bank USA, GSIB, GS&Co. and GSI.
119 | Goldman Sachs March 2020 Form 10-Q |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
Consolidated Regulatory Capital
We are subject to consolidated regulatory capital requirements which are calculated in accordance with the regulations of the FRB (Capital Framework). Under the Capital Framework, we are an “Advanced approach” banking organization and have been designated as a global systemically important bank
(G-SIB).
The capital requirements calculated in accordance with the Capital Framework include the risk-based capital buffers and
G-SIB
surcharge. The risk-based capital buffers, applicable to us for 2020, include the capital conservation buffer of 2.5% and the countercyclical capital buffer, which the FRB has set to zero percent. In addition, theG-SIB
surcharge applicable to us for 2020 is 2.5% based on 2018 financial data and 2.5% for 2021 based on 2019 financial data. Based on financial data for the three months ended March 2020, our current estimate is that we are above the threshold for the 3.0%G-SIB
surcharge. We expect that ourG-SIB
surcharge may remain above the 3% threshold over the next three years. This increase would be effective on January 1 of the year that is one full calendar year after the increasedG-SIB
surcharge is finalized. TheG-SIB
surcharge and countercyclical buffer in the future may differ due to additional guidance from our regulators and/or positional changes. Our target CET1 capital ratio over the next three years is between 13.0% and 13.5% (including management buffers). This target reflects, among other things, our calculations based on the final stress capital buffer rule. See “Regulatory and Other Matters” for further information about the final rule.See Note 20 to the consolidated financial statements for further information about our risk-based capital ratios and leverage ratios, and the Capital Framework.
TLAC
We are also subject to the FRB’s TLAC and related requirements. Failure to comply with the TLAC and related requirements could result in restrictions being imposed by the FRB and could limit our ability to repurchase shares, pay dividends and make certain discretionary compensation payments.
The table below presents TLAC and external long-term debt requirements.
Requirements | ||||
TLAC to RWAs | 22.0% | |||
TLAC to leverage exposure | 9.5% | |||
External long-term debt to RWAs | 8.5% | |||
External long-term debt to leverage exposure | 4.5% |
In the table above:
• | The TLAC to RWAs requirement includes (i) the 18% minimum, (ii) the 2.5% buffer, (iii) the 1.5% G-SIB surcharge (Method 1) and (iv) the countercyclical capital buffer, which the FRB has set to zero percent. |
• | The TLAC to leverage exposure requirement includes (i) the 7.5% minimum and (ii) the 2.0% leverage exposure buffer. |
• | The external long-term debt to RWAs requirement includes (i) the 6% minimum and (ii) the 2.5% G-SIB surcharge (Method 2). |
• | The external long-term debt to total leverage exposure is the 4.5% minimum. |
The table below presents information about our TLAC and external long-term debt ratios.
As of | ||||||||
$ in millions | March 2020 | December 2019 | ||||||
TLAC | $ | $ 236,850 | ||||||
External long-term debt | $ | $ 141,770 | ||||||
RWAs | $ | $ 563,575 | ||||||
Leverage exposure | $1,438,866 | $1,375,467 | ||||||
TLAC to RWAs | 41.0% | 42.0% | ||||||
TLAC to leverage exposure | 17.3% | 17.2% | ||||||
External long-term debt to RWAs | 24.9% | 25.2% | ||||||
External long-term debt to leverage exposure | 10.5% | 10.3% |
In the table above:
• | TLAC includes common and preferred stock, and eligible long-term debt issued by Group Inc. Eligible long-term debt represents unsecured debt, which has a remaining maturity of at least one year and satisfies additional requirements. |
• | External long-term debt consists of eligible long-term debt subject to a haircut if it is due to be paid between one and two years. |
• | RWAs represent Advanced RWAs as of March 2020 and Standardized RWAs as of December 2019. In accordance with the TLAC rules, the higher of Advanced or Standardized RWAs are used in the calculation of TLAC and external long-term debt ratios and applicable requirements. |
• | Leverage exposure consists of average adjusted total assets and certain off-balance sheet exposures. |
See “Business — Regulation” in Part I, Item 1 of the 2019 Form
10-K
for further information about TLAC.Goldman Sachs March 2020 Form 10-Q | 120 |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
Subsidiary Capital Requirements
Many of our subsidiaries, including our bank and broker-dealer subsidiaries, are subject to separate regulation and capital requirements of the jurisdictions in which they operate.
Bank Subsidiaries.
non-U.S.
banking subsidiary. These entities are subject to regulatory capital requirements. See Note 20 to the consolidated financial statements for further information about the regulatory capital requirements of our bank subsidiaries.U.S. Regulated Broker-Dealer Subsidiaries.
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. has elected to calculate its minimum capital requirements in accordance with the “Alternative Net Capital Requirement” as permitted by Rule 15c3-1.
GS&Co. had regulatory net capital, as defined by Rule
15c3-1,
of $18.66 billion as of March 2020 and $20.88 billion as of December 2019, which exceeded the amount required by $14.26 billion as of March 2020 and $18.15 billion as of December 2019. 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 both March 2020 and December 2019, GS&Co. had tentative net capital and net capital in excess of both the minimum and the notification requirements.Non-U.S. Regulated Broker-Dealer Subsidiaries.
non-U.S.
regulated broker-dealer subsidiaries include GSI and GSJCL.GSI, our U.K. broker-dealer, is regulated by the PRA and the Financial Conduct Authority (FCA).
GSI is subject to the capital framework for E.U.-regulated financial institutions prescribed in the E.U. Fourth Capital Requirements Directive and the E.U. Capital Requirements Regulation (CRR). These capital regulations are largely based on Basel III.
The table below presents GSI’s risk-based capital requirements.
As of | ||||||||
March 2020 | December 2019 | |||||||
Risk-based capital requirements | ||||||||
CET1 capital ratio | 8.5% | 8.8% | ||||||
Tier 1 capital ratio | 10.5% | 10.8% | ||||||
Total capital ratio | 13.1% | 13.4% |
In the table above, the risk-based capital requirements incorporate capital guidance received from the PRA and could change in the future. GSI’s future capital requirements may also be impacted by developments, such as the introduction of risk-based capital buffers.
The table below presents information about GSI’s risk-based capital ratios.
As of | ||||||||
$ in millions | March 2020 | December 2019 | ||||||
Risk-based capital and risk-weighted assets | ||||||||
CET1 capital | $ 24,475 | $ | ||||||
Tier 1 capital | $ 32,776 | $ | ||||||
Tier 2 capital | $ 5,318 | $ | ||||||
Total capital | $ 38,094 | $ | ||||||
RWAs | $236,840 | $206,669 | ||||||
Risk-based capital ratios | ||||||||
CET1 capital ratio | 10.3% | 11.7% | ||||||
Tier 1 capital ratio | 13.8% | 15.7% | ||||||
Total capital ratio | 16.1% | 18.3% |
In the table above, CET1 capital, Tier 1 capital and Total capital as of March 2020 excluded GSI’s undistributed profits from December 1, 2019 through March 31, 2020, as such profits have not yet been approved to be included as regulatory capital by the PRA.
In November 2016, the European Commission proposed amendments to the CRR to implement a 3% leverage ratio requirement for certain E.U. financial institutions. This leverage ratio compares the CRR’s definition of Tier 1 capital to a measure of leverage exposure, defined as the sum of certain assets plus certain
off-balance
sheet exposures (which include a measure of derivatives, securities financing transactions, commitments and guarantees), less Tier 1 capital deductions. The required leverage ratio is expected to become effective for GSI on June 28, 2021. GSI had a leverage ratio of 4.3% as of March 2020 and 4.6% as of December 2019. GSI’s leverage ratio as of March 2020 excluded GSI’s undistributed profits from December 1, 2019 through March 31, 2020, as such profits have not yet been approved to be included as regulatory capital by the PRA. This leverage ratio is based on our current interpretation and understanding of this rule and may evolve as we discuss the interpretation and application of this rule with GSI’s regulators.121 | Goldman Sachs March 2020 Form 10-Q |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
GSI is also subject to a minimum requirement for own funds and eligible liabilities issued to affiliates. This requirement is subject to a transitional period which began to phase in from January 1, 2019 and will become fully effective on January 1, 2022. As of March 2020, GSI was in compliance with this requirement.
GSJCL, our Japanese broker-dealer, is regulated by Japan’s Financial Services Agency. GSJCL and certain other
non-U.S.
subsidiaries are also subject to capital requirements promulgated by authorities of the countries in which they operate. As of both March 2020 and December 2019, these subsidiaries were in compliance with their local capital requirements.Regulatory and Other Matters
Regulatory Matters
Our businesses are subject to extensive regulation and supervision worldwide. Regulations have been adopted or are being considered by regulators and policy makers worldwide. Given that many of the new and proposed rules are highly complex, the full impact of regulatory reform will not be known until the rules are implemented and market practices develop under the final regulations.
Stress Capital Buffer.
rule, and it will begin to apply on October 1, 2020. In accordance with the final rule, our Standardized capital ratio requirements will include the stressed capital buffer, which will be measured as the difference between the starting and lowest projected CET1 capital ratio in the supervisory severely adverse stress scenario, as calculated by the FRB, including four quarters of planned common stock dividends, subject to a 2.5% floor. Under the rule, stress leverage requirements, as calculated by the FRB, have been eliminated.
Leverage Ratios.
See “Business — Regulation” in Part I, Item 1 of the 2019 Form
10-K
for further information about the laws, rules and regulations and proposed laws, rules and regulations that apply to us and our operations.Other Matters
Brexit.
The E.U. and the U.K. agreed to a withdrawal agreement (the Withdrawal Agreement), which became effective on January 31, 2020. The transition period under the Withdrawal Agreement will last until the end of December 2020 to allow the two sides to negotiate a future trade agreement. During the transition period, the U.K. will be treated as if it were a member state of the E.U. and therefore the existing arrangements between the U.K. and the E.U. will not change. The Withdrawal Agreement provides for the possibility of an extension of the transition period for either one or two more years. However, the U.K. has pledged not to extend the transition period beyond December 31, 2020.
Based upon the existing
non-E.U.
country equivalence regimes, the E.U. and the U.K. have agreed to complete their assessments of equivalence by the end of June 2020. There is significant uncertainty as to the outcome of those assessments. We are monitoring the ongoing development related to Brexit and continue to prepare for a scenario where the U.K. financial services firms will lose access to E.U. markets on December 31, 2020 (a “hard” Brexit) while ensuring we remain flexible and well positioned to allow our clients to benefit from any more favorable scenarios. Our planning also recognizes that after the end of the transition period, we can rely on a degree of continuing access for our U.K. entities pursuant to national cross-border access regimes in certain jurisdictions (for example, based on specific licenses or exemptions). See “Regulatory Matters and Other Developments — Other Developments” in Part II, Item 7 of the 2019 Form 10-K
for further information about our plan to manage a hard Brexit scenario.Replacement of Interbank Offered Rates (IBORs), including LIBOR.
COVID-19,
the FCA, alongside the Bank of England and the members of the Working Group on Sterling Risk-Free Reference Rates, issued a statement reaffirming that firms cannot rely on LIBOR being published after 2021. Accordingly, we continue to make progress on our LIBOR transition program in line with this deadline.Goldman Sachs March 2020 Form 10-Q | 122 |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
We have created a program that focuses on achieving an orderly transition from IBORs to alternative risk-free reference rates for us and our clients. As part of this transition, we continue to actively engage with our regulators and clients, as well as participate in central bank and sector working groups. We have issued debt and deposits linked to the Secured Overnight Financing Rate (SOFR) and Sterling Overnight Index Average (SONIA) and have executed SOFR- and SONIA-based derivative contracts to make markets and facilitate client activities. Where possible, we continue to execute transactions in the market to reduce our LIBOR exposures arising from hedges to our fixed-rate debt issuances and replace with alternative risk-free reference rates exposures. See “Regulatory Matters and Other Developments — Other Developments” in Part II, Item 7 of the 2019 Form
10-K
for further information about our transition program.Impact of COVID-19 Pandemic.
COVID-19
pandemic has resulted in governments around the world implementing a broad suite of measures to help control the spread of the virus, including, among others, quarantines, travel restrictions and business curtailments.In response to the
COVID-19
pandemic, we activated and successfully executed on our BCP strategy. Our priority has been to safeguard our employees and to seek to ensure continuity of business operations on behalf of our clients. We have a central team that manages ourCOVID-19
response, which is led by our chief administrative officer and chief medical officer, and includes senior management within Risk and the chief operating officers across all regions and businesses. As a result of our BCP plan, nearly all of our employees are working remotely. Our systems and infrastructure have continued to support the increased volumes of activity. We implemented a heightened level of communication across senior management and among senior management, the rest of our employees and the Board of Directors. Real-time information sharing and decision-making are occurring through a variety of senior management meetings. Our Management Committee and other senior leaders have multiple standing meetings on a daily and weekly basis. Our executive officers have provided regular and enhanced communications to promote connectivity with our clients and employees worldwide. Furthermore, we have proactively engaged with our vendors on a regular basis in connection with our efforts to ensure they continue to meet our criteria for business continuity. The adverse impacts of
COVID-19
on financial markets has led central banks to take aggressive steps to increase liquidity. At the encouragement of the Federal Reserve, the banking sector, including us, has utilized a variety of facilities to help clients access financing to support their businesses. We will continue to evaluate our level of participation in these facilities and any new facilities or programs that become available. We have also decided to temporarily suspend share buybacks through the second quarter of 2020. As we make capital return decisions beyond the second quarter of 2020, we will continue to assess what is needed for reinvestment and to support our clients. Another action we took during the first quarter of 2020 was the purchase by GS Bank USA of short-term debt securities, primarily certificates of deposit, from two money market funds that we manage, which are not covered by the Volcker Rule. GS Bank USA’s purchase price of $1.84 billion represented the fair value of these securities, which also closely approximated their face values. These purchases were made to promote liquidity in the short-term credit markets and to increase the funds’ weekly liquid assets.Our liquidity position during the first quarter of 2020 remained strong. We maintained an average GCLA of $243 billion for the first quarter of 2020, an increase of $6 billion compared with the fourth quarter of 2019. Our deposits increased by $30 billion to $220 billion compared with December 2019. In addition, we also issued unsecured vanilla debt of $15.7 billion during the first quarter of 2020. Our capital ratios declined during the first quarter of 2020, primarily driven by balance sheet growth to support clients amid increased activity and demand for risk intermediation, but remained in excess of our minimum requirements. See “Balance Sheet and Funding Sources,” “Equity Capital Management and Regulatory Capital” and “Liquidity Risk Management” for further information.
The valuation of financial instruments and determination of the provision for credit losses are more difficult when severe economic and market shocks occur. Recent market conditions, characterized by dislocations between asset prices, higher volatility, reduced price transparency and a deterioration in the creditworthiness of borrowers have made it more challenging to determine the fair value of some of our financial assets and liabilities and the provision for credit losses. The current circumstances have required greater use of judgment, and in the case of financial instruments accounted for at fair value, have contributed to an increase in level 3 balances. See Note 4 to the consolidated financial statements for further information about fair value measurements and Note 9 to the consolidated financial statements for further information about the provision for credit losses.
123 | Goldman Sachs March 2020 Form 10-Q |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
As a result of the dramatic change in the macroeconomic environment since we last performed a goodwill impairment test in the fourth quarter of 2019, we assessed goodwill for impairment as of March 2020 and determined that it was not impaired. See Note 12 to the consolidated financial statements for further information about goodwill.
Over the latter part of the first quarter of 2020, financial markets experienced a spike in volatility as concerns over the spread of
COVID-19
intensified. Clients sought to reduce risk exposures, resulting in a significant increase in transaction volumes. Our average daily VaR for the first quarter of 2020 was $81 million, an increase of $26 million compared to March 2019, reflecting, among other things, the role that we have played as a risk intermediary for our clients in the current challenging environment. Throughout the crisis, our approach to managing market risk levels has been proactive, involving ongoing review and monitoring of exposures and risk mitigation opportunities. In addition, the sharp decline in economic activity as the pandemic became more acute has increased credit risk in general and particularly with regard to companies in industries that have been most severely impacted by the economic disruption, including oil and gas, gaming and lodging, and airlines. During the first quarter of 2020, we had approximately $19 billion in drawdowns on committed corporate credit lines in our relationship lending business, which was below the amount that waspre-funded
based on our liquidity models. Given the stresses on clients’ liquidity, we have elevated our approach to credit risk management, with an increased focus on monitoring of credit exposures and management of margin calls and disputes. Our risk positions remained balanced, controlled and adequately provisioned for, both in terms of counterparty risk and sector exposure. See “Market Risk Management” and “Credit Risk Management” for further information.Our response to
COVID-19
has involved a number of actions and initiatives aimed at providing support to our clients, employees, vendors and communities. See “Executive Overview” for further information.The
COVID-19
pandemic has created significant uncertainty regarding the operating environment for the remainder of 2020 and possibly longer, as the duration and future course of the pandemic cannot be predicted at this time. A sustained period of weak economic conditions as a result of the pandemic would be detrimental to our businesses as it would negatively affect factors that are important to our operating performance, such as the level of client activity, creditworthiness of counterparties and borrowers, and the amount of our assets under supervision. We are monitoring the ongoing developments related toCOVID-19
and will take further action as may be required by government authorities or that we determine are in the best interests of our employees, clients and counterparties. For further information about the risks associated withCOVID-19,
see “Risk Factors” in Part II, Item 1A.Off-Balance
Sheet Arrangements and Contractual ObligationsOff-Balance
Sheet ArrangementsIn the ordinary course of business, we enter into various types of
off-balance
sheet arrangements. Our involvement in these arrangements can take many different forms, including:• | Purchasing or retaining residual and other interests in special purpose entities, such as mortgage-backed and other asset-backed securitization vehicles; |
• | Holding senior and subordinated debt, interests in limited and general partnerships, and preferred and common stock in other nonconsolidated vehicles; |
• | Entering into interest rate, foreign currency, equity, commodity and credit derivatives, including total return swaps; and |
• | Providing guarantees, indemnifications, commitments, letters of credit and representations and warranties. |
We enter into these arrangements for a variety of business purposes, including securitizations. The securitization vehicles that purchase mortgages, corporate bonds, and other types of financial assets are critical to the functioning of several significant investor markets, including the mortgage-backed and other asset-backed securities markets, since they offer investors access to specific cash flows and risks created through the securitization process.
We also enter into these arrangements to underwrite client securitization transactions; provide secondary market liquidity; make investments in performing and nonperforming debt, distressed loans, power-related assets, equity securities, real estate and other assets; 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.
Goldman Sachs March 2020 Form 10-Q | 124 |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
The table below presents where information about our various
off-balance
sheet arrangements may be found in this Form 10-Q.
In addition, see Note 3 to the consolidated financial statements for information about our consolidation policies.Off-Balance Sheet Arrangement | Disclosure in Form 10-Q | |||
Variable interests and other obligations, including contingent obligations, arising from variable interests in nonconsolidated variable interest entities (VIEs) | See Note 17 to the consolidated financial statements. | |||
Guarantees, letters of credit, and lending and other commitments | See Note 18 to the consolidated financial statements. | |||
Derivatives | See “Risk Management — Credit Risk Management — Credit Exposures — OTC Derivatives” and Notes 4, 5, 7 and 18 to the consolidated financial statements. |
Contractual Obligations
We have certain contractual obligations which require us to make future cash payments. These contractual obligations include our time deposits, secured long-term financings, unsecured long-term borrowings, interest payments and operating lease payments.
Our obligations to make future cash payments also include our commitments and guarantees related to
off-balance
sheet arrangements, which are excluded from the table below. See Note 18 to the consolidated financial statements for further information about such commitments and guarantees.Due to the uncertainty of the timing and amounts that will ultimately be paid, our liability for unrecognized tax benefits has been excluded from the table below. See Note 24 to the consolidated financial statements for further information about our unrecognized tax benefits.
The table below presents our contractual obligations by type.
As of | ||||||||
$ in millions | March 2020 | December 2019 | ||||||
Time deposits | $ 32,466 | $ 32,273 | ||||||
Financings and borrowings: | ||||||||
Secured long-term | $ 13,100 | $ 11,953 | ||||||
Unsecured long-term | $225,476 | $207,076 | ||||||
Interest payments | $ 49,992 | $ 47,649 | ||||||
Operating lease payments | $ 3,828 | $ 3,980 |
The table below presents our contractual obligations by expiration.
As of March 2020 | ||||||||||||||||
$ in millions | Remainder of 2020 | 2021 - 2022 | 2023 - 2024 | 2025 - Thereafter | ||||||||||||
Time deposits | $ – | $16,092 | $11,118 | $ 5,256 | ||||||||||||
Financings and borrowings: | ||||||||||||||||
Secured long-term | $ – | $ 6,049 | $ 3,096 | $ 3,955 | ||||||||||||
Unsecured long-term | $ – | $49,767 | $47,769 | $127,940 | ||||||||||||
Interest payments | $4,759 | $11,646 | $ 8,243 | $ 25,344 | ||||||||||||
Operating lease payments | $ | $ | $ 451 | $ 2,557 |
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 holders are excluded as they are treated as short-term obligations. See Note 14 to the consolidated financial statements for further information about our short-term borrowings. |
• | 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 earliest dates such options become exercisable. |
• | As of March 2020, unsecured long-term borrowings had maturities extending through 2067, consisted principally of senior borrowings, and included $13.76 billion of adjustments to the carrying value of certain unsecured long-term borrowings resulting from the application of hedge accounting. See Note 14 to the consolidated financial statements for further information about our unsecured long-term borrowings. |
• | As of March 2020, the aggregate contractual principal amount of long-term other secured financings for which the fair value option was elected exceeded the related fair value by $546 million. |
• | As of March 2020, the aggregate contractual principal amount of unsecured long-term borrowings for which the fair value option was elected exceeded the related fair value by $823 million. |
• | Interest payments represents estimated future contractual interest payments related to unsecured long-term borrowings, secured long-term financings and time deposits based on applicable interest rates as of March 2020, and includes stated coupons, if any, on structured notes. |
• | Operating lease payments includes lease commitments for office space that 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 15 to the consolidated financial statements for further information about our operating lease liabilities. |
125 | Goldman Sachs March 2020 Form 10-Q |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
Risk Management
Risks are inherent in our businesses and include liquidity, market, credit, operational, model, legal, compliance, conduct, regulatory and reputational risks. Our risks include the risks across our risk categories, regions or global businesses, as well as those which have uncertain outcomes and have the potential to materially impact our financial results, our liquidity and our reputation. For further information about our risk management processes, see “Overview and Structure of Risk Management,” and for information about our areas of risk, see “Liquidity Risk Management,” “Market Risk Management,” “Credit Risk Management,” “Operational Risk Management” and “Model Risk Management” and “Risk Factors” in Part II, Item 1A of this Form
10-Q
and in Part I, Item 1A of the 2019 Form 10-K.
Overview and Structure of Risk Management
Overview
We believe that effective risk management is critical to our success. Accordingly, we have established an enterprise risk management framework that employs a comprehensive, integrated approach to risk management, and is designed to enable comprehensive risk management processes through which we identify, assess, monitor and manage the risks we assume in conducting our activities. Our risk management structure is built around three core components: governance, processes and people.
Governance.
The Board receives regular briefings on firmwide risks, including liquidity risk, market risk, credit risk, operational risk and model risk from our independent risk oversight and control functions, including the chief risk officer, and on compliance risk and conduct risk from Compliance, on legal and regulatory enforcement matters from the general counsel, and on other matters impacting our reputation from the chair of our Firmwide Client and Business Standards Committee and our Firmwide Reputational Risk Committee. The chief risk officer reports to our chief executive officer and to the Risk Committee of the Board. As part of the review of the firmwide risk portfolio, the chief risk officer regularly advises the Risk Committee of the Board of relevant risk metrics and material exposures, including risk limits and thresholds established in our risk appetite statement.
The implementation of our risk governance structure and core risk management processes are overseen by Enterprise Risk, which reports to our chief risk officer, and is responsible for ensuring that our enterprise risk management framework provides the Board, our risk committees and senior management with a consistent and integrated approach to managing our various risks in a manner consistent with our risk appetite.
Our revenue-producing units, as well as Treasury, Engineering, Human Capital Management, Operations and Services, are considered our first line of defense. They are accountable for the outcomes of our risk-generating activities, as well as for assessing and managing those risks within our risk appetite.
Our independent risk oversight and control functions are considered our second line of defense and provide independent assessment, oversight and challenge of the risks taken by our first line of defense, as well as lead and participate in risk committees. Independent risk oversight and control functions include Compliance, Conflicts Resolution, Controllers, Credit Risk, Enterprise Risk, Legal, Liquidity Risk, Market Risk, Model Risk, Operational Risk and Tax.
Internal Audit is considered our third line of defense and reports to the Audit Committee of the Board and administratively to our chief executive officer. Internal Audit includes professionals with a broad range of audit and industry experience, including risk management expertise. Internal Audit is responsible for independently assessing and validating the effectiveness of key controls, including those within the risk management framework, and providing timely reporting to the Audit Committee of the Board, senior management and regulators.
The three lines of defense structure promotes the accountability of first line risk takers, provides a framework for effective challenge by the second line and empowers independent review from the third line.
Goldman Sachs March 2020 Form 10-Q | 126 |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
Processes.
• | Risk Identification and Assessment. |
To effectively assess our risks, we maintain a daily discipline of marking substantially all of our inventory to current market levels. We carry our 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 inventory exposures.
An important part of our risk management process is firmwide stress testing. 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. Firmwide stress tests are performed on a regular basis and are designed to ensure a comprehensive analysis of our vulnerabilities and idiosyncratic risks combining financial and nonfinancial risks, including, but not limited to, credit, market, liquidity and funding, operational and compliance, strategic, systemic and emerging risks into a single combined scenario. We also perform ad hoc stress tests in anticipation of market events or conditions. Stress tests are also used to assess capital adequacy as part of our capital planning and stress testing process. See “Equity Capital Management and Regulatory Capital — Equity Capital Management” for further information.
• | Risk Appetite, Limit and Threshold Setting. |
The Risk Governance Committee is responsible for approving limits at firmwide, business and product levels. Certain limits may be set at levels that will require periodic adjustment, rather than at levels that reflect our maximum risk appetite. This fosters an ongoing dialogue about risk among our first and second lines of defense, committees and senior management, as well as rapid escalation of
risk-related
matters. Additionally, through delegated authority from the Risk Governance Committee, Market Risk sets limits at certain product and desk levels, and Credit Risk sets limits for individual counterparties, counterparties and their subsidiaries, industries and countries. Limits are reviewed regularly and amended on a permanent or temporary basis to reflect changing market conditions, business conditions or risk tolerance.• | Risk Reporting and Monitoring. We evaluate changes in our risk profile and our businesses, including changes in business mix or jurisdictions in which we operate, by monitoring risk factors at a firmwide level. |
127 | Goldman Sachs March 2020 Form 10-Q |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
• | Risk Decision-Making. decision-making on risk management issues and ensures implementation of those decisions. We make extensive use of risk committees that meet regularly and serve as an important means to facilitate and foster ongoing discussions to manage and mitigate risks. |
We maintain strong and proactive communication about risk and we have a culture of collaboration in decision-making among our first and second lines of defense, committees and senior management. While our first line of defense is responsible for management of their risk, we dedicate extensive resources to our second line of defense in order to ensure a strong oversight structure and an appropriate segregation of duties. We regularly reinforce our strong culture of escalation and accountability across all functions.
People.
We reinforce a culture of effective risk management, consistent with our risk appetite, in our training and development programs, as well as in the way we evaluate performance, and recognize and reward our people. Our training and development programs, including certain sessions led by our most senior leaders, are focused on the importance of risk management, client relationships and reputational excellence. As part of our annual performance review process, we assess reputational excellence, including how an employee exercises good risk management and reputational judgment, and adheres to our code of conduct and compliance policies. Our review and reward processes are designed to communicate and reinforce to our professionals the link between behavior and how people are recognized, the need to focus on our clients and our reputation, and the need to always act in accordance with our highest standards.
Structure
Ultimate oversight of risk is the responsibility of our Board. The Board oversees risk both directly and through its committees, including its Risk Committee. We have a series of committees with specific risk management mandates that have oversight or decision-making responsibilities for risk management activities. Committee membership generally consists of senior managers from both our first and second lines of defense. 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 committees that provide oversight for different businesses, activities, products, regions and entities. All of our committees have responsibility for considering the impact of transactions and activities, which they oversee, on our reputation.Membership of our 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.
The chart below presents an overview of our risk management governance structure.
Management Committee.
Goldman Sachs March 2020 Form 10-Q | 128 |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
Firmwide Enterprise Risk Committee.
co-chaired
by our chief financial officer and our chief risk officer, who are appointed as chairs by our chief executive officer, and reports to the Management Committee. The following are the primary committees that report to the Firmwide Enterprise Risk Committee:• | Firmwide Risk Committee. co-chaired by the chairs of the Firmwide Enterprise Risk Committee. |
• | Firmwide New Activity Committee. co-chaired by the controller and chief accounting officer, and the head of Operations and Operations Engineering for the Global Markets Division, who are appointed as chairs by the chairs of the Firmwide Enterprise Risk Committee. |
• | Firmwide Operational Risk and Resilience Committee. co-chaired by our chief administrative officer and deputy chief risk officer, who are appointed as chairs by the chairs of the Firmwide Enterprise Risk Committee. |
• | Firmwide Conduct Committee. co-chairs of this committee are appointed by the chairs of the Firmwide Enterprise Risk Committee. |
• | Risk Governance Committee. |
Firmwide Client and Business Standards Committee
.
129 | Goldman Sachs March 2020 Form 10-Q |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
The following committees report jointly to the Firmwide Enterprise Risk Committee and the Firmwide Client and Business Standards Committee:
• | Firmwide Reputational Risk Committee. |
• | Firmwide Suitability Committee. co-chaired by our chief compliance officer, and theco-head of EMEA FICC sales, who are appointed as chairs by the chair of the Firmwide Client and Business Standards Committee. |
• | Firmwide Investment Policy Committee. co-chaired by the chairman of our Merchant Banking Division, the head of our Merchant Banking Division and the chief risk officer, who are appointed as chairs by our president and chief operating officer and our chief financial officer. |
• | Firmwide Capital Committee. co-chaired by the head of Credit Risk and aco-head of the Financing Group, who are appointed as chairs by the chairs of the Firmwide Enterprise Risk Committee. |
• | Firmwide Commitments Committee. co-chaired by theco-head of the Industrials Group in our Investment Banking Division, the chief debt underwriting officer for EMEA, and a managing director in our Investment Banking Division, who are appointed as chairs by the chair of the Firmwide Client and Business Standards Committee. |
Firmwide Asset Liability Committee.
co-chaired
by our chief financial officer and our global treasurer, who are appointed as chairs by our chief executive officer, and reports to the Management Committee.Goldman Sachs March 2020 Form 10-Q | 130 |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
Conflicts Management
Conflicts of interest and our 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 our policies and procedures, is shared by all of our employees.
We have a multilayered approach to resolving conflicts and addressing reputational risk. Our senior management oversees policies related to conflicts resolution, and, in conjunction with Conflicts Resolution, Legal and Compliance, the Firmwide Client and Business Standards Committee, and other internal committees, formulates policies, standards and principles, and assists 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.
As a general matter, Conflicts Resolution reviews financing and advisory assignments in Investment Banking and certain of our investing, lending and other activities. In addition, we have various transaction oversight committees, such as the Firmwide Capital, Commitments and Suitability Committees and other committees that also review new underwritings, loans, investments and structured products. These groups and committees work with internal and external counsel and Compliance to evaluate and address any actual or potential conflicts. Conflicts Resolution reports to our president and chief operating officer.
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.
Compliance Risk Management
Compliance risk is the risk of legal or regulatory sanctions, material financial loss or damage to our reputation arising from our failure to comply with the requirements of applicable laws, rules and regulations, and our internal policies and procedures. Compliance risk is inherent in all activities through which we conduct our businesses. Our Compliance Risk Management Program, administered by Compliance, assesses our compliance, regulatory and reputational risk; monitors for compliance with new or amended laws, rules and regulations; designs and implements controls, policies, procedures and training; conducts independent testing; investigates, surveils and monitors for compliance risks and breaches; and leads our responses to regulatory examinations, audits and inquiries. We monitor and review business practices to assess whether they meet or exceed minimum regulatory and legal standards in all markets and jurisdictions in which we conduct business.
Liquidity Risk Management
Overview
Liquidity risk is the risk that we will be unable to fund ourselves or meet our liquidity needs in the event of firm-specific, broader industry or market liquidity stress events. We have in place a comprehensive and conservative set of liquidity and funding policies. Our principal objective is to be able to fund ourselves and to enable our core businesses to continue to serve clients and generate revenues, even under adverse circumstances.
Treasury, which reports to our chief financial officer, has primary responsibility for developing, managing and executing our liquidity and funding strategy within our risk appetite.
Liquidity Risk, which is independent of our revenue-producing units and Treasury, and reports to our chief risk officer, has primary responsibility for assessing, monitoring and managing our liquidity risk through firmwide oversight across our global businesses and the establishment of stress testing and limits frameworks.
Liquidity Risk Management Principles
We manage liquidity risk according to three principles: (i) hold sufficient excess liquidity in the form of GCLA to cover outflows during a stressed period, (ii) maintain appropriate Asset-Liability Management and (iii) maintain a viable Contingency Funding Plan.
GCLA.
pre-fund
our estimated potential cash and collateral needs during a liquidity crisis and hold this liquidity in the form of unencumbered, highly liquid securities and cash. We believe that the securities held in our GCLA would be readily convertible to cash in a matter of days, through liquidation, by entering into repurchase agreements or from maturities of resale agreements, and that this cash would allow us to meet immediate obligations without needing to sell other assets or depend on additional funding from credit-sensitive markets.Our GCLA 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; |
131 | Goldman Sachs March 2020 Form 10-Q |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
• | During a liquidity crisis, credit-sensitive funding, including unsecured debt, certain deposits 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 and certain deposits may be withdrawn; and |
• | 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 funding 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 maintain our GCLA across Group Inc., Goldman Sachs Funding LLC (Funding IHC) and Group Inc.’s major broker-dealer and bank subsidiaries, 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. In addition to the GCLA, we maintain cash balances and securities in several of our other entities, primarily for use in specific currencies, entities or jurisdictions where we do not have immediate access to parent company liquidity.
Asset-Liability Management.
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 further information; |
• | Actively managing and monitoring our asset base, with particular focus on the liquidity, holding period and ability to fund assets on a secured basis. We assess our funding requirements and our ability to liquidate assets in a stressed environment while appropriately managing risk. This enables us to determine the most appropriate funding products and tenors. See “Balance Sheet and Funding Sources — Balance Sheet Management” for further information about our balance sheet management process and “— Funding Sources — Secured Funding” for further information about asset classes that may be harder to fund on a secured basis; and |
• | 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 we maintain sufficient liquidity to fund our assets and meet our contractual and contingent obligations in normal times, as well as during periods of market stress. Through our dynamic balance sheet management process, we use actual and projected asset balances to determine secured and unsecured funding requirements. Funding plans are reviewed and approved by the Firmwide Asset Liability Committee. In addition, our independent risk oversight and control functions analyze, and the Firmwide Asset Liability 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 GCLA in order to avoid reliance on asset sales (other than our GCLA). However, we recognize that orderly asset sales may be prudent or necessary in a severe or persistent liquidity crisis.
Subsidiary Funding Policies
The majority of our unsecured funding is raised by Group Inc., which lends the necessary funds to Funding IHC and other 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 deposits, secured funding and unsecured borrowings.
Our intercompany funding policies assume that a subsidiary’s funds or securities are not freely available to its parent, Funding IHC or other subsidiaries unless (i) legally provided for and (ii) there are no additional regulatory, tax or other restrictions. 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. or Funding IHC. 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 to Group Inc. or Funding IHC until the maturity of such financing.
Goldman Sachs March 2020 Form 10-Q | 132 |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
Group Inc. has provided substantial amounts of equity and subordinated indebtedness, directly or indirectly, to its regulated subsidiaries. For example, as of March 2020, Group Inc. had $33.23 billion of equity and subordinated indebtedness invested in GS&Co., its principal U.S. registered broker-dealer; $41.68 billion invested in GSI, a regulated U.K. broker-dealer; $2.94 billion invested in GSJCL, a regulated Japanese broker-dealer; $33.87 billion invested in GS Bank USA, a regulated New York State-chartered bank; and $4.04 billion invested in GSIB, a regulated U.K. bank. Group Inc. also provided, directly or indirectly, $117.52 billion of unsubordinated loans (including secured loans of $55.61 billion) and $17.01 billion of collateral and cash deposits to these entities, substantially all of which was to GS&Co., GSI and GSJCL, as of March 2020. In addition, as of March 2020, Group Inc. had significant amounts of capital invested in and loans to its other regulated subsidiaries.
Contingency Funding Plan.
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 and their responsibilities, which include fostering effective coordination, control and distribution of information, implementing liquidity maintenance activities and managing internal and external communication, all of which are critical in the management of a crisis or period of market stress.
Stress Tests
In order to determine the appropriate size of our GCLA, we model liquidity outflows over a range of scenarios and time horizons. One of our primary internal liquidity risk models, referred to as the Modeled Liquidity Outflow, quantifies our liquidity risks over a
30-day
stress scenario. We also consider other factors, including, but not limited to, an assessment of our potential intraday liquidity needs through an additional internal liquidity risk model, referred to as the Intraday Liquidity Model, the results of our long-term stress testing models, our resolution liquidity models and other applicable regulatory requirements and a qualitative assessment of our condition, as well as the financial markets. The results of the Modeled Liquidity Outflow, the Intraday Liquidity Model, the long-term stress testing models and the resolution liquidity models are reported to senior management on a regular basis. We also perform firmwide stress tests. See “Overview and Structure of Risk Management” for information about firmwide stress tests.Modeled Liquidity Outflow.
• | Severely challenged market environments, which includes low consumer and corporate confidence, financial and political instability, and adverse changes in market values, including potential declines in equity markets and widening of credit spreads; and |
• | A firm-specific crisis potentially triggered by material losses, reputational damage, litigation and/or a ratings downgrade. |
The following are key modeling elements of our Modeled Liquidity Outflow:
• | Liquidity needs over a 30-day scenario; |
• | A two-notch downgrade of our long-term senior unsecured credit ratings; |
• | Changing conditions in funding markets, which limit our access to unsecured and secured funding; |
• | No support from additional government funding facilities. Although we have access to various central bank funding programs, we do not assume reliance on additional sources of funding in a liquidity crisis; and |
• | A combination of contractual outflows, such as upcoming maturities of unsecured debt, and contingent outflows, including, but not limited to, the withdrawal of customer credit balances in our prime brokerage business, increase in variation margin requirements due to adverse changes in the value of our exchange-traded and OTC-cleared derivatives, and withdrawals of deposits that have no contractual maturity. |
133 | Goldman Sachs March 2020 Form 10-Q |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
Intraday Liquidity Model.
Long-Term Stress Testing.
Resolution Liquidity Models.
In addition, we have established a triggers and alerts framework, which is designed to provide the Board with information needed to make an informed decision on whether and when to commence bankruptcy proceedings for Group Inc.
Limits
We use liquidity risk limits at various levels and across liquidity risk types to manage the size of our liquidity exposures. Limits are measured relative to acceptable levels of risk given our liquidity risk tolerance. See “Overview and Structure of Risk Management” for information about the limit approval process.
Limits are monitored by Treasury and Liquidity Risk. Liquidity Risk is responsible for identifying and escalating to senior management and/or the appropriate risk committee, on a timely basis, instances where limits have been exceeded.
GCLA and Unencumbered Metrics
GCLA.
The table below presents information about our GCLA.
Average for the Three Months Ended | ||||||||
$ in millions | March 2020 | December 2019 | ||||||
Denomination | ||||||||
U.S. dollar | $158,016 | $150,455 | ||||||
Non-U.S. dollar | 84,730 | 86,661 | ||||||
Total | $242,746 | $237,116 | ||||||
Asset Class | ||||||||
Overnight cash deposits | $ 70,776 | $ 66,327 | ||||||
U.S. government obligations | 104,600 | 99,798 | ||||||
U.S. agency obligations | 12,191 | 14,081 | ||||||
Non-U.S. government obligations | 55,179 | 56,910 | ||||||
Total | $242,746 | $237,116 | ||||||
Entity Type | ||||||||
Group Inc. and Funding IHC | $ 39,001 | $ 39,104 | ||||||
Major broker-dealer subsidiaries | 89,575 | 92,835 | ||||||
Major bank subsidiaries | 114,170 | 105,177 | ||||||
Total | $242,746 | $237,116 |
In the table above:
• | The U.S. dollar-denominated GCLA consists of (i) unencumbered U.S. government and agency obligations (including highly liquid U.S. 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 GCLA consists ofnon-U.S. government obligations (only unencumbered German, French, Japanese and U.K. government obligations) and certain overnight cash deposits in highly liquid currencies. |
Goldman Sachs March 2020 Form 10-Q | 134 |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
We maintain our GCLA to enable us to meet current and potential liquidity requirements of our parent company, Group Inc., and its subsidiaries. Our Modeled Liquidity Outflow and Intraday Liquidity Model incorporate a requirement for Group Inc., as well as a standalone requirement for each of our major broker-dealer and bank subsidiaries. Funding IHC is required to provide the necessary liquidity to Group Inc. during the ordinary course of business, and is also obligated to provide capital and liquidity support to major subsidiaries in the event of our material financial distress or failure. Liquidity held directly in each of our major broker-dealer and bank subsidiaries is intended for use only by that subsidiary to meet its liquidity requirements and is assumed not to be available to Group Inc. or Funding IHC unless (i) legally provided for and (ii) there are no additional regulatory, tax or other restrictions. In addition, the Modeled Liquidity Outflow and Intraday Liquidity Model also incorporate a broader assessment of standalone liquidity requirements for other subsidiaries and we hold a portion of our GCLA directly at Group Inc. or Funding IHC to support such requirements.
Other Unencumbered Assets.
Liquidity Regulatory Framework
As a bank holding company (BHC), we are subject to a minimum Liquidity Coverage Ratio (LCR) under the LCR rule approved by the U.S. federal bank regulatory agencies. The LCR rule requires organizations to maintain an adequate ratio of eligible high-quality liquid assets (HQLA) to expected net cash outflows under an acute short-term liquidity stress scenario. Eligible HQLA excludes HQLA held by subsidiaries that is in excess of their minimum requirement and is subject to transfer restrictions. We are required to maintain a minimum LCR of 100%. We expect that fluctuations in client activity, business mix and the market environment will impact our LCR.
The table below presents information about our average daily LCR.
Average for the Three Months Ended | ||||||||
$ in millions | March 2020 | December 2019 | ||||||
Total HQLA | $235,620 | $229,029 | ||||||
Eligible HQLA | $178,530 | $170,371 | ||||||
Net cash outflows | $136,341 | $134,436 | ||||||
LCR | 131% | 127% |
The U.S. federal bank regulatory agencies have issued a proposed rule that calls for a net stable funding ratio (NSFR) for large U.S. banking organizations. The proposal would require banking organizations to ensure they have access to stable funding over a
one-year
time horizon and includes quarterly disclosure of the ratio and a description of the banking organization’s stable funding sources. We expect that we will be compliant with the NSFR requirement when it is effective.The following provides information about our subsidiary liquidity regulatory requirements:
• | GS Bank USA. |
• | GSI. |
• | Other Subsidiaries. |
The implementation of these rules and any amendments adopted by the regulatory authorities could impact our liquidity and funding requirements and practices in the future.
Credit Ratings
We rely on the short- 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 “Risk Factors” in Part I, Item 1A of the 2019 Form 10-K
for information about the risks associated with a reduction in our credit ratings.135 | Goldman Sachs March 2020 Form 10-Q |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
The table below presents the unsecured credit ratings and outlook of Group Inc.
As of March 2020 | ||||||||||||||||||||
DBRS | Fitch | Moody’s | R&I | S&P | ||||||||||||||||
Short-term debt | R-1 (middle | ) | F1 | P-2 | a-1 | A-2 | ||||||||||||||
Long-term debt | A (high | ) | A | A3 | A | BBB+ | ||||||||||||||
Subordinated debt | A | A- | Baa2 | A- | BBB- | |||||||||||||||
Trust preferred | A | BBB- | Baa3 | N/A | BB | |||||||||||||||
Preferred stock | BBB (high | ) | BB+ | Ba1 | N/A | BB | ||||||||||||||
Ratings outlook | Stable | Stable | Stable | Stable | Stable |
In the table above:
• | The ratings and outlook are by DBRS, Inc. (DBRS), Fitch, Inc. (Fitch), Moody’s Investors Service (Moody’s), Rating and Investment Information, Inc. (R&I), and Standard & Poor’s Ratings Services (S&P). |
• | The ratings for trust preferred relate to the guaranteed preferred beneficial interests issued by Goldman Sachs Capital I. |
• | The DBRS, Fitch, Moody’s and S&P ratings for preferred stock include the APEX issued by Goldman Sachs Capital II and Goldman Sachs Capital III. |
In April 2020, after revising its global rating methodology for banks, Fitch lowered Group Inc.’s ratings on subordinated debt (from
A-
to BBB+) and upgraded preferred stock (from BB+ toBBB-).
In addition, due toCOVID-19
uncertainty, Fitch revised the outlook of Group Inc. from stable to negative.The table below presents the unsecured credit ratings and outlook of GS Bank USA, GSIB, GS&Co. and GSI.
As of March 2020 | ||||||||||||
Fitch | Moody’s | S&P | ||||||||||
GS Bank USA | ||||||||||||
Short-term debt | F1 | P-1 | A-1 | |||||||||
Long-term debt | A+ | A1 | A+ | |||||||||
Short-term bank deposits | F1+ | P-1 | N/A | |||||||||
Long-term bank deposits | AA- | A1 | N/A | |||||||||
Ratings outlook | Stable | Stable | Stable | |||||||||
GSIB | ||||||||||||
Short-term debt | F1 | P-1 | A-1 | |||||||||
Long-term debt | A | A1 | A+ | |||||||||
Short-term bank deposits | F1 | P-1 | N/A | |||||||||
Long-term bank deposits | A | A1 | N/A | |||||||||
Ratings outlook | Stable | Stable | Stable | |||||||||
GS&Co. | ||||||||||||
Short-term debt | F1 | N/A | A-1 | |||||||||
Long-term debt | A+ | N/A | A+ | |||||||||
Ratings outlook | Stable | N/A | Stable | |||||||||
GSI | ||||||||||||
Short-term debt | F1 | P-1 | A-1 | |||||||||
Long-term debt | A | A1 | A+ | |||||||||
Ratings outlook | Stable | Stable | Stable |
In April 2020, Fitch upgraded GSIB’s and GSI’s ratings on long-term debt (from A to A+) and GSIB’s long-term bank deposits (from A to A+). In addition, due to
COVID-19
uncertainty, Fitch revised the outlook of GS Bank USA, GSIB, GS&Co. and GSI from stable to negative.We believe our credit ratings are primarily based on the credit rating agencies’ assessment of:
• | Our liquidity, market, credit and operational risk management practices; |
• | Our level and variability of earnings; |
• | Our capital base; |
• | Our franchise, reputation and management; |
• | Our corporate governance; and |
• | The external operating and economic environment, including, in some cases, the assumed level of government support or other systemic considerations, such as potential resolution. |
Certain of our 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 manage our GCLA to ensure we would, among other potential requirements, 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.See Note 7 to the consolidated financial statements for further information about derivatives with credit-related contingent features and the additional collateral or termination payments related to our net derivative liabilities under bilateral agreements that could have been called by counterparties in the event of a
one-
ortwo-notch
downgrade in our credit ratings.Goldman Sachs March 2020 Form 10-Q | 136 |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
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 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.
Three Months Ended March 2020.
Three Months Ended March 2019.
Market Risk Management
Overview
Market risk is the risk of loss in the value of our inventory, investments, loans and other financial assets and liabilities accounted for at fair value due to changes in market conditions. We hold such positions primarily for market making for our clients and for our investing and financing activities, and therefore, these positions change based on client demands and our investment opportunities. Since these positions are accounted for at fair value, they fluctuate on a daily basis, with the related gains and losses included in the consolidated statements of earnings. We employ a variety of risk measures, each described in the respective sections below, to monitor market risk. 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, 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; and |
• | Commodity price risk: results from exposures to changes in spot prices, forward prices and volatilities of commodities, such as crude oil, petroleum products, natural gas, electricity, and precious and base metals. |
Market Risk, which is independent of our revenue-producing units and reports to our chief risk officer, has primary responsibility for assessing, monitoring and managing our market risk through firmwide oversight across our global businesses.
Managers in revenue-producing units and Market Risk discuss market information, positions and estimated loss scenarios on an ongoing basis. 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.137 | Goldman Sachs March 2020 Form 10-Q |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
Market Risk Management Process
Our process for managing market risk includes the critical components of our risk management framework described in the “Overview and Structure of Risk Management,” as well as the following:
• | Monitoring compliance with established market risk limits and reporting our exposures; |
• | Diversifying exposures; |
• | Controlling position sizes; and |
• | Evaluating mitigants, such as economic hedges in related securities or derivatives. |
Our market risk management systems enable us to perform an independent calculation of
Value-at-Risk
(VaR) and stress measures, capture risk measures at individual position levels, attribute risk measures to individual risk factors of each position, report many different views of the risk measures (e.g., by desk, business, product type or entity) and produce ad hoc analyses in a timely manner.Risk Measures
We produce risk measures and monitor them against established market risk limits. These measures reflect an extensive range of scenarios and the results are aggregated at product, 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- and long-term time horizons. Our primary risk measures are VaR, which is used for shorter-term periods, and 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 risk oversight and control functions.
Value-at-Risk.
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; and |
• | Previous moves in market risk factors may not produce accurate predictions of all future market moves. |
To comprehensively capture our exposures and relevant risks in our VaR calculation, we use historical simulations with full valuation of market factors at the position level by simultaneously shocking the relevant market factors for that position. These market factors include spot prices, credit spreads, funding spreads, yield curves, volatility and correlation, and are updated periodically based on changes in the composition of positions, as well as variations in market conditions. We sample from five years of historical data to generate the scenarios for our VaR calculation. The historical data is weighted so that the relative importance of the data reduces over time. This gives greater importance to more recent observations and reflects current asset volatilities, which improves the accuracy of our estimates of potential loss. As a result, even if our positions included in VaR 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.
Our VaR measure does not include:
• | Positions that are best measured and monitored using sensitivity measures; and |
• | The impact of changes in counterparty and our own credit spreads on derivatives, as well as changes in our own credit spreads on financial liabilities for which the fair value option was elected. |
Goldman Sachs March 2020 Form 10-Q | 138 |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
We perform daily backtesting of our VaR model (i.e., comparing daily net revenues for positions included in VaR 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.
Stress Testing.
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 any single entity, which captures the risk of large or concentrated exposures.Scenario analysis is used to quantify the impact of a specified event, including how the event impacts multiple risk factors simultaneously. For example, for sovereign stress testing we calculate potential direct exposure associated with our sovereign positions, as well as the corresponding debt, equity and currency exposures associated with our
non-sovereign
positions that may be impacted by the sovereign distress. When conducting scenario analysis, we often 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.Unlike VaR measures, which have an implied probability because they are calculated at a specified confidence level, there may not be an implied probability that our stress testing scenarios will occur. Instead, stress testing is 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).
Limits
We use market risk limits at various levels to manage the size of our market exposures. These limits are set based on VaR and on a range of stress tests relevant to our exposures. See “Overview and Structure of Risk Management” for information about the limit approval process.
Market Risk is responsible for monitoring these limits, and identifying and escalating to senior management and/or the appropriate risk committee, on a timely basis, instances where limits have been exceeded (e.g., due to positional changes or changes in market conditions, such as increased volatilities or changes in correlations). Such instances are remediated by a reduction in the positions we hold and/or a temporary or permanent increase to the limit.
Metrics
We analyze VaR at the firmwide level and a variety of more detailed levels, including by risk category, business and region. 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.
The table below presents our average daily VaR.
Three Months Ended | ||||||||||||
$ in millions | March 2020 | December 2019 | March 2019 | |||||||||
Categories | ||||||||||||
Interest rates | $ 60 | $ 49 | $ 43 | |||||||||
Equity prices | 41 | 24 | 29 | |||||||||
Currency rates | 18 | 11 | 12 | |||||||||
Commodity prices | 11 | 12 | 11 | |||||||||
Diversification effect | (49 | ) | (38 | ) | (40 | ) | ||||||
Total | $ 81 | $ 58 | $ 55 |
Our average daily VaR increased to $81 million for the first quarter of 2020 from $58 million for the fourth quarter of 2019, primarily due to increases in the equity prices, interest rates and currency rates categories, partially offset by an increase in the diversification effect. The overall increase was due to increased exposures and higher levels of volatility.
Our average daily VaR increased to $81 million for the first quarter of 2020 from $55 million for the first quarter of 2019, due to increases in the interest rates, equity prices and currency rates categories, partially offset by an increase in the diversification effect. The overall increase was due to higher levels of volatility and increased exposures.
139 | Goldman Sachs March 2020 Form 10-Q |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
The table below presents our
period-end
VaR.As of | ||||||||||||
$ in millions | March 2020 | December 2019 | March 2019 | |||||||||
Categories | ||||||||||||
Interest rates | $ 99 | $ 54 | $ 41 | |||||||||
Equity prices | 78 | 24 | 31 | |||||||||
Currency rates | 48 | 10 | 11 | |||||||||
Commodity prices | 16 | 10 | 12 | |||||||||
Diversification effect | (118 | ) | (28 | ) | (38 | ) | ||||||
Total | $ 123 | $ 70 | $ 57 |
Our
period-end
VaR increased to $123 million as of March 2020 from $70 million as of December 2019, due to increases in the equity prices, interest rates, currency rates and commodity prices categories, partially offset by an increase in the diversification effect. The overall increase was primarily due to higher levels of volatility.Our
period-end
VaR increased to $123 million as of March 2020 from $57 million as of March 2019, due to increases in the interest rates, equity prices, currency rates and commodity prices categories, partially offset by an increase in the diversification effect. The overall increase was primarily due to higher levels of volatility.During the three months ended March 2020 the firmwide VaR risk limit was exceeded on 10 occasions primarily due to higher levels of volatility and was not raised or reduced. During the year ended December 2019, the firmwide VaR risk limit was not exceeded, raised or reduced.
The table below presents our high and low VaR.
Three Months Ended | ||||||||||||||||||||||||||||||
March 2020 | December 2019 | March 2019 | ||||||||||||||||||||||||||||
$ in millions | High | Low | High | Low | High | Low | ||||||||||||||||||||||||
Categories | ||||||||||||||||||||||||||||||
Interest rates | $ 99 | $46 | $64 | $39 | $52 | $35 | ||||||||||||||||||||||||
Equity prices | $116 | $23 | $30 | $20 | $38 | $25 | ||||||||||||||||||||||||
Currency rates | $ 53 | $ 8 | $17 | $ 7 | $20 | $ 7 | ||||||||||||||||||||||||
Commodity prices | $ 18 | $ 9 | $16 | $ 9 | $16 | $10 | ||||||||||||||||||||||||
Firmwide | ||||||||||||||||||||||||||||||
VaR | $195 | $58 | $77 | $48 | $63 | $49 |
The chart below presents our daily VaR for the three months ended March 2020.
The table below presents, by number of business days, the frequency distribution of our daily net revenues for positions included in VaR.
Three Months Ended March | ||||||||
$ in millions | 2020 | 2019 | ||||||
>$100 | 14 | 5 | ||||||
$75 - $100 | 8 | 6 | ||||||
$50 - $75 | 5 | 10 | ||||||
$25 - $50 | 12 | 18 | ||||||
$0 - $25 | 14 | 19 | ||||||
$(25) - $0 | 4 | 3 | ||||||
$(50) - $(25) | 1 | – | ||||||
$(75) - $(50) | 2 | – | ||||||
$(100) - $(75) | 2 | – | ||||||
Total | 62 | 61 |
Daily net revenues for positions included in VaR are compared with VaR calculated as of the end of the prior business day. Net losses incurred on a single day for such positions exceeded our 95%
one-day
VaR (i.e., a VaR exception) on two occasions during the three months ended March 2020 and did not exceed our 95%one-day
VaR during the three months ended March 2019.During periods in which we have 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. The daily net revenues for positions included in VaR used to determine VaR exceptions reflect the impact of any intraday activity, including bid/offer net revenues, which are more likely than not to be positive by their nature.
Goldman Sachs March 2020 Form 10-Q | 140 |
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. Other sensitivity measures we use to analyze market risk are described below.
10% Sensitivity Measures.
As of | ||||||||||||
$ in millions | March 2020 | December 2019 | March 2019 | |||||||||
Equity | $1,818 | $1,865 | $1,939 | |||||||||
Debt | 2,384 | 2,368 | 2,031 | |||||||||
Total | $4,202 | $4,233 | $3,970 |
In the table above:
• | The market risk of these positions is determined by estimating the potential reduction in net revenues of a 10% decline in the value of these positions. |
• | Equity positions relate to private and restricted public equity securities, including interests in funds that invest in corporate equities and real estate and interests in hedge funds. |
• | Debt positions include interests in funds that invest in corporate mezzanine and senior debt instruments, loans backed by commercial and residential real estate, corporate bank loans and other corporate debt, including acquired portfolios of distressed loans. |
• | Funded equity and debt positions are included in our consolidated balance sheets in investments and loans. See Note 8 to the consolidated financial statements for further information about investments and Note 9 to the consolidated financial statements for further information about loans. |
• | These measures do not reflect the diversification effect across asset categories or across other market risk measures. |
Credit and Funding Spread Sensitivity on Derivatives and Financial Liabilities.
Interest Rate Sensitivity.
Other Market Risk Considerations
As of both March 2020 and December 2019, 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 consolidated financial statements for further information about such lending commitments.
In addition, we make investments in securities that are accounted for as
available-for-sale,
held-to-maturity
or under the equity method which are included in investments in the consolidated balance sheets. See Note 8 to the consolidated financial statements for further information.Direct investments in real estate are accounted for at cost less accumulated depreciation. See Note 12 to the consolidated financial statements for further information about other assets.
141 | Goldman Sachs March 2020 Form 10-Q |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
Financial Statement Linkages to Market Risk Measures
We employ a variety of risk measures, each described in the respective sections above, to monitor market risk across the consolidated balance sheets and consolidated statements of earnings. The related gains and losses on these positions are included in market making, other principal transactions, interest income and interest expense in the consolidated statements of earnings, and debt valuation adjustment in the consolidated statements of comprehensive income.
The table below presents certain assets and liabilities in our consolidated balance sheets and the market risk measures used to assess those assets and liabilities.
Assets or Liabilities | Market Risk Measures | |
Collateralized agreements, at fair value | VaR | |
Customer and other receivables, at fair value | 10% Sensitivity Measures | |
Trading assets | VaR Credit Spread Sensitivity | |
Investments, at fair value | VaR 10% Sensitivity Measures | |
Loans | VaR 10% Sensitivity Measures Interest Rate Sensitivity | |
Deposits, at fair value | VaR Credit Spread Sensitivity | |
Collateralized financings, at fair value | VaR | |
Trading liabilities | VaR Credit Spread Sensitivity | |
Unsecured short- and long-term borrowings, at fair value | VaR Credit Spread Sensitivity |
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 customer and other receivables.
Credit Risk, which is independent of our revenue-producing units and reports to our chief risk officer, has primary responsibility for assessing, monitoring and managing our credit risk through firmwide oversight across our global businesses. The Risk Governance Committee reviews and approves credit policies and parameters. In addition, we hold other positions that give rise to credit risk (e.g., bonds and secondary bank loans). These credit risks are captured as a component of market risk measures, which are monitored and managed by Market Risk. We also enter into derivatives to manage market risk exposures. Such derivatives also give rise to credit risk, which is monitored and managed by Credit Risk.
Credit Risk Management Process
Our process for managing credit risk includes the critical components of our risk management framework described in the “Overview and Structure of Risk Management,” as well as the following:
• | Monitoring compliance with established credit risk limits and reporting our credit exposures and credit concentrations; |
• | Establishing or approving underwriting standards; |
• | Assessing the likelihood that a counterparty will default on its payment obligations; |
• | Measuring our current and potential credit exposure and losses resulting from a counterparty default; |
• | Using credit risk mitigants, including collateral and hedging; and |
• | Maximizing recovery through active workout and restructuring of claims. |
We also perform credit reviews, which include initial and ongoing analyses of our counterparties. For substantially all of our credit exposures, the core of our process is an annual counterparty credit review. A credit review is an independent analysis of the capacity and willingness of a counterparty to meet its financial obligations, resulting in an internal credit rating. The determination of internal credit ratings also incorporates assumptions with respect to the nature of and outlook for the counterparty’s industry, and the economic environment. Senior personnel, with expertise in specific industries, inspect and approve credit reviews and internal credit ratings.
Our risk assessment process may also include, where applicable, reviewing certain key metrics, including, but not limited to, delinquency status, collateral values, Fair Isaac Corporation credit scores and other risk factors.
Goldman Sachs March 2020 Form 10-Q | 142 |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
Our credit risk management systems capture credit exposure to individual counterparties and on an aggregate basis to counterparties and their subsidiaries. These systems also provide management with comprehensive information about our aggregate credit risk by product, internal credit rating, industry, country and region.
Risk Measures
We measure our credit risk based on the potential loss in the event of
non-payment
by a counterparty using current and potential exposure. For derivatives and securities financing transactions, current exposure represents the amount presently owed to us after taking into account applicable netting and collateral arrangements, while potential exposure represents 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 also 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.Stress Tests
We conduct 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 cover a wide range of moderate and more extreme market movements, including 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, stress testing does not generally assume a probability of these events occurring. We also perform firmwide stress tests. See “Overview and Structure of Risk Management” for information about firmwide stress tests.
To supplement these regular stress tests, as described above, we also conduct tailored stress tests on an ad hoc basis in response to specific market events that we deem significant. We also utilize these stress tests to estimate the indirect impact of certain hypothetical events on our country exposures, such as the impact of credit market deterioration on corporate borrowers and counterparties along with the shocks to the risk factors described above. The parameters of these shocks vary based on the scenario reflected in each stress test. 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.
Limits
We use credit risk limits at various levels, as well as underwriting standards to manage the size and nature of our credit exposures. Limits for industries and countries are based on our risk appetite and are designed to allow for regular monitoring, review, escalation and management of credit risk concentrations. See “Overview and Structure of Risk Management” for information about the limit approval process.
Credit Risk is responsible for monitoring these limits, and identifying and escalating to senior management and/or the appropriate risk committee, on a timely basis, instances where limits have been exceeded.
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. We monitor the fair value of the collateral to ensure that our credit exposures are appropriately collateralized. We seek to minimize exposures where there is a significant positive correlation between the creditworthiness of our counterparties and the market value of collateral we receive.
For loans and lending commitments, depending on the credit quality of the borrower and other characteristics of the 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 us 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 or lending commitment.
When we do not have sufficient visibility into a counterparty’s financial strength or when we believe a counterparty requires support from its parent, we may obtain third-party guarantees of the counterparty’s obligations. We may also mitigate our credit risk using credit derivatives or participation agreements.
143 | Goldman Sachs March 2020 Form 10-Q |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
Credit Exposures
As of March 2020, our aggregate credit exposure increased as compared with December 2019, primarily reflecting an increase in OTC derivatives, receivables from clearing organizations and securities financing transactions, partially offset by a decrease in cash deposits with central banks. The percentage of our credit exposures arising from
non-investment-grade
counterparties (based on our internally determined public rating agency equivalents) increased slightly as compared with December 2019, primarily reflecting an increase innon-investment-grade
OTC derivatives. Our credit exposure to counterparties that defaulted during the three months ended March 2020 was higher as compared with our credit exposure to counterparties that defaulted during the same prior year period, and such exposure was primarily related to OTC derivatives. Our credit exposure to counterparties that defaulted during the three months ended March 2020 remained low, representing less than 0.5% of our total credit exposure. Estimated losses associated with these defaults have been recognized in earnings. Our credit exposures are described further below.Cash and Cash Equivalents.
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.The table below presents our credit exposure from unrestricted cash and cash equivalents, and the concentration by industry, region and credit quality.
As of | ||||||||
$ in millions | March 2020 | December 2019 | ||||||
Cash and Cash Equivalents | $76,561 | $110,774 | ||||||
Industry | ||||||||
Financial Institutions | 15% | 12% | ||||||
Sovereign | 85% | 88% | ||||||
Total | 100% | 100% | ||||||
Region | ||||||||
Americas | 51% | 50% | ||||||
EMEA | 27% | 31% | ||||||
Asia | 22% | 19% | ||||||
Total | 100% | 100% | ||||||
Credit Quality (Credit Rating Equivalent) | ||||||||
AAA | 64% | 66% | ||||||
AA | 9% | 11% | ||||||
A | 25% | 22% | ||||||
BBB | 2% | 1% | ||||||
Total | 100% | 100% |
The table above excludes cash segregated for regulatory and other purposes of $28.93 billion as of March 2020 and $22.78 billion as of December 2019.
OTC Derivatives.
We generally enter into OTC derivatives transactions under bilateral collateral arrangements that require the daily exchange of collateral. As credit risk is an essential component of fair value, we include a credit valuation adjustment (CVA) in the fair value of derivatives to reflect counterparty credit risk, as described in Note 7 to the consolidated financial statements. CVA is a function of the present value of expected exposure, the probability of counterparty default and the assumed recovery upon default.
The table below presents our net credit exposure from OTC derivatives and the concentration by industry and region.
As of | ||||||||
$ in millions | March 2020 | December 2019 | ||||||
OTC derivative assets | $ 68,904 | $ 43,011 | ||||||
Collateral (not netted under U.S. GAAP) | (21,002 | ) | (15,420 | ) | ||||
Net credit exposure | $ 47,902 | $ 27,591 | ||||||
Industry | ||||||||
Consumer, Retail & Healthcare | 4% | 4% | ||||||
Diversified Industrials | 11% | 7% | ||||||
Financial Institutions | 14% | 13% | ||||||
Funds | 21% | 11% | ||||||
Municipalities & Nonprofit | 7% | 8% | ||||||
Natural Resources & Utilities | 13% | 15% | ||||||
Sovereign | 19% | 25% | ||||||
Technology, Media & Telecommunications | 7% | 9% | ||||||
Other (including Special Purpose Vehicles) | 4% | 8% | ||||||
Total | 100% | 100% | ||||||
Region | ||||||||
Americas | 46% | 44% | ||||||
EMEA | 42% | 48% | ||||||
Asia | 12% | 8% | ||||||
Total | 100% | 100% |
In the table above:
• | OTC derivative assets, included in the consolidated balance sheets, are reported on a net-by-counterparty basis (i.e., the net receivable for a given counterparty) when a legal right of setoff exists under an enforceable netting agreement (counterparty netting) and are accounted for at fair value, net of cash collateral received under enforceable credit support agreements (cash collateral netting). |
• | Collateral represents cash collateral and the fair value of securities collateral, primarily U.S. and non-U.S. government and agency obligations, received under credit support agreements, that we consider when determining credit risk, but such collateral is not eligible for netting under U.S. GAAP. |
Goldman Sachs March 2020 Form 10-Q | 144 |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
The table below presents the distribution of our net credit exposure from OTC derivatives by tenor.
$ in millions | Investment- Grade | Non-Investment- Grade / Unrated | Total | |||||||||
As of March 2020 | ||||||||||||
Less than 1 year | $ 37,771 | $ 9,218 | $ 46,989 | |||||||||
1 - 5 years | 26,665 | 10,205 | 36,870 | |||||||||
Greater than 5 years | 74,102 | 9,719 | 83,821 | |||||||||
Total | 138,538 | 29,142 | 167,680 | |||||||||
Netting | (104,415 | ) | (15,363 | ) | (119,778 | ) | ||||||
Net credit exposure | $ 34,123 | $ 13,779 | $ 47,902 | |||||||||
As of December 2019 | ||||||||||||
Less than 1 year | $ 18,764 | $ 4,247 | $ 23,011 | |||||||||
1 - 5 years | 18,674 | 6,879 | 25,553 | |||||||||
Greater than 5 years | 60,190 | 5,896 | 66,086 | |||||||||
Total | 97,628 | 17,022 | 114,650 | |||||||||
Netting | (78,081 | ) | (8,978 | ) | (87,059 | ) | ||||||
Net credit exposure | $ 19,547 | $ 8,044 | $ 27,591 |
In the table above:
• | Tenor is based on remaining contractual maturity. |
• | Netting includes counterparty netting across tenor categories and cash and securities collateral that we consider when determining credit risk (including collateral that is not eligible for netting under U.S. GAAP). Counterparty netting within the same tenor category is included within such tenor category. |
The tables below present the distribution of our net credit exposure from OTC derivatives by tenor and internally determined public rating agency equivalents.
Investment-Grade | ||||||||||||||||||||
$ in millions | AAA | AA | A | BBB | Total | |||||||||||||||
As of March 2020 | ||||||||||||||||||||
Less than 1 year | $ 1,498 | $ 7,011 | $ 18,890 | $ 10,372 | $ 37,771 | |||||||||||||||
1 - 5 years | 766 | 4,375 | 12,883 | 8,641 | 26,665 | |||||||||||||||
Greater than 5 years | 14,862 | 8,795 | 26,521 | 23,924 | 74,102 | |||||||||||||||
Total | 17,126 | 20,181 | 58,294 | 42,937 | 138,538 | |||||||||||||||
Netting | (10,392 | ) | (14,188 | ) | (48,097 | ) | (31,738 | ) | (104,415 | ) | ||||||||||
Net credit exposure | $ 6,734 | $ 5,993 | $ 10,197 | $ 11,199 | $ 34,123 | |||||||||||||||
As of December 2019 | ||||||||||||||||||||
Less than 1 year | $ | $ | $ | $ | $ | |||||||||||||||
1 - 5 years | 669 | 3,196 | 8,635 | 6,174 | 18,674 | |||||||||||||||
Greater than 5 years | 12,381 | 5,770 | 22,324 | 19,715 | 60,190 | |||||||||||||||
Total | 13,376 | 10,988 | 40,961 | 32,303 | 97,628 | |||||||||||||||
Netting | (8,146 | ) | (8,273 | ) | (35,932 | ) | (25,730 | ) | (78,081 | ) | ||||||||||
Net credit exposure | $ | $ | $ | $ | $ |
Non-Investment-Grade / Unrated | ||||||||||||||||||||
$ in millions | BB or lower | Unrated | Total | |||||||||||||||||
As of March 2020 | ||||||||||||||||||||
Less than 1 year | $ 8,790 | $ 428 | $ 9,218 | |||||||||||||||||
1 - 5 years | 10,042 | 163 | 10,205 | |||||||||||||||||
Greater than 5 years | 9,577 | 142 | 9,719 | |||||||||||||||||
Total | 28,409 | 733 | 29,142 | |||||||||||||||||
Netting | (15,254 | ) | (109 | ) | (15,363 | ) | ||||||||||||||
Net credit exposure | $ 13,155 | $ 624 | $ 13,779 | |||||||||||||||||
As of December 2019 | ||||||||||||||||||||
Less than 1 year | $ | $ | $ | |||||||||||||||||
1 - 5 years | 6,772 | 107 | 6,879 | |||||||||||||||||
Greater than 5 years | 5,835 | 61 | 5,896 | |||||||||||||||||
Total | 16,571 | 451 | 17,022 | |||||||||||||||||
Netting | (8,811 | ) | (167 | ) | (8,978 | ) | ||||||||||||||
Net credit exposure | $ | $ | $ |
Lending Activities.
• | Commercial Lending. non-investment-grade corporate borrowers. Loans and lending commitments associated with these activities are principally used for operating and general corporate purposes or in connection with contingent acquisitions. Corporate loans may be secured or unsecured, depending on the loan purpose, the risk profile of the borrower and other factors. Our commercial lending activities also include extending loans to borrowers that are secured by commercial and other real estate. |
The table below presents our credit exposure from commercial loans and lending commitments, and the concentration by industry, region and credit quality.
As of | ||||||||
$ in millions | March 2020 | December 2019 | ||||||
Loans and Lending Commitments | $221,203 | $222,745 | ||||||
Industry | ||||||||
Consumer, Retail & Healthcare | 18% | 19% | ||||||
Diversified Industrials | 17% | 14% | ||||||
Financial Institutions | 7% | 8% | ||||||
Funds | 3% | 3% | ||||||
Natural Resources & Utilities | 14% | 17% | ||||||
Real Estate | 10% | 10% | ||||||
Technology, Media & Telecommunications | 17% | 16% | ||||||
Other (including Special Purpose Vehicles) | 14% | 13% | ||||||
Total | 100% | 100% | ||||||
Region | ||||||||
Americas | 73% | 73% | ||||||
EMEA | 23% | 22% | ||||||
Asia | 4% | 5% | ||||||
Total | 100% | 100% | ||||||
Credit Quality (Credit Rating Equivalent) | ||||||||
AAA | 1% | 1% | ||||||
AA | 4% | 5% | ||||||
A | 14% | 13% | ||||||
BBB | 28% | 27% | ||||||
BB or lower | 53% | 54% | ||||||
Total | 100% | 100% |
• | Wealth Management, Residential Real Estate and Other Lending. |
145 | Goldman Sachs March 2020 Form 10-Q |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
We also have residential real estate and other lending exposures, which include purchased residential real estate and installment loans and commitments to purchase such loans (including distressed loans) and securities.
The table below presents our credit exposure from Wealth management, residential real estate and other lending, and the concentration by region.
$ in millions | Wealth Management | Residential Real Estate and Other | ||||||
As of March 2020 | ||||||||
Credit Exposure | $32,902 | $10,582 | ||||||
Americas | 89% | 75% | ||||||
EMEA | 9% | 25% | ||||||
Asia | 2% | – | ||||||
Total | 100% | 100% | ||||||
As of December 2019 | ||||||||
Credit Exposure | $30,668 | $10,885 | ||||||
Americas | 89% | 74% | ||||||
EMEA | 9% | 26% | ||||||
Asia | 2% | – | ||||||
Total | 100% | 100% |
• | Installment and Credit Card Lending. |
See Note 9 to the consolidated financial statements for further information about U.S. state concentrations and the credit quality indicators of installment and credit card loans.
Securities Financing Transactions.
non-U.S.
government and agency obligations.The table below presents our credit exposure from securities financing transactions and the concentration by industry, region and credit quality.
As of | ||||||||
$ in millions | March 2020 | December 2019 | ||||||
Securities Financing Transactions | $30,344 | $26,958 | ||||||
Industry | ||||||||
Financial Institutions | 32% | 37% | ||||||
Funds | 28% | 27% | ||||||
Municipalities & Nonprofit | 4% | 5% | ||||||
Sovereign | 34% | 28% | ||||||
Other (including Special Purpose Vehicles) | 2% | 3% | ||||||
Total | 100% | 100% | ||||||
Region | ||||||||
Americas | 22% | 38% | ||||||
EMEA | 52% | 39% | ||||||
Asia | 26% | 23% | ||||||
Total | 100% | 100% | ||||||
Credit Quality (Credit Rating Equivalent) | ||||||||
AAA | 11% | 15% | ||||||
AA | 28% | 27% | ||||||
A | 43% | 39% | ||||||
BBB | 11% | 9% | ||||||
BB or lower | 5% | 6% | ||||||
Unrated | 2% | 4% | ||||||
Total | 100% | 100% |
The table above reflects both netting agreements and collateral that we consider when determining credit risk.
Other Credit Exposures.
Goldman Sachs March 2020 Form 10-Q | 146 |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
The table below presents our other credit exposures and the concentration by industry, region and credit quality.
As of | ||||||||
$ in millions | March 2020 | December 2019 | ||||||
Other Credit Exposures | $61,139 | $44,931 | ||||||
Industry | ||||||||
Financial Institutions | 80% | 86% | ||||||
Funds | 11% | 8% | ||||||
Natural Resources & Utilities | 1% | 1% | ||||||
Other (including Special Purpose Vehicles) | 8% | 5% | ||||||
Total | 100% | 100% | ||||||
Region | ||||||||
Americas | 48% | 49% | ||||||
EMEA | 40% | 41% | ||||||
Asia | 12% | 10% | ||||||
Total | 100% | 100% | ||||||
Credit Quality (Credit Rating Equivalent) | ||||||||
AAA | 3% | 2% | ||||||
AA | 52% | 56% | ||||||
A | 24% | 23% | ||||||
BBB | 9% | 7% | ||||||
BB or lower | 11% | 11% | ||||||
Unrated | 1% | 1% | ||||||
Total | 100% | 100% |
The table above reflects collateral that we consider when determining credit risk.
Selected Exposures
We have credit and market exposures, as described below, that have had heightened focus due to recent events and broad market concerns. Credit exposure represents the potential for loss due to the default or deterioration in credit quality of a counterparty or borrower. Market exposure represents the potential for loss in value of our long and short positions due to changes in market prices.
Country Exposures.
non-sovereign
counterparties or borrowers. Such exposure consisted of $1.10 billion related to OTC derivatives, $411 million related to loans and lending commitments and $12 million related to secured receivables. After taking into consideration the benefit of Turkish corporate and sovereign collateral and other risk mitigants provided by Turkish counterparties, our net credit exposure was $524 million. Our total market exposure to Turkey as of March 2020 was not material.Liquidity pressures prompted the Argentine government to delay payment on certain debt obligations, and announce its intention to restructure most of its bonds, worsening the country’s economic distress. As of March 2020, our total credit exposure to Argentina was $182 million, which was with
non-sovereign
counterparties or borrowers, and was primarily related to loans and lending commitments. Our total market exposure to Argentina as of March 2020 was not material.The restructuring of Lebanon’s sovereign debt has led to concerns about its financial stability. As of March 2020, our total credit exposure to Lebanon was $210 million, substantially all of which related to loans and lending commitments with
non-sovereign
borrowers. Our total market exposure to Lebanon as of March 2020 was not material.Economic, social and political factors have led to concerns that Ecuador may default on its sovereign debt. As of March 2020, our total credit exposure to Ecuador was $792 million, which was with sovereign counterparties or borrowers. Such exposure consisted of $367 million related to loans and lending commitments and $425 million related to OTC derivatives. After taking into consideration the benefit of highly liquid collateral, our net credit exposure was $307 million. Our total market exposure to Ecuador as of March 2020 was not material.
The potential restructuring of Zambia’s sovereign debt and significant depreciation of the Zambian kwacha has led to concerns about Zambia’s financial stability. As of March 2020, our total credit exposure to Zambia was $115 million and was related to loans and lending commitments with
non-sovereign
borrowers. Our total market exposure to Zambia as of March 2020 was not material.Venezuela has delayed payments on its sovereign debt and its political situation remains unclear. As of March 2020, our total credit and market exposure for Venezuela was not material.
147 | Goldman Sachs March 2020 Form 10-Q |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
We have a comprehensive framework to monitor, measure and assess our country exposures and to determine our risk appetite. We determine the country of risk by the location of the counterparty, issuer or underlier’s assets, where they generate revenue, the country in which they are headquartered, the jurisdiction where a claim against them could be enforced, and/or the government whose policies affect their ability to repay their obligations. We monitor our credit exposure to a specific country both at the individual counterparty level, as well as at the aggregate country level. See “Stress Tests” for information about stress tests that are designed to estimate the direct and indirect impact of events involving the above countries.
Industry Exposures.
non-investment-grade
counterparties ($3.07 billion related to loans and $3.74 billion related to lending commitments), of which 71% was secured. In addition, we have exposure to our clients in the oil and gas industry arising from derivatives. As of March 2020, our credit exposure related to derivatives and receivables with oil and gas companies was $2.14 billion ($978 million with investment-grade counterparties and $1.16 billion withnon-investment-grade
counterparties). After taking into consideration the benefit of $624 million of hedges, our net credit exposure was $13.96 billion. As of March 2020, our market exposure related to oil and gas companies was $(1.92) billion, which was primarily to investment-grade issuers or underliers.The sharp decline in economic activity as a result of the
COVID-19
pandemic has resulted in a significant impact to the gaming and lodging industry. As of March 2020, our credit exposure to gaming and lodging companies (including hotel owners and operators) related to loans and lending commitments was $3.44 billion ($1.27 billion of loans and $2.17 billion of lending commitments). Such exposure included $2.14 billion of exposure tonon-investment-grade
counterparties ($996 million related to loans and $1.15 billion related to lending commitments), of which 84% was secured. In addition, we extend loans that are secured by hotel properties. As of March 2020, our exposure related to such loans and lending commitments was $1.31 billion and was to non-investment-grade counterparties. In addition, we have exposure to our clients in the gaming and lodging industry arising from derivatives. As of March 2020, our credit exposure related to derivatives and receivables with gaming and lodging companies was $228 million, primarily withnon-investment
-grade counterparties. As of March 2020, our market exposure related to gaming and lodging companies was not material.Concerns surrounding the
COVID-19
pandemic have resulted in a sharp decline in travel which has significantly impacted the airline industry. As of March 2020, our credit exposure to airline companies related to loans and lending commitments was $2.81 billion ($1.88 billion of loans and $932 million of lending commitments). Such exposure included $2.37 billion of exposure tonon-investment-grade
counterparties ($1.75 billion related to loans and $615 million related to lending commitments), of which 82% was secured. In addition, we have exposure to our clients in the airline industry arising from derivatives. As of March 2020, our credit exposure related to derivatives and receivables with airline companies was $1.76 billion ($885 million with investment-grade counterparties and $870 million with non-investment-grade counterparties). After taking into consideration the benefit of $407 million of hedges, our net credit exposure was $4.16 billion. As of March 2020, our market exposure related to airline companies was $(186) million, which was primarily tonon-
investment-grade issuers or underliers.Goldman Sachs March 2020 Form 10-Q | 148 |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
Operational Risk Management
Overview
Operational risk is the risk of an adverse outcome resulting from inadequate or failed internal processes, people, 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 or legal and regulatory matters.
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. |
Operational Risk, which is independent of our revenue-producing units and reports to our chief risk officer, has primary responsibility for developing and implementing a formalized framework for assessing, monitoring and managing operational risk with the goal of maintaining our exposure to operational risk at levels that are within our risk appetite.
Operational Risk Management Process
Our process for managing operational risk includes the critical components of our risk management framework described in the “Overview and Structure of Risk Management,” including a comprehensive data collection process, as well as firmwide policies and procedures, for operational risk events.
We combine
top-down
andbottom-up
approaches to manage and measure operational risk. From atop-down
perspective, our senior management assesses firmwide and business-level operational risk profiles. From abottom-up
perspective, our first and second lines of defense are responsible for risk identification and risk management on aday-to-day
basis, including escalating operational risks to senior management.We maintain a comprehensive control framework designed to provide a well-controlled environment to minimize operational risks. The Firmwide Operational Risk and Resilience Committee is responsible for overseeing operational risk, and for ensuring our business and operational resilience.
Our operational risk management framework is in part designed to comply with the operational risk measurement rules under the Capital Framework and has evolved based on the changing needs of our businesses and regulatory guidance.
We have established policies that require all employees to report and 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 our systems and/or processes to further mitigate the risk of future events.
We use operational risk management applications to capture and organize operational risk event data and key metrics. One of our key risk identification and assessment tools is an operational risk and control self-assessment process, which is performed by our managers. This process consists of the identification and rating of operational risks, on a forward-looking basis, and the related controls. The results from this process are analyzed to evaluate operational risk exposures and identify businesses, activities or products with heightened levels of operational risk.
Risk Measurement
We measure our operational risk exposure using both statistical modeling and scenario analyses, which involve qualitative and quantitative assessments of internal and external operational risk event data and internal control factors for each of our businesses. Operational risk measurement also incorporates an assessment of business environment factors, including:
• | Evaluations of the complexity of our business activities; |
• | The degree of automation in our processes; |
• | New activity information; |
• | The legal and regulatory environment; and |
• | Changes in the markets for our products and services, including the diversity and sophistication of our customers and counterparties. |
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 are used in the determination of the appropriate level of operational risk capital to hold. We also perform firmwide stress tests. See “Overview and Structure of Risk Management” for information about firmwide stress tests.
149 | Goldman Sachs March 2020 Form 10-Q |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
Types of Operational Risks
Increased reliance on technology and third-party relationships has resulted in increased operational risks, such as information and cyber security risk, third-party risk and business resilience risk. We manage those risks as follows:
Information and Cyber Security Risk.
10-K
for further information about information and cyber security risk.Third-Party Risk.
10-K
for further information about third-party risk.Business Resilience Risk.
up-to-date,
incorporating new information, techniques and technologies as and when they become available, and our resilience recovery plans incorporate and test specific and measurable recovery time objectives in accordance with local market best practices and regulatory requirements, and under specific scenarios. See “Regulatory and Other Matters — Other Matters” for information about the impact of theCOVID-19
pandemic. See “Business — Business Continuity and Information Security” in Part I, Item 1 of the 2019 Form 10-K
for further information about business continuity.Model Risk Management
Overview
Model risk is the potential for adverse consequences from decisions made based on model outputs that may be incorrect or used inappropriately. We rely on quantitative models across our business activities primarily to value certain financial assets and liabilities, to monitor and manage our risk, and to measure and monitor our regulatory capital.
Model Risk, which is independent of our revenue-producing units, model developers, model owners and model users, and reports to our chief risk officer, has primary responsibility for assessing, monitoring and managing our model risk through firmwide oversight across our global businesses, and provides periodic updates to senior management, risk committees and the Risk Committee of the Board.
Our model risk management framework is managed through a governance structure and risk management controls, which encompass standards designed to ensure we maintain a comprehensive model inventory, including risk assessment and classification, sound model development practices, independent review and model-specific usage controls. The Firmwide Model Risk Control Committee oversees our model risk management framework.
Goldman Sachs March 2020 Form 10-Q | 150 |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
Model Review and Validation Process
Model Risk consists of quantitative professionals who perform an independent review, validation and approval of our models. This review includes an analysis of the model documentation, independent testing, an assessment of the appropriateness of the methodology used, and verification of compliance with model development and implementation standards.
We regularly refine and enhance our models to reflect changes in market or economic conditions and our business mix. All models are reviewed on an annual basis, and new models or significant changes to existing models and their assumptions are approved prior to implementation.
The model validation process incorporates a review of models and trade and risk parameters across a broad range of scenarios (including extreme conditions) in order to critically evaluate and verify:
• | The model’s conceptual soundness, including the reasonableness of model assumptions, and suitability for intended use; |
• | The testing strategy utilized by the model developers to ensure that the models function as intended; |
• | The suitability of the calculation techniques incorporated in the model; |
• | The model’s accuracy in reflecting the characteristics of the related product and its significant risks; |
• | The model’s consistency with models for similar products; and |
• | The model’s sensitivity to input parameters and assumptions. |
See “Critical Accounting Policies — Fair Value — Review of Valuation Models,” “Liquidity Risk Management,” “Market Risk Management,” “Credit Risk Management” and “Operational Risk Management” for further information about our use of models within these areas.
Available Information
Our internet address isand the investor relations section of our website is located at, where we make available, free of charge, our annual reports on Form
www.goldmansachs.com
www.goldmansachs.com/investor-relations
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 Exchange Act, as well as proxy statements, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. Also posted on our website, and available in print upon request of any shareholder to our Investor Relations Department (Investor Relations), are our certificate of incorporation andby-laws,
charters for our Audit, Risk, Compensation, Corporate Governance and Nominating, and Public Responsibilities Committees, our Policy Regarding Director Independence Determinations, our Policy on Reporting of Concerns Regarding Accounting and Other Matters, our Corporate Governance Guidelines and our Code of Business Conduct and Ethics governing our directors, officers and employees. Within the time period required by the SEC, we will post on our website any amendment to the Code of Business Conduct and Ethics and any waiver applicable to any executive officer, director or senior financial officer.Our website also includes information about (i) purchases and sales of our equity securities by our executive officers and directors; (ii) 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 other means; (iii) DFAST results; (iv) the public portion of our resolution plan submission; (v) our Pillar 3 disclosure; and (vi) our average daily LCR.Investor Relations can be contacted at The Goldman Sachs Group, Inc., 200 West Street, 29th Floor, New York, New York 10282, Attn: Investor Relations, telephone:. We use our website, our Twitter account (), our Instagram account () and other social media channels as additional means of disclosing public information to investors, the media and others. Our officers may use similar social media channels to disclose public information. It is possible that certain information we or our officers post on our website and on social media could be deemed material, and we encourage investors, the media and others interested in Goldman Sachs to review the business and financial information we or our officers post on our website and on the social media channels identified above. The information on our website and those social media channels is not incorporated by reference into this Form
212-902-0300,
e-mail:
gs-investor-relations@gs.com
twitter.com/GoldmanSachs
instagram.com/GoldmanSachs
10-Q.
151 | Goldman Sachs March 2020 Form 10-Q |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
Cautionary Statement Pursuant to the U.S. Private Securities Litigation Reform Act of 1995 |
We have included in this Form
10-Q,
and our management may make, statements that may constitute “forward-looking statements” within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements are not historical facts or statements of current conditions, but instead represent only our beliefs regarding future events, many of which, by their nature, are inherently uncertain and outside our control.These statements may relate to, among other things, (i) our future plans and results, including our target ROE, ROTE, efficiency ratio and CET1 capital ratio, and how they can be achieved,
(ii) various legal proceedings, governmental investigations or other contingencies as set forth in Notes 27 and 18 to the consolidated financial statements in Part I, Item 1 of this Form
10-Q,
(iii) the results of stress tests, (iv) the objectives and effectiveness of our business continuity plan, information security program, risk management and liquidity policies, (v) our resolution plan and resolution strategy and their implications for stakeholders, (vi) the design and effectiveness of our resolution capital and liquidity models and triggers and alerts framework, (vii) trends in or growth opportunities for our businesses, including the timing and benefits of business and strategic initiatives and changes in and the importance of the efficiency ratio, (viii) the effect of changes to regulations, as well as our future status, activities or reporting under banking and financial regulation, (ix) our NSFR, (x) our level of future compensation expense as a percentage of operating expenses, (xi) our investment banking transaction backlog, (xii) our expected tax rate, (xiii) the future state of our liquidity and regulatory capital ratios, and our prospective capital distributions, (xiv) our expected interest income, (xv) our credit exposures, (xvi) our expected provisions for credit losses, (xvii) our preparations for Brexit, (xviii) the replacement of LIBOR and other IBORs and our program for the transition to alternative risk-free reference rates, (xix) the adequacy of our allowance for credit losses, (xx) the projected growth of our deposits and associated interest expense savings, (xxi) the projected growth of our installment loan and credit card businesses, (xxii) our business initiatives, includingthose related to transaction banking
and new consumer financial products, (xxiii) our expense savings initiatives and increasing use of strategic locations, (xxiv) our planned 2020 parent vanilla debt issuances, (xxv) the amount of GCLA we expect to hold, (xxvi) our expected SCB and
G-SIB
surcharge,(xxvii) the impact of the
COVID-19
pandemic on our business, results, financial position and liquidity and (xxviii) expenses we may incur, including future litigation expense and those associated with investing in our installment lending, credit card and transaction banking activities.By identifying these statements for you in this manner, we are alerting you to the possibility that our actual results, financial condition and liquidity may differ, possibly materially, from the anticipated results, financial condition and liquidity in these forward-looking statements. Important factors that could cause our results, financial condition and capital actions to differ from those in these statements include, among others, those described below and in “Risk Factors” in Part II, Item 1A of this Form
10-Q
and in Part I, Item 1A of the 2019 Form 10-K.
Statements about our investment banking transaction backlog are subject to the risk that such transactions may be modified or may not be completed at all and related net revenues may not be realized or may be materially less than expected. Important factors that could have such a result include, for underwriting transactions, a decline or weakness in general economic conditions, outbreak of hostilities, volatility in the securities markets or an adverse development with respect to the issuer of the securities and, for financial advisory transactions, a decline in the securities markets, an inability to obtain adequate financing, an adverse development with respect to a party to the transaction or a failure to obtain a required regulatory approval. For information about other important factors that could adversely affect our investment banking transactions, see “Risk Factors” in Part II, Item 1A of this Form
10-Q
and in Part I, Item 1A of the 2019 Form 10-K.
Statements about our future effective income tax rate are subject to the risk that it may differ from the anticipated rate indicated in such statements, possibly materially, due to, among other things, changes in our earnings mix, our profitability and entities in which we generate profits, the assumptions we have made in forecasting our expected tax rate, as well as guidance that may be issued by the U.S. Internal Revenue Service.
Statements about our NSFR and SCB are based on our current interpretation and expectations of the relevant proposal and final rule, and reflect significant assumptions about how our NSFR and SCB are calculated. Our actual NSFR will depend on the final rule and, for the SCB, the results of the applicable supervisory stress tests, and the methods used to calculate our NSFR and SCB may differ, possibly materially, from those used to calculate our NSFR and SCB for future disclosures.
Goldman Sachs March 2020 Form 10-Q | 152 |
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
Statements about the level of compensation expense, including as a percentage of operating expenses, and our efficiency ratio as our platform business initiatives reach scale are subject to the risks that the compensation and other costs to operate our businesses, including platform initiatives, may be greater than currently expected.
Statements about our expected provisions for credit losses are subject to the risk that actual credit losses may differ and our expectations may change, possibly materially, from that currently anticipated due to, among other things, changes to the composition of our loan portfolio and changes in the economic environment in future periods and our forecasts of future economic conditions, as well as changes in our models, policies and other management judgments.
Statements about the projected growth of our deposits and associated interest expense savings, and our installment loan and credit card businesses, are subject to the risk that actual growth may differ, possibly materially, from that currently anticipated due to, among other things, changes in interest rates and competition from other similar products.
Statements about our target ROE, ROTE, efficiency ratio, and expense savings, and how they can be achieved, are based on our current expectations regarding our business prospects and are subject to the risk that we may be unable to achieve our targets due to, among other things, changes in our business mix, lower profitability of new business initiatives, increases in technology and other costs to launch and bring new business initiatives to scale, and increases in liquidity requirements.
Statements about our target ROE, ROTE and CET1 capital ratio, and how they can be achieved, are based on our current expectations regarding the capital requirements applicable to us and are subject to the risk that our actual capital requirements may be higher than currently anticipated because of, among other factors, changes in the regulatory capital requirements applicable to us resulting from changes in regulations or the interpretation or application of existing regulations or changes in the nature and composition of our activities.
Statements about the timing, costs and benefits of business and expense savings initiatives, the level and composition of more durable revenues and increases in market share are based on our current expectations regarding our ability to implement these initiatives and actual results may differ, possibly materially, from current expectations due to, among other things, a delay in the timing of these initiatives, increased competition and an inability to reduce expenses and grow businesses with durable revenues.
Statements about planned 2020 parent vanilla debt issuances and the amount of GCLA we expect to hold are subject to the risk that actual issuances and GCLA levels may differ, possibly materially, from that currently expected due to changes in market conditions, business opportunities or our funding and projected liquidity needs.
Statements about the future state of our liquidity and regulatory capital ratios, as well as our prospective capital distributions, are subject to the risk that our actual liquidity, regulatory capital ratios and capital distributions may differ, possibly materially, from what is currently expected due to, among other things, the need to use capital to support clients, increased regulatory requirements and changes to the composition of our balance sheet.
153 | Goldman Sachs March 2020 Form 10-Q |
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Quantitative and qualitative disclosures about market risk are set forth in “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Risk Management” in Part I, Item 2 of this Form
10-Q.
Item 4. Controls and Procedures
As of the end of the period covered by this report, an evaluation was carried out by our 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 Exchange Act). Based on 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 the quarter ended March 2020 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 in early stages, and many of these cases seek an indeterminate amount of damages. We have estimated the upper end of the range of reasonably possible aggregate loss for matters where we have been able to estimate a range and we believe, based on currently available information, that the results of matters where we have not been able to estimate a range of reasonably possible loss, in the aggregate, will not have a material adverse effect on our financial condition, but may be material to our operating results in a given period. Given the range of litigation and investigations presently under way, our litigation expenses 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 Notes 18 and 27 to the consolidated financial statements in Part I, Item 1 of this Form 10-Q
for information about our reasonably possible aggregate loss estimate and judicial, regulatory and legal proceedings.Item 1A. Risk Factors
Our businesses, financial condition, liquidity and results of operations have been, and will likely continue to be, adversely affected by the emergence of the
COVID-19
pandemic.The emergence of the global outbreak of the coronavirus
(COVID-19)
pandemic has created economic and financial disruptions that during the quarter adversely affected, and are likely to continue to adversely affect, our business, financial condition, liquidity and results of operations. The extent to which theCOVID-19
pandemic will continue to negatively affect our businesses, financial condition, liquidity and results of operations will depend on future developments, which are highly uncertain and cannot be predicted.The
COVID-19
pandemic has contributed to (i) the sudden and significant reduction in the valuation of the equity, fixed-income and commodity markets and the significant increase in the volatility of those markets; (ii) a decrease in the rates and yields on U.S. Treasury securities, in some cases declining below zero; (iii) a major reduction in merger and acquisition activity and significant uncertainty about whether previously announced deals will be completed or restructured; (iv) a major reduction in equity new issue activity; (v) significantly more challenging conditions in the new issue debt market; (vi) significant draws in credit lines, including syndicated credit lines, as clients seek to increase liquidity; (vii) the risk that hedges become less effective, including, for example, due to the movement of short and long positions in U.S. Treasuries and the assets they hedge; (viii) significant increases in collateral calls and disputes as the valuation of derivative positions and, in some cases, collateral has become more challenging; (ix) ratings downgrades, credit deterioration and defaults in many industries, including oil and gas, gaming and lodging, and airlines;
(x) a reduction in assets under supervision as the values of assets have declined; and (xi) heightened cybersecurity, information security and operational risks as a result of work-from-home arrangements.The effects of the
COVID-19
pandemic on economic and market conditions have also increased demands on our liquidity as we meet client needs. Likewise, these adverse developments have affected our capital and leverage ratios. We have ceased purchases of our common stock in order to deploy more capital and liquidity to meet the needs of our clients. The effects of theCOVID-19
pandemic may cause us to continue to limit future capital distributions.Governmental authorities worldwide have taken increased measures to stabilize the markets and support economic growth. The success of these measures is unknown and they may not be sufficient to address the market dislocations or avert severe and prolonged reductions in economic activity. We also face an increased risk of client disputes, litigation and governmental and regulatory scrutiny as a result of the effects of
COVID-19
on economic and market conditions.Goldman Sachs March 2020 Form 10-Q | 154 |
The length of the pandemic and the efficacy of the extraordinary measures being put in place to address it are unknown. Until the pandemic subsides, we expect continued draws on lines of credit, reduced activity levels in investment banking, reduced revenues in our asset management and wealth management businesses and increased client defaults, including defaults in unsecured loans. Even after the pandemic subsides, the U.S. economy, as well as most other major economies, may continue to experience a recession, and we anticipate our businesses would be materially and adversely affected by a prolonged recession in the U.S. and other major markets.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The table below presents purchases made by or on behalf of Group Inc. or any “affiliated purchaser” (as defined in Rule
10b-18(a)(3)
under the Exchange Act) of our common stock during the three months ended March 2020.Total Shares Purchased | Average Price Paid Per Share | Total Shares Purchased as Part of a Publicly Announced Program | Maximum Shares That May Yet Be Purchased Under the Program | |||||||||||||
January | 4,985,018 | $241.74 | 4,981,542 | 52,869,372 | ||||||||||||
February | 3,175,610 | $227.90 | 3,175,610 | 49,693,762 | ||||||||||||
March | – | – | – | 49,693,762 | ||||||||||||
Total | 8,160,628 | 8,157,152 |
In the table above, total shares purchased during January 2020 included 3,476 shares remitted to satisfy statutory withholding taxes on the delivery of equity-based awards.
Since March 2000, our Board has approved a repurchase program authorizing repurchases of up to 605 million shares of our common stock. The repurchase program is effected primarily through regular open-market purchases (which may include repurchase plans designed to comply with Rule
10b5-1
and accelerated share repurchases), the amounts and timing of which are determined primarily by our current and projected capital position, but which may also be influenced by general market conditions and the prevailing price and trading volumes of our common stock. The repurchase program has no set expiration or termination date. Prior to repurchasing common stock, we must receive confirmation that the FRB does not object to such capital action.Item 6. Exhibits
Exhibits
3.1 | ||||
15.1 | ||||
31.1 | ||||
32.1 | ||||
101 | Pursuant to Rules 405 and 406 of Regulation S-T, the following information is formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) the Consolidated Statements of Earnings for the three months ended March 31, 2020 and March 31, 2019, (ii) the Consolidated Statements of Comprehensive Income for the three months ended March 31, 2020 and March 31, 2019, (iii) the Consolidated Balance Sheets as of March 31, 2020 and December 31, 2019, (iv) the Consolidated Statements of Changes in Shareholders’ Equity for the three months ended March 31, 2020 and March 31, 2019, (v) the Consolidated Statements of Cash Flows for the three months ended March 31, 2020 and March 31, 2019, (vi) the notes to the Consolidated Financial Statements and (vii) the cover page. | |||
104 | Cover Page Interactive Data File (formatted in iXBRL in Exhibit 101). |
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. | ||||
By: | /s/ | Stephen M. Scherr | ||
Name: | Stephen M. Scherr | |||
Title: | Chief Financial Officer (Principal Financial Officer) | |||
Date: | April 30, 2020 | |||
By: | /s/ | Sheara Fredman | ||
Name: | Sheara Fredman | |||
Title: | Chief Accounting Officer (Principal Accounting Officer) | |||
Date: | April 30, 2020 |
155 | Goldman Sachs March 2020 Form 10-Q |