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Goldman Sachs 2011 Annual Report
A key alliance
A timely turnaround
A thriving community
A global opportunity
What does it take
to make things happen?
Insight, experience and
strategic advice, when
they’re needed most.

Table of contents

  • Page 1
    Goldman Sachs 2011 Annual Report A key alliance A timely turnaround A thriving community A global opportunity What does it take to make things happen? Insight, experience and strategic advice, when they're needed most.

  • Page 2
    ... the rapidly changing needs of our clients and to develop new services to meet those needs. We know that the world of finance will not stand still and that complacency can lead to extinction. We regularly receive confidential information as part of our normal client relationships. To breach...

  • Page 3
    Without raising capital, how can a promising company expect to fuel essential innovation? Without managing risk, how can a business run smoothly, or an investor confidently look ahead? The answer is, they can't. And that's where we come in. Across the globe, our job is to help our clients succeed ...

  • Page 4
    ... best performances as a public company across the global league tables, ranked first in worldwide announced mergers and acquisitions (M&A), equity and equityrelated offerings, common stock offerings and IPOs. Given the strength of our client franchise across global capital markets, when economies...

  • Page 5
    ..., are down 30 percent and represented approximately 5 percent of our 2011 year-end balance sheet. Of course, as underlying conditions change, we will recalibrate our capital and liquidity profile to be in an optimal position to serve our clients, and to ensure Goldman Sachs 2011 Annual Report 3

  • Page 6
    ... clients ten years ago are today both priced and executed automatically, promoting a more liquid and efficient marketplace for investors. Similar structural developments have occurred in foreign exchange, Investing in Long-Term Trends Comprehensive Advice and Risk Management A more global market...

  • Page 7
    ... and to adapt our services accordingly to better meet their needs. When rules begin to take final shape, we will increasingly allocate resources to developing trading tools and clearing and settlement systems that will help our clients address these new realities. Goldman Sachs 2011 Annual Report 5

  • Page 8
    ... fund near-term obligations, may turn to Goldman Sachs to underwrite or execute the transaction. In either case, we would typically engage in market-making related activities, and in doing so, may hold some of the assets on our books. Because market makers are willing to buy from and sell to clients...

  • Page 9
    ..., ours is ultimately a human business, conducted person to person. A client relationship is only as strong as the Goldman Sachs professionals managing that relationship. The most important thing we can do to enhance the value of our client franchise is to Goldman Sachs 2011 Annual Report 7

  • Page 10
    ... Best Companies for Working Mothers" and when the Human Rights Campaign Foundation awarded us the "Innovation Award for Workplace Equality" and included us on its "Best Place to Work for LGBT Equality" list. Corporate Engagement Since 2008, Goldman Sachs has committed in excess of $1.4 billion to...

  • Page 11
    ... the best people, meet the needs of our clients, control costs, manage our risks and produce over-the-cycle returns to create long-term value for our shareholders. Goldman Sachs Gives The tradition of individual philanthropy remains a core tenet of our culture. In recent years, firm compensation...

  • Page 12
    Raising Capital 10 Goldman Sachs 2011 Annual Report

  • Page 13
    ... growth market. By 2010, Asia had rivaled Europe and had outpaced North America, accounting for 43 percent of Prada's annual sales. With Goldman Sachs' London investment banking team working with the family-owned company, Prada began preparing to go public in 2007. Postponed by the global financial...

  • Page 14
    ... the issuer client. Providing liquidity in the secondary market. Focus on... #1 Globally in IPOs a year of offerings despite volatile markets In 2011, Goldman Sachs led the world in IPO activity, with a majority of offerings coming from Asia and Europe. 2011 Goldman Sachs IPO Deal Volume, by...

  • Page 15
    ..., enabling Prada to raise $2.5 billion in its recordbreaking IPO. Potential Investors Attendance at Road Shows by Geographic Location In 2011, Goldman Sachs led 54 IPOs across 12 countries, totaling Asia 26% U.S. 45% Europe 29% $46.6B Source: Thomson Reuters Goldman Sachs 2011 Annual Report 13

  • Page 16
    ... an offer. As a leader in technology mergers and acquisitions as well as capital markets, Goldman Sachs pivoted quickly from leading the IPO to advising on the sale. The transaction - at $8.5 billion - was one of the largest ever Internet sales - and benefited all parties involved. For Silver Lake...

  • Page 17
    ... banking For Goldman Sachs' technology investment banking team, 2011 was a busy year, as we advised and helped to execute many of the year's most notable transactions. #1 in Technology M&A Source: Thomson Reuters 15 IPOs Technology Raised as active book runner for technology equity and debt...

  • Page 18
    Providing Sound Advice 16 Goldman Sachs 2011 Annual Report

  • Page 19
    ..., the investment banking team from Goldman Sachs São Paulo helped forge a merger of equals. The new enterprise, Raia Drogasil S.A., became Brazil's leading retail pharmacy, with nearly 800 stores, 18,000 employees and a territory extending across nine states. Goldman Sachs 2011 Annual Report 17

  • Page 20
    ... exchange license 2007 Launched Goldman Sachs do Brasil Banco Múltiplo S.A. 2008 Launched Asset Management and were granted our equities broker-dealer license 2009 Launched Private Wealth Management 2011 Approximately 240 professionals based in São Paulo 18 Goldman Sachs 2011 Annual Report

  • Page 21
    ... a diversified provider of products and services, giving clients access to local expertise and the global reach of Goldman Sachs, including: Investment Banking and Capital Markets Market Making in Equities, Fixed Income, Currencies and Commodities Investment Management for Institutions and High-Net...

  • Page 22
    Promoting Economic Stability Martin Weber Gabriele Geist For governments, now was the time to Lars Humble strengthen ties to capital markets Edward Markham 20 Goldman Sachs 2011 Annual Report

  • Page 23
    ... (the German government's development bank), and the Republics of Poland and Slovenia. In 2011, Goldman Sachs was a primary dealer in government securities for 13 European countries. Our sovereign debt franchise continues to expand into new markets. Maud Casin Goldman Sachs 2011 Annual Report 21

  • Page 24
    Managing Investments Goldman Sachs Team left to right: David Granson, Kate El-Hillow, Scott McDermott, Jeffrey Goldenberg, David Fox 22 Goldman Sachs 2011 Annual Report

  • Page 25
    ... of our open architecture platform, which includes investment options from a rigorously evaluated group of external managers as well as from Goldman Sachs Asset Management. While we advise some clients who manage their portfolios internally, others choose our comprehensive portfolio outsourcing...

  • Page 26
    ... management education, business support services and links to capital. New partnerships included joining with the U.S. State Department to extend the program to new countries and working with the government of Denmark to provide 10,000 Women scholars in Tanzania affordable access to capital. By year...

  • Page 27
    ...To Play In 2007, we launched a donor-advised fund, Goldman Sachs Gives (GS Gives), from which we and our partners recommend grants to non-profit organizations globally. In the last two years, nearly 7,000 grants totaling $425 million have supported organizations located in 24 countries, focused on...

  • Page 28
    Our Business The Goldman Sachs Group, Inc. is a leading global investment banking, securities and investment management firm that provides a wide range of financial services to a substantial and diversified client base that includes corporations, financial institutions, governments and high-net...

  • Page 29
    ... funds that we manage, in debt securities, loans, public and private equity securities, real estate, consolidated investment entities and power generation facilities. Investment Management We provide investment management services and offer investment products (primarily through separately managed...

  • Page 30
    ... book value per common share 1 Ending stock price Financial Condition and Selected Ratios Total assets Unsecured long-term borrowings Total shareholders' equity Leverage ratio 2 Adjusted leverage ratio 2 Tier 1 capital ratio 3 Tier 1 common ratio 3 Selected Data Total staff Assets under management...

  • Page 31
    ... Overview and Structure of Risk Management Liquidity Risk Management Market Risk Management Credit Risk Management Operational Risk Management Recent Accounting Developments Certain Risk Factors That May Affect Our Businesses Management's Report on Internal Control over Financial Reporting Report...

  • Page 32
    ... Introduction The Goldman Sachs Group, Inc. (Group Inc.) is a leading global investment banking, securities and investment management firm that provides a wide range of financial services to a substantial and diversified client base that includes corporations, financial institutions, governments...

  • Page 33
    ... common share. 5. Tier 1 common ratio is a non-GAAP measure and may not be comparable to similar non-GAAP measures used by other companies. See "Equity Capital - Consolidated Regulatory Capital Ratios" below for further information about our Tier 1 common ratio. Goldman Sachs 2011 Annual Report 31

  • Page 34
    ... and Commercial Bank of China Limited (ICBC) and net gains of $1.12 billion from other investments in equities, primarily in private equity positions, partially offset by losses from public equities. In addition, Investing & Lending included net revenues of $96 million from debt securities and...

  • Page 35
    ... incentive fees across our alternative investment products. Management and other fees also increased, reflecting favorable changes in the mix of assets under management, as well as the impact of appreciation in the value of client assets. During 2010, assets under management decreased 4% to $840...

  • Page 36
    ... Item 1A of our Annual Report on Form 10-K. Global During 2011, real GDP growth declined in most major economies and emerging markets. The slowdown in economic growth primarily reflected slower growth in domestic demand compared with 2010, while international trade continued to grow strongly during...

  • Page 37
    ... of 4.0% in 2010. Growth was driven by an increase in domestic demand, particularly during the second half of the year. The Russian ruble weakened against the U.S. dollar and Russian equity prices ended the year significantly lower compared with the end of 2010. Goldman Sachs 2011 Annual Report 35

  • Page 38
    ...the firm's credit quality, funding risk, transfer restrictions, liquidity and bid/ offer spreads. Valuation adjustments are generally based on market evidence. Instruments categorized within level 3 of the fair value hierarchy, which represent approximately 5% of the firm's total assets, require one...

  • Page 39
    ... the model's sensitivity to input parameters and assumptions. New or changed models are reviewed and approved. Models are evaluated and re-approved annually to assess the impact of any changes in the product or market and any market developments in pricing theories. Goldman Sachs 2011 Annual Report...

  • Page 40
    ... for further information about changes in level 3 financial assets and fair value measurements. As of December 2010 Total at Fair Value Level 3 Total Total at Fair Value Level 3 Total Commercial paper, certificates of deposit, time deposits and other money market instruments U.S. government...

  • Page 41
    ... or (iv) adverse actual experience on the contracts in our variable annuity and life insurance business. Management judgment is required to evaluate whether indications of potential impairment have occurred, and to test intangibles for impairment if required. Goldman Sachs 2011 Annual Report 39

  • Page 42
    ..., our experience and the experience of others in similar cases or proceedings, and the opinions and views of legal counsel. See Notes 18 and 27 to the consolidated financial statements for information on certain judicial, regulatory and legal proceedings. 40 Goldman Sachs 2011 Annual Report

  • Page 43
    ...December 2011 Total shareholders' equity Preferred stock Common shareholders' equity Impact of the Series G Preferred Stock dividend Common shareholders' equity, excluding the impact of the Series G Preferred Stock dividend $72,708 (3,990) 68,718 1,264 $69,982 Goldman Sachs 2011 Annual Report 41

  • Page 44
    ... payroll tax Impact of the SEC settlement Impact of the NYSE DMM rights impairment Common shareholders' equity, excluding the impact of the U.K. bank payroll tax, the SEC settlement and the NYSE DMM rights impairment $74,257 (6,957) 67,300 359 293 14 $67,966 42 Goldman Sachs 2011 Annual Report

  • Page 45
    ... an increase in client activity. Investment management During the first half of 2011, investment management revenues reflected an operating environment generally characterized by improved asset prices and a shift in investor assets away from money markets in favor of asset classes with potentially...

  • Page 46
    ... alternative investment products. Management and other fees also increased, reflecting favorable changes in the mix of assets under management, as well as the impact of appreciation in the value of client assets. Commissions and fees Broad market concerns and uncertainties that emerged during 2010...

  • Page 47
    ... increase in global equity markets and tighter credit spreads provided a favorable backdrop for other principal transactions revenues. Results for 2010 included a gain from our investment in the ordinary shares of ICBC, net gains from other investments in equities, net gains from debt securities and...

  • Page 48
    ... 2011 2010 2009 Compensation and benefits U.K. bank payroll tax Brokerage, clearing, exchange and distribution fees Market development Communications and technology Depreciation and amortization Occupancy Professional fees Insurance reserves 1 Other expenses Total non-compensation expenses Total...

  • Page 49
    ...The Goldman Sachs Foundation. Compensation was reduced to fund the charitable contribution to Goldman Sachs Gives. The $78 million contribution is in addition to prior year contributions made to Goldman Sachs Gives. The firm asks its participating managing directors to make recommendations regarding...

  • Page 50
    ...excluding the impact of these amounts. Year Ended December 2010 $ in millions Pre-tax earnings Provision for taxes Effective income tax rate As reported Add back: Impact of the U.K. bank payroll tax Impact of the SEC settlement As adjusted 48 Goldman Sachs 2011 Annual Report $12,892 465 550 $13...

  • Page 51
    ... positions in relation to the cash generated by, or funding requirements of, such underlying positions. See Note 25 to the consolidated financial statements for further information about our business segments. The cost drivers of Goldman Sachs taken as a whole - compensation, headcount and levels of...

  • Page 52
    ... stock offerings, convertible offerings and rights offerings. 3. Includes non-convertible preferred stock, mortgage-backed securities, assetbacked securities and taxable municipal debt. Includes publicly registered and Rule 144A issues. Excludes leveraged loans. 50 Goldman Sachs 2011 Annual Report

  • Page 53
    ... market conditions emerged in the first half of 2010, including lower equity prices and wider corporate credit spreads, interest rates remained low throughout the year and underwriting activity improved during the second half of the year as global equity prices recovered and corporate credit...

  • Page 54
    ... to difficult market-making conditions and led to reductions in risk by us and our clients. As a result of these conditions, net revenues across the franchise were lower, including significant declines in mortgages and credit products, compared with 2010. 52 Goldman Sachs 2011 Annual Report

  • Page 55
    ... through funds that we manage, in debt securities, loans, public and private equity securities, real estate, consolidated investment entities and power generation facilities. The table below presents the operating results of our Investing & Lending segment. Year Ended December 2011 2010 2009...

  • Page 56
    ... vehicles, such as mutual funds and private investment funds) across all major asset classes to a diverse set of institutional and individual clients. Investment Management also offers wealth advisory services, including portfolio management and financial counseling, and brokerage and other...

  • Page 57
    ...with our acquisitions of Goldman Sachs Australia Pty Ltd (GS Australia), formerly Goldman Sachs & Partners Australia Group Holdings Pty Ltd, and Benchmark Asset Management Company Private Limited. in billions 2011 2011 versus 2010. Net revenues in Investment Management were $5.03 billion for 2011...

  • Page 58
    ... 2010, Investment Management operated in an environment generally characterized by a continuation of industry trends that emerged during 2009, as financial markets began to stabilize, asset prices improved and investors began to shift assets away from money markets in favor of asset classes with...

  • Page 59
    ... beginning March 2012 and ending June 2014. In addition, we have limited the firm's initial investment to 3% for certain new funds. As required by the Dodd-Frank Act, the Federal Reserve Board and FDIC have jointly issued a rule requiring each bank holding company with over $50 billion in assets and...

  • Page 60
    ...iii) the amount of equity capital we hold. Although our balance sheet fluctuates on a day-to-day basis, our total assets and adjusted assets at quarterly and year-end dates are generally not materially different from those occurring within our reporting periods. 58 Goldman Sachs 2011 Annual Report

  • Page 61
    ...(Global Core Excess) Other cash Excess liquidity and cash Secured client financing Inventory Secured financing agreements Receivables Institutional Client Services ICBC Equity (excluding ICBC) Debt Receivables and other Investing & Lending Total inventory and related assets Other assets Total assets...

  • Page 62
    ... are typically longer-term in nature. We make investments, directly and indirectly through funds that we manage, in debt securities, loans, public and private equity securities, real estate and other investments. Other Assets. Other assets are generally less liquid, non-financial assets, including...

  • Page 63
    ... financial statements because total assets disclosed in Note 25 include allocations of our excess liquidity and cash, secured client financing and other assets. As of December 2011 Excess Liquidity and Cash 1 Secured Client Financing Institutional Client Services Investing & Lending Other Assets...

  • Page 64
    ... of financial instruments. As of December 2011 2010 in millions Bank loans and bridge loans 1 Private equity investments and restricted public equity securities 2 Mortgage and other asset-backed loans and securities High-yield and other debt obligations ICBC ordinary shares 3 Emerging market debt...

  • Page 65
    ...-term note offerings and other debt offerings; ‰ demand and savings deposits through cash sweep programs and time deposits through internal and thirdparty broker networks; and ‰ short-term unsecured debt through U.S. and non-U.S. commercial paper and promissory note issuances and other methods...

  • Page 66
    ...of markets in the Americas, Europe and Asia. We believe that our relationships with our creditors are critical to our liquidity. Our creditors include banks, governments, securities lenders, pension funds, insurance companies, mutual funds and individuals. We have imposed various internal guidelines...

  • Page 67
    ... short-term borrowings, including the current portion of unsecured long-term borrowings, were $49.04 billion. See Note 15 to the consolidated financial statements for further information about our unsecured short-term borrowings. GS Bank USA has access to funding through the Federal Reserve Bank...

  • Page 68
    ... information regulatory capital ratios. about our $ in millions As of December 2011 2010 Common shareholders' equity Less: Goodwill Less: Disallowable intangible assets Less: Other deductions 1 Tier 1 Common Capital Preferred stock Junior subordinated debt issued to trusts Tier 1 Capital...

  • Page 69
    ... disclosed above. The Federal Reserve Board is expected to adopt the new leverage and risk-based capital regulations in 2012. As a consequence of these changes, Tier 1 capital treatment for our junior subordinated debt issued to trusts will be phased out over a three-year period beginning on January...

  • Page 70
    ... than a single calculation. See "Liquidity Risk Management - Credit Ratings" for further information about credit ratings of Group Inc., GS&Co., GSI and GS Bank USA. Subsidiary Capital Requirements Many of our subsidiaries, including GS Bank USA and our broker-dealer subsidiaries, are subject to...

  • Page 71
    ... financial statements for additional information on our repurchase program. See Notes 16 and 19 to the consolidated financial statements for further information about our preferred stock, junior subordinated debt issued to trusts and other subordinated debt. Goldman Sachs 2011 Annual Report...

  • Page 72
    ... underwrite client securitization transactions; provide secondary market liquidity; make investments in performing and nonperforming debt, equity, real estate and other assets; provide investors with credit-linked and asset-repackaged notes; and receive or provide letters of credit to satisfy margin...

  • Page 73
    ... policies. Type of Off-Balance-Sheet Arrangement Variable interests and other obligations, including contingent obligations, arising from variable interests in nonconsolidated VIEs Leases, letters of credit, and lending and other commitments Guarantees Derivatives Disclosure in Annual Report See...

  • Page 74
    ... of secured long-term financings for which the fair value option was elected, primarily consisting of transfers of financial assets accounted for as financings rather than sales and certain other nonrecourse financings, exceeded their related fair value by $239 million. 3. Includes $10.84 billion...

  • Page 75
    ...of our independent control and support functions - including those in internal audit, compliance, controllers, credit risk management, human capital management, legal, market risk management, operations, operational risk management, tax, technology and treasury. Goldman Sachs 2011 Annual Report 73

  • Page 76
    ... report to the chief financial officer, general counsel, chief administrative officer, or in the case of Internal Audit, to the Audit Committee of the Board, are responsible for day-to-day oversight of risk, as discussed in greater detail in the following sections. 74 Goldman Sachs 2011 Annual...

  • Page 77
    ...officer, and reports to the Management Committee. This committee also has responsibility for overseeing the implementation of the recommendations of the Business Standards Committee. This committee has established the following two riskrelated committees that report to it: Goldman Sachs 2011 Annual...

  • Page 78
    ...-head of our Financial Institutions Group for Investment Banking and the head of Mergers & Acquisitions for Europe, Middle East, Africa and Asia Pacific for Investment Banking who are appointed by the Firmwide Client and Business Standards Committee chairperson. 76 Goldman Sachs 2011 Annual Report

  • Page 79
    ... funding from credit-sensitive markets. As of December 2011 and December 2010, the fair value of the securities and certain overnight cash deposits included in our GCE totaled $171.58 billion and $174.78 billion, respectively. Based on the results of our internal liquidity risk model, discussed...

  • Page 80
    ... timely settlement in all major markets, even in a difficult funding environment. We maintain our GCE to enable us to meet current and potential liquidity requirements of our parent company, Group Inc., and our major broker-dealer and bank subsidiaries. The Modeled Liquidity Outflow incorporates...

  • Page 81
    ... money market securities, corporate obligations, marginable equities, loans and cash deposits not included in our GCE. The fair value of these assets averaged $83.32 billion and $72.98 billion for the years ended December 2011 and December 2010, respectively. We do not consider these assets liquid...

  • Page 82
    ...a severe or persistent liquidity crisis. The target amount of our total capital is based on an internal funding model which incorporates the following long-term financing requirements: ‰ The portion of financial instruments owned, at fair value, that are not funded on a secured basis. ‰ Goodwill...

  • Page 83
    ... U.K. broker-dealer; $2.67 billion invested in GSEC, a U.S. registered broker-dealer; $4.28 billion invested in Goldman Sachs Japan Co., Ltd., a regulated Japanese broker-dealer; and $19.23 billion invested in GS Bank USA, a regulated New York State-chartered bank. Group Inc. also provided, directly...

  • Page 84
    ... as part of a global review of financial institutions. We rely on the short-term and long-term debt capital markets to fund a significant portion of our day-to-day operations and the cost and availability of debt financing is influenced by our credit ratings. Credit ratings are also important when...

  • Page 85
    ... January 1, 2018. While the principles behind the new framework are broadly consistent with our current liquidity management framework, it is possible that the implementation of these standards could impact our liquidity and funding requirements and practices. Goldman Sachs 2011 Annual Report 83

  • Page 86
    ... Analysis Market Risk Management Overview Market risk is the risk of loss in the value of our inventory due to changes in market prices. We hold inventory primarily for market making for our clients and for our investing and lending activities. Our inventory therefore changes based on client demands...

  • Page 87
    ... loss in value of inventory positions due to adverse market movements over a defined time horizon with a specified confidence level. We typically employ a one-day time horizon with a 95% confidence level. The VaR model captures risks including interest rates, equity prices, currency rates and...

  • Page 88
    ... on the following day. Separately, during the year ended December 2010, the firmwide VaR risk limit was reduced on one occasion reflecting lower risk utilization. in millions Risk Categories Interest rates Equity prices Currency rates Commodity prices Diversification effect 1 Total $ 94 33 20...

  • Page 89
    ...trading net revenues are compared with VaR calculated as of the end of the prior business day. The firm incurred trading losses on a single day in excess of our 95% one-day VaR (i.e., a VaR exception) on three occasions during 2011 and on two occasions during 2010. Goldman Sachs 2011 Annual Report...

  • Page 90
    ... consolidated financial statements for information on "Other assets." 1. Excludes third-party interests held by investment funds managed by Goldman Sachs. 2. Relates to private and restricted public equity securities, including interests in firm-sponsored funds that invest in corporate equities and...

  • Page 91
    ... and lending commitments, the primary measure is a function of the notional amount of the position. We also monitor credit risk in terms of current exposure, which is the amount presently owed to the firm after taking into account applicable netting and collateral. Goldman Sachs 2011 Annual Report...

  • Page 92
    ... bank loan claims and, for certain lending commitments, provisions in the legal documentation that allow the firm to adjust loan amounts, pricing, structure and other terms as market conditions change. The type and structure of risk mitigants employed can significantly influence the degree of credit...

  • Page 93
    ... our internally determined public rating agency equivalents. As of December 2011 in millions Credit Rating Equivalent 0 - 12 Months 1-5 Years 5 Years or Greater Total Netting Exposure...673 8,062 2,102 $65,692 $ 3,088 6,935 16,839 8,182 5,439 1,539 $42,022 Goldman Sachs 2011 Annual Report 91

  • Page 94
    ...same prior year period. The tables below present the firm's credit exposures related to cash, OTC derivatives, and loans and lending commitments associated with traditional credit origination activities broken down by industry, region and internal credit rating. 92 Goldman Sachs 2011 Annual Report

  • Page 95
    ...Asset Managers & Funds Banks, Brokers & Other Financial Institutions Consumer Products, Non-Durables, and Retail Government & Central Banks Healthcare & Education Insurance Natural Resources & Utilities Real Estate Technology, Media, Telecommunications & Services Transportation Other Total 2 Credit...

  • Page 96
    ...December 2011 Credit Exposure Total Total Net Funded Unfunded Credit Credit Gross Credit Other Funded Hedges Exposure Exposure Exposure Market Exposure Equities and Credit Other Derivatives Bonds Total Market Exposure in billions OTC Loans Derivatives Greece Sovereign Non-Sovereign Total Greece...

  • Page 97
    ... 22, 2012, Fitch, Inc. lowered the sovereign debt ratings on Greece from CCC to C. These downgrades did not have a material effect on our financial condition, results of operations, liquidity or capital resources. department (Operational Risk Management) is a risk management function independent...

  • Page 98
    ...positions, receive fees based on the value of assets managed, or receive or post collateral. ‰ Our businesses have been and may be adversely affected by disruptions in the credit markets, including reduced access to credit and higher costs of obtaining credit. 96 Goldman Sachs 2011 Annual Report

  • Page 99
    ...our investment products. ‰ We may incur losses as a result of ineffective risk management processes and strategies. ‰ Our liquidity, profitability and businesses may be adversely affected by an inability to access the debt capital markets or to sell assets or by a reduction in our credit ratings...

  • Page 100
    ... Control over Financial Reporting Management of The Goldman Sachs Group, Inc., together with its consolidated subsidiaries (the firm), is responsible for establishing and maintaining adequate internal control over financial reporting. The firm's internal control over financial reporting is a process...

  • Page 101
    ...related consolidated statements of earnings, changes in shareholders' equity, cash flows and comprehensive income present fairly, in all material respects, the financial position of The Goldman Sachs Group, Inc. and its subsidiaries (the Company) at December 31, 2011 and 2010, and the results of its...

  • Page 102
    ... expenses Compensation and benefits U.K. bank payroll tax Brokerage, clearing, exchange and distribution fees Market development Communications and technology Depreciation and amortization Occupancy Professional fees Insurance reserves Other expenses Total non-compensation expenses Total operating...

  • Page 103
    ...,794 at fair value as of December 2011 and December 2010, respectively) Payables to brokers, dealers and clearing organizations Payables to customers and counterparties Financial instruments sold, but not yet purchased, at fair value Unsecured short-term borrowings, including the current portion of...

  • Page 104
    ... benefit/(provision) related to share-based awards Cash settlement of share-based compensation Balance, end of year Retained earnings Balance, beginning of year Net earnings Dividends and dividend equivalents declared on common stock and restricted stock units Dividends on preferred stock Preferred...

  • Page 105
    ...respectively. Non-cash activities: During the year ended December 2011, the firm assumed $2.09 billion of debt and issued $103 million of common stock in connection with the acquisition of Goldman Sachs Australia Pty Ltd (GS Australia), formerly Goldman Sachs & Partners Australia Group Holdings Pty...

  • Page 106
    ... gains/(losses) on available-for-sale securities, net of tax Comprehensive income $4,442 (55) (145) (30) $4,212 $8,354 (38) 88 26 $8,430 $13,385 (70) (17) 97 $13,395 The accompanying notes are an integral part of these consolidated financial statements. 104 Goldman Sachs 2011 Annual Report

  • Page 107
    ... of Business The Goldman Sachs Group, Inc. (Group Inc.), a Delaware corporation, together with its consolidated subsidiaries (collectively, the firm), is a leading global investment banking, securities and investment management firm that provides a wide range of financial services to a substantial...

  • Page 108
    ... at Fair Value Fair Value Measurements Cash Instruments Derivatives and Hedging Activities Fair Value Option Collateralized Agreements and Financings Securitization Activities Variable Interest Entities Other Assets Goodwill and Identifiable Intangible Assets Deposits Short-Term Borrowings Long-Term...

  • Page 109
    ...included in "Investment management" revenues. Commissions and Fees. The firm earns "Commissions and fees" from executing and clearing client transactions on stock, options and futures markets. Commissions and fees are recognized on the day the trade is executed. Goldman Sachs 2011 Annual Report 107

  • Page 110
    ... value option, with changes in fair value included in "Market making" revenues. See Note 8 for further information about the fair values of these insurance and reinsurance contracts. Revenues from variable annuity and life insurance and reinsurance contracts not accounted for at fair value generally...

  • Page 111
    ..., and interim periods within those annual periods. Since these amended principles require only additional disclosures concerning offsetting and related arrangements, adoption will not affect the firm's financial condition, results of operations or cash flows. Goldman Sachs 2011 Annual Report 109

  • Page 112
    ...06 billion as of December 2010 of money market instruments held by William Street Funding Corporation (Funding Corp.) to support the William Street credit extension program. See Note 18 for further information about the William Street credit extension program. 110 Goldman Sachs 2011 Annual Report

  • Page 113
    ... 2011 2010 The best evidence of fair value is a quoted price in an active market. If listed prices or quotations 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...

  • Page 114
    ...3 cash instruments, derivatives and other financial assets and financial liabilities accounted for at fair value under the fair value option, respectively, including information about significant unrealized gains/(losses) and significant transfers in or out of level 3. 112 Goldman Sachs 2011 Annual...

  • Page 115
    ... 2 cash instruments include commercial paper, certificates of deposit, time deposits, most government agency obligations, most corporate debt securities, commodities, certain mortgage-backed loans and securities, certain bank loans and bridge loans, restricted or less liquid publicly listed equities...

  • Page 116
    ... offers, debt restructurings) and significant changes in financial metrics, such as: ‰ Current financial performance as compared to projected performance ‰ Capitalization rates and multiples ‰ Market yields implied by transactions of similar or related assets 114 Goldman Sachs 2011 Annual...

  • Page 117
    ... liquid publicly listed securities. 5. Includes $12.07 billion of private equity investments, $1.10 billion of real estate investments and $497 million of convertible debentures. 6. Includes $27 million of CDOs and CLOs backed by corporate obligations in level 3. Goldman Sachs 2011 Annual Report...

  • Page 118
    ... liquid publicly listed securities. 5. Includes $10.03 billion of private equity investments, $874 million of real estate investments and $156 million of convertible debentures. 6. Includes $35 million of CDOs and CLOs backed by corporate obligations in level 3. 116 Goldman Sachs 2011 Annual Report

  • Page 119
    ... loans and corporate debt securities, primarily reflecting the impact of unfavorable credit markets and losses on relationship lending. These losses were partially offset by gains in private equity investments, where prices were generally corroborated through market transactions in similar financial...

  • Page 120
    ... 3 cash instrument assets and liabilities of $1.67 billion for the year ended December 2010 primarily consisted of unrealized gains on private equity investments, bank loans and bridge loans and corporate debt securities, where prices were generally corroborated through sales and partial sales of...

  • Page 121
    ...and strategies including long/short equity, credit, convertibles, risk arbitrage, special situations and capital structure arbitrage. 4. These funds invest globally, primarily in real estate companies, loan portfolios, debt recapitalizations and direct property. Goldman Sachs 2011 Annual Report 119

  • Page 122
    .... As a market maker, it is essential to maintain an inventory of financial instruments sufficient to meet expected client and market demands. Risk Management. The firm also enters into derivatives to actively manage risk exposures that arise from marketmaking and investing and lending activities in...

  • Page 123
    ... Derivative Assets Derivative Liabilities Number of Contracts Derivatives not accounted for as hedges Interest rates Credit Currencies Commodities Equities Subtotal Derivatives accounted for as hedges Interest rates Currencies Subtotal Gross fair value of derivatives Counterparty netting 1 Cash...

  • Page 124
    ... that trade in liquid markets, model selection does not involve significant management judgment because outputs of models can be calibrated to market-clearing levels. Price transparency of OTC derivatives can generally be characterized by product type. Interest Rate. In general, the prices and...

  • Page 125
    ...to Consolidated Financial Statements Equity. Price transparency for equity derivatives varies by market and underlier. Options on indices and the common stock of corporates included in major equity indices exhibit the most price transparency. Exchange-traded and OTC equity derivatives generally have...

  • Page 126
    ... Assets at Fair Value as of December 2011 in millions Level 1 Level 2 Level 3 Cross-Level Netting Total Interest rates Credit Currencies Commodities Equities Gross fair value of derivative assets Counterparty netting 1 Subtotal Cash collateral netting 2 Fair value included in financial...

  • Page 127
    ... in millions Level 1 Level 2 Level 3 Cross-Level Netting Total Interest rates Credit Currencies Commodities Equities Gross fair value of derivative assets Counterparty netting 1 Subtotal Cash collateral netting 2 Fair value included in financial instruments owned $49 - - - 44 93 - $93 $ 486...

  • Page 128
    ...'s results of operations, liquidity or capital resources. The tables below present changes in fair value for all derivatives categorized as level 3 as of the end of the year. in millions Net realized gains/ (losses) Purchases Sales Settlements Interest rates - net Credit - net Currencies - net...

  • Page 129
    ...short-term borrowings" and "Unsecured long-term borrowings." See Note 8 for further information. As of December in millions, except number of contracts 2011 2010 Fair value of assets Fair value of liabilities Net Number of contracts $422 304 $118 333 $383 267 $116 338 Goldman Sachs 2011 Annual...

  • Page 130
    ... generally on remaining contractual maturity for other derivatives. OTC Derivatives as of December 2011 0 - 12 Months 1-5 Years 5 Years or Greater Total Assets Product Type Interest rates Credit Currencies Commodities Equities Netting across product types 1 Subtotal Cross maturity netting 2 Cash...

  • Page 131
    ... to Consolidated Financial Statements in millions OTC Derivatives as of December 2010 0 - 12 Months 1-5 Years 5 Years or Greater Total Assets Product Type Interest rates Credit Currencies Commodities Equities Netting across product types 1 Subtotal Cross maturity netting 2 Cash collateral netting...

  • Page 132
    ... Credit derivatives are 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. 130 Goldman Sachs 2011 Annual Report

  • Page 133
    ...Purchased Credit Credit Derivatives 1 Derivatives 2 Maximum Payout/Notional Amount of Written Credit Derivatives by Tenor 5 Years or Greater Fair Value of Written Credit Derivatives Net Asset/ (Liability) $ in millions 0 - 12 Months 1-5 Years Total Asset Liability As of December 2011 Credit...

  • Page 134
    ... These interest rate swaps hedge changes in fair value attributable to the relevant benchmark interest rate (e.g., London Interbank Offered Rate (LIBOR)), effectively converting a substantial portion of fixed-rate obligations into floating-rate obligations. The firm applies the "long-haul method" in...

  • Page 135
    ... December 2010, the firm had designated $3.11 billion and $3.88 billion, respectively, of foreign currency-denominated debt, included in "Unsecured long-term borrowings" and "Unsecured shortterm borrowings," as hedges of net investments in non-U.S. subsidiaries. Goldman Sachs 2011 Annual Report 133

  • Page 136
    ... than sales and certain other nonrecourse financings, including debt raised through the firm's William Street credit extension program outstanding as of December 2010; ‰ certain unsecured short-term borrowings, consisting of all promissory notes and commercial paper and certain hybrid financial...

  • Page 137
    ... of level 1 and $528 million of level 2 securities segregated for regulatory and other purposes accounted for at fair value under other U.S. GAAP, principally consisting of U.S. Treasury securities, money market instruments and insurance separate account assets. Goldman Sachs 2011 Annual Report 135

  • Page 138
    ...of level 1 and $3.53 billion of level 2 securities segregated for regulatory and other purposes accounted for at fair value under other U.S. GAAP, principally consisting of U.S. Treasury securities, money market instruments and insurance separate account assets. 136 Goldman Sachs 2011 Annual Report

  • Page 139
    ... cash instruments or 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. Level 3 Other Financial Assets at Fair Value for the Year Ended December 2011...

  • Page 140
    ... to the impact of a change in interest rates on certain insurance liabilities. These losses were partially offset by gains on unsecured short-term borrowings, primarily reflecting gains on certain equity-linked notes, principally due to a decline in global equity markets. Significant transfers in or...

  • Page 141
    ...Financial Assets and Financial Liabilities at Fair Value Year Ended December 2011 Fair Value Option Fair Value Option 2010 Fair Value Option 2009 in millions Other Other Other Receivables from customers and counterparties 1 Other secured financings Unsecured short-term borrowings Unsecured long...

  • Page 142
    ... attributable to the impact of changes in the firm's own credit spreads on borrowings for which the fair value option was elected. The firm calculates the fair value of borrowings by discounting future cash flows at a rate which incorporates the firm's credit spreads. Year Ended December in millions...

  • Page 143
    ...valuation techniques and significant inputs used to determine fair value. 2. As of December 2011 and December 2010, $47.62 billion and $48.82 billion of securities borrowed and $107 million and $1.51 billion of securities loaned were at fair value, respectively. Goldman Sachs 2011 Annual Report 141

  • Page 144
    ... the firm returns the securities, the counterparty returns the cash. Interest is generally paid periodically over the life of the transaction. In a securities loaned transaction, the firm lends securities to a counterparty typically in exchange for cash or securities, or a letter of credit. When the...

  • Page 145
    ... customer margin loans. Other secured financings (short-term) Other secured financings (long-term): 2013 2014 2015 2016 2017 - thereafter Total other secured financings (long-term) Total other secured financings $29,185 1,852 3,627 583 437 1,680 8,179 $37,364 Goldman Sachs 2011 Annual Report 143

  • Page 146
    ... of December 2011 2010 Note 10. Securitization Activities The firm securitizes residential and commercial mortgages, corporate bonds, loans and other types of financial assets by selling these assets to securitization vehicles (e.g., trusts, corporate entities, and limited liability companies) and...

  • Page 147
    ... subordinated interests, purchased in connection with secondary market-making activities, in securitization entities in which the firm also holds retained interests. 2011 2010 2009 Residential mortgages Commercial mortgages Other financial assets Total Cash flows on retained interests $40,131...

  • Page 148
    ... interests, the expected credit loss assumptions are reflected in the discount rate. The preceding table does not give effect to the offsetting benefit of other financial instruments that are held to mitigate risks inherent in these retained interests. Changes in fair value based on an adverse...

  • Page 149
    ... rate swaps, which are typically not variable interests. The firm may be a counterparty to derivatives with these VIEs and generally enters into derivatives with other counterparties to mitigate its risk. Real Estate, Credit-Related and Other Investing VIEs. The firm purchases equity and debt...

  • Page 150
    ... debt in residential and commercial mortgagebacked and other asset-backed securitization entities, CDOs and CLOs; loans and lending commitments; limited and general partnership interests; preferred and common equity; derivatives that may include foreign currency, equity and/or credit risk...

  • Page 151
    ... transferred assets. 2. Assets in VIE and maximum exposure to loss include $6.15 billion and $2.62 billion, respectively, as of December 2011, and $6.14 billion and $3.25 billion, respectively, as of December 2010, related to CDOs backed by mortgage obligations. Goldman Sachs 2011 Annual Report 149

  • Page 152
    ...the general credit of the firm. in millions Total Assets Cash and cash equivalents Cash and securities segregated for regulatory and other purposes Receivables from brokers, dealers and clearing organizations Receivables from customers and counterparties Financial instruments owned, at fair value...

  • Page 153
    ... Financial Statements Consolidated VIEs As of December 2010 Real estate, credit-related and other investing Municipal bond securitizations CDOs, mortgage-backed and other asset-backed Principalprotected notes in millions Total Assets Cash and cash equivalents Cash and securities segregated...

  • Page 154
    ... Other Assets Other assets are generally less liquid, non-financial assets. The table below presents other assets by type. As of December in millions 2011 2010 Property, leasehold improvements and equipment 1 Goodwill and identifiable intangible assets 2 Income tax-related assets 3 Equity-method...

  • Page 155
    ... assets." Goodwill As of December in millions 2011 2010 Investment Banking: Financial Advisory 1 Underwriting 1 Institutional Client Services: Fixed Income, Currency and Commodities Client Execution 2 Equities Client Execution 1 Securities Services Investing & Lending Investment Management Total...

  • Page 156
    ... acquired related to the firm's insurance businesses. 4. Primarily includes the firm's New York Stock Exchange (NYSE) Designated Market Maker (DMM) rights and exchange-traded fund lead market maker rights. Substantially all of the firm's identifiable intangible assets are considered to have finite...

  • Page 157
    ... of December 2011. Year Ended December in millions If a recoverability test is necessary, the carrying value of an asset or asset group is compared to the total of the undiscounted cash flows expected to be received over the remaining useful life and from the disposition of the asset or asset group...

  • Page 158
    ... at Goldman Sachs Bank (Europe) plc (GS Bank Europe) and were interest-bearing. As of December in millions Short-Term Borrowings Short-term borrowings were comprised of the following: As of December in millions 2011 2010 Other secured financings (short-term) Unsecured short-term borrowings Total...

  • Page 159
    ... are based on LIBOR or the federal funds target rate. Equity-linked and indexed instruments are included in floating-rate obligations. 3. Includes $0 and $8.58 billion as of December 2011 and December 2010, respectively, guaranteed by the FDIC under the TLGP. Goldman Sachs 2011 Annual Report 157

  • Page 160
    ... 2010, respectively. These rates exclude financial instruments accounted for at fair value under the fair value option. 2. During 2011, certain fair value hedges were de-designated resulting in a larger portion of fixed-rate debt carried at amortized cost. 158 Goldman Sachs 2011 Annual Report

  • Page 161
    ... Group Inc. issued a total of $2.25 billion of remarketable junior subordinated debt to Goldman Sachs Capital II and Goldman Sachs Capital III (APEX Trusts), Delaware statutory trusts. The APEX Trusts issued $2.25 billion of guaranteed perpetual Normal Automatic Preferred Enhanced Capital Securities...

  • Page 162
    ... financial instruments owned, at fair value, principally consisting of corporate debt securities) and assumed $7.10 billion of liabilities. Separate account liabilities are supported by separate account assets, representing segregated contract holder funds under variable annuity and life insurance...

  • Page 163
    ... December 2011 2010 2012 20132014 20152016 2017Thereafter Commitments to extend credit 1 Commercial lending: Investment-grade Non-investment-grade William Street credit extension program Warehouse financing Total commitments to extend credit Contingent and forward starting resale and securities...

  • Page 164
    ..., related to corporate and other private investments. Of these amounts, $8.38 billion and $10.10 billion as of December 2011 and December 2010, respectively, relate to commitments to invest in funds managed by the firm, which will be funded at market value on the date of investment. Leases The...

  • Page 165
    ... large number of defaults in residential mortgages, including those sold or securitized by the firm, there is a potential for increasing claims for repurchases. However, the firm is not in a position to make a meaningful estimate of that exposure at this time. Goldman Sachs 2011 Annual Report 163

  • Page 166
    ..., representing guaranteed minimum death and income benefits in excess of contract holder account balances, was $1.51 billion and $1.60 billion as of December 2011 and December 2010, respectively. See Note 17 for further information about insurance liabilities. 164 Goldman Sachs 2011 Annual Report

  • Page 167
    ... of netting of cash collateral posted under credit support agreements. As of December 2011 Maximum Payout/Notional Amount by Period of Expiration Carrying Value of Net Liability 20132014 20152016 2017Thereafter in millions 2012 Total Derivatives 1 Securities lending indemnifications 2 Other...

  • Page 168
    Notes to Consolidated Financial Statements Guarantees of Securities Issued by Trusts. The firm has established trusts, including Goldman Sachs Capital I, II and III, and other entities for the limited purpose of issuing securities to third parties, lending the proceeds to the firm and entering into ...

  • Page 169
    ...Finance Limited insured by GS Secured Guaranty Company Limited (SGCL), a wholly-owned subsidiary of Group Inc. that is a financial guaranty insurer organized under the laws of Bermuda. The funds raised by SGCL are used to enter into repurchase transactions with GS&Co. and Goldman Sachs International...

  • Page 170
    ... Stock to Goldman Sachs Capital II and III, respectively, for each $100,000 principal amount of subordinated debt held by these trusts. When issued, each share of Series E and Series F Preferred Stock will have a par value of $0.01 and a liquidation preference of $100,000 per share. Dividends...

  • Page 171
    ... 1 Total accumulated other comprehensive loss, net of tax $(225) (374) 83 $(516) $(170) (229) 113 $(286) 1. Substantially all consists of net unrealized gains on securities held by the firm's insurance subsidiaries as of both December 2011 and December 2010. Goldman Sachs 2011 Annual Report 169

  • Page 172
    ...capital under Basel 1 divided by average adjusted total assets (which includes adjustments for disallowed goodwill and intangible assets, and the carrying value of equity investments in non-financial companies that are subject to deductions from Tier 1 capital). 170 Goldman Sachs 2011 Annual Report

  • Page 173
    ... regulation and supervision of large bank holding companies and systemically important nonbank financial firms. These proposals address risk-based capital and leverage requirements, liquidity requirements, stress tests, single counterparty limits and early remediation requirements that are designed...

  • Page 174
    ... of $5.00 billion of subordinated debt to Group Inc. and $1.00 billion dividend to Group Inc. during 2011. GS Bank USA is currently working to implement the Basel 2 framework, as implemented by the Federal Reserve Board. Similar to the firm's requirement as a bank holding company, GS Bank USA is...

  • Page 175
    ..., of net assets of regulated subsidiaries were restricted as to the payment of dividends to Group Inc. In addition to limitations on the payment of dividends imposed by federal and state laws, the Federal Reserve Board, the FDIC and the New York State Department of Financial Services have authority...

  • Page 176
    ..., respectively. The diluted EPS computations in the table above do not include the following: Year Ended December in millions 2011 2010 2009 Number of antidilutive RSUs and common shares underlying antidilutive stock options and warrants 9.2 6.2 24.7 174 Goldman Sachs 2011 Annual Report

  • Page 177
    ... funds. Year Ended December in millions The firm has provided voluntary financial support to certain of its funds that have experienced significant reductions in capital and liquidity or had limited access to the debt markets during the financial crisis. As of December 2011 and December 2010...

  • Page 178
    ...Year Ended December in millions 2011 2010 2009 Interest income Deposits with banks Securities borrowed, securities purchased under agreements to resell and federal funds sold Financial instruments owned, at fair value Other interest 1 Total...294) 6,500 $ 7,407 176 Goldman Sachs 2011 Annual Report

  • Page 179
    ... income tax rate 1. Primarily includes the effect of the SEC settlement of $550 million, substantially all of which is non-deductible. 35.0% 4.4 (1.6) (6.7) (2.4) (0.7) 28.0% 35.0% 2.5 (0.7) (2.3) (1.0) 1.7 1 35.2% 35.0% 1.5 (0.3) (3.5) (0.4) 0.2 32.5% Goldman Sachs 2011 Annual Report 177

  • Page 180
    ...2011 2010 Deferred tax assets Compensation and benefits Unrealized losses ASC 740 asset related to unrecognized tax benefits Non-U.S. operations Foreign tax credits Net operating losses Occupancy-related Other comprehensive income-related Other, net Valuation allowance 1 Total deferred tax assets...

  • Page 181
    ... the changes in the liability for unrecognized tax benefits, which is recorded in "Other liabilities and accrued expenses." See Note 17 for further information. As of December in millions 2011 2010 2009 Balance, beginning of year Increases based on tax positions related to the current year...

  • Page 182
    ... As of December 2011 Note 25. Business Segments In the fourth quarter of 2010, the firm reorganized its three previous reportable business segments into four new reportable business segments: Investment Banking, Institutional Client Services, Investing & Lending and Investment Management. Prior...

  • Page 183
    ... Investment Management Total 1. Includes $115 million, $111 million and $36 million for the years ended December 2011, December 2010 and December 2009, respectively, of realized gains on available-for-sale securities held in the firm's insurance subsidiaries. Goldman Sachs 2011 Annual Report...

  • Page 184
    ... market for the underlying security. ‰ Investing & Lending: Investing: location of the investment; Lending: location of the client. ‰ Investment Management: location of the sales team. in millions Investment Banking Institutional Client Services Investing & Lending Investment Management Total...

  • Page 185
    ... for the year ended December 2010. 3. Asia also includes Australia and New Zealand. 4. The decline in net revenues in Asia compared with 2010 primarily reflects lower results in Investing & Lending, principally due to losses from public equities, reflecting a significant decline in equity markets in...

  • Page 186
    ... and counterparties, the firm routinely executes a high volume of transactions with asset managers, investment funds, commercial banks, brokers and dealers, clearing houses and exchanges, which results in significant credit concentrations. In the ordinary course of business, the firm may also be...

  • Page 187
    ... period. IPO Process Matters. Group Inc. and GS&Co. are among the numerous financial services companies that have been named as defendants in a variety of lawsuits alleging improprieties in the process by which those companies participated in the underwriting of public offerings in recent years. GS...

  • Page 188
    ... up to â,¬48 million to a settlement fund. The firm has paid the full amount of GSI's proposed contribution to the settlement into an escrow account. Other shareholders' associations have made demands or filed claims for compensation of alleged damages. 186 Goldman Sachs 2011 Annual Report

  • Page 189
    ...other things, research analysts' methods for obtaining receipt and distribution of information and communications among research analysts, sales and trading personnel and clients. On June 9, 2011, pursuant to a settlement, a consent order was entered by the Massachusetts Securities Division pursuant...

  • Page 190
    ... three actions on July 28, 2010. The plaintiffs filed motions for reconsideration, which were denied on October 22, 2010, and have revised their notices of appeal in these actions. On January 20, 2011, the appellate court consolidated all actions on appeal. 188 Goldman Sachs 2011 Annual Report

  • Page 191
    ... shareholder derivative action in the U.S. District Court for the Eastern District of New York predicting that the firm's 2008 Proxy Statement would violate the federal securities laws by undervaluing certain stock option awards and alleging that senior management received excessive compensation for...

  • Page 192
    ... Financial Statements Mortgage-Related Matters. On April 16, 2010, the SEC brought an action (SEC Action) under the U.S. federal securities laws in the U.S. District Court for the Southern District of New York against GS&Co. and Fabrice Tourre, one of its employees, in connection with a CDO offering...

  • Page 193
    ...23, 2010, the Board has received letters from shareholders demanding that the Board take action to address alleged misconduct by GS&Co., the Board and certain officers and employees of Group Inc. and its affiliates. The demands generally allege misconduct in connection with the firm's securitization...

  • Page 194
    ... Basis Yield Alpha Fund (Master), Cambridge Place Investment Management Inc., the Charles Schwab Corporation, the Federal Home Loan Banks of Boston, Chicago, Indianapolis and Seattle, the FHFA (as conservator for Fannie Mae and Freddie Mac), Heungkuk Life Insurance Co. Limited (Heungkuk), Landesbank...

  • Page 195
    ...offerings, loan sales, CDOs, and servicing and foreclosure activities. See Note 18 for further information regarding mortgage-related contingencies. Auction Products Matters. On August 21, 2008, GS&Co. entered into a settlement in principle with the Office of the Attorney General of the State of New...

  • Page 196
    Notes to Consolidated Financial Statements Private Equity-Sponsored Acquisitions Litigation. Group Inc. and "GS Capital Partners" are among numerous private equity firms and investment banks named as defendants in a federal antitrust action filed in the U.S. District Court for the District of ...

  • Page 197
    ... in Los Angeles, California. MF Global Securities Litigation. GS&Co. is among numerous underwriters named as defendants in class action complaints filed in the U.S. District Court for the Southern District of New York commencing November 18, 2011. These complaints generally allege that the offering...

  • Page 198
    ... securities and other financial products, including compliance with the SEC's short sale rule, algorithmic and quantitative trading, futures trading, transaction reporting, securities lending practices, trading and clearance of credit derivative instruments, commodities trading, private placement...

  • Page 199
    ...Goldman Sachs and another financial institution were used as case studies with respect to the role of investment banks. The report was referred to the DOJ and the SEC for review. The firm is cooperating with the investigations arising from this referral, which are ongoing. Goldman Sachs 2011 Annual...

  • Page 200
    ... benefit pension plans. These plans generally provide benefits based on years of credited service and a percentage of the employee's eligible compensation. The firm maintains a defined benefit pension plan for certain U.K. employees. As of April 2008, the U.K. defined benefit plan was closed to new...

  • Page 201
    ... under the SIP. Restricted Stock Units The firm issues RSUs to employees under the SIP, primarily in connection with year-end compensation and acquisitions. RSUs are valued based on the closing price of the underlying shares on the date of grant after taking into account a liquidity discount for any...

  • Page 202
    ... up to 4 years. 2. The aggregate fair value of awards that vested during the years ended December 2011, December 2010 and December 2009 was $2.40 billion, $4.07 billion and $2.18 billion, respectively. 3. Includes RSUs that were cash settled. 4. Includes 754,482 shares of restricted stock subject to...

  • Page 203
    ... value as of the grant date based on a Black-Scholes option-pricing model, and share-based compensation and the related tax benefit. Year Ended December 2011 2010 2009 Risk-free interest rate Expected volatility Annual dividend per share Expected life N/A N/A N/A N/A 1.6% 32.5 $1.40 3.75 years...

  • Page 204
    ...-thereafter. Non-cash activity: During the year ended December 2011, $103 million of common stock was issued in connection with the acquisition of Goldman Sachs Australia Pty Ltd (GS Australia), formerly Goldman Sachs & Partners Australia Group Holdings Pty Ltd. 202 Goldman Sachs 2011 Annual Report

  • Page 205
    ... $ 453 $ 0.82 0.78 0.35 $11,357 3,001 1,583 1,418 12,775 7,616 5,159 1,703 3,456 160 $ 3,296 $ 6.02 5.59 0.35 1. The timing and magnitude of changes in the firm's discretionary compensation accruals can have a significant effect on results in a given quarter. Goldman Sachs 2011 Annual Report 203

  • Page 206
    ...06 Nov-07 Nov-08 On February 17, 2012, the last reported sales price for the firm's common stock on the New York Stock Exchange was $115.91 per share. Index and the S&P 500 Financials Index, and the dividends were reinvested on the date of payment without payment of any commissions. The performance...

  • Page 207
    ... shares outstanding Basic Diluted Selected data (unaudited) Total staff Americas Non-Americas Total staff Total staff, including consolidated entities held for investment purposes Assets under management (in billions) Asset class Alternative investments Equity Fixed income Total non-money market...

  • Page 208
    ... funds sold U.S. Non-U.S. Financial instruments owned, at fair value 1, 2 U.S. Non-U.S. Other interest-earning assets 3 U.S. Non-U.S. Total interest-earning assets Cash and due from banks Other non-interest-earning assets 2 Total Assets Liabilities Interest-bearing deposits U.S. Non-U.S. Securities...

  • Page 209
    ...unsecured long-term borrowings. 7. Primarily consists of certain payables to customers and counterparties. 8. Assets, liabilities and interest are attributed to U.S. and non-U.S. based on the location of the legal entity in which the assets and liabilities are held. Goldman Sachs 2011 Annual Report...

  • Page 210
    ... (decrease) due to change in: Volume Rate Net change Volume Rate Net change Interest-earning assets Deposits with banks U.S. Non-U.S. Securities borrowed, securities purchased under agreements to resell, at fair value and federal funds sold U.S. Non-U.S. Financial instruments owned, at fair...

  • Page 211
    ... and other asset-backed loans and securities Corporate debt securities State and municipal obligations Other debt obligations Total available-for-sale securities Available-for-sale securities, December 2010 Commercial paper, certificates of deposit, time deposits and other money market instruments...

  • Page 212
    ...Fair value of available-for-sale securities Commercial paper, certificates of deposit, time deposits and other money market instruments U.S. government and federal agency obligations Non-U.S. government obligations Mortgage and other asset-backed loans and securities Corporate debt securities State...

  • Page 213
    ..., generally within seven days. Ratios The table below presents selected financial ratios. Year Ended December 2011 2010 2009 Net earnings to average assets Return on average common shareholders' equity 1 Return on average total shareholders' equity 2 Total average equity to average assets Dividend...

  • Page 214
    ...subsidiary and the counterparty are domiciled within the same foreign country, but the claim is not denominated in that country's local currency. 4. Primarily comprised of secured lending transactions which are primarily secured by German government obligations. 212 Goldman Sachs 2011 Annual Report

  • Page 215
    ... Cook Gregory A. Agran Raanan A. Agus Dean C. Backer Stuart N. Bernstein Alison L. Bott Mary D. Byron Thomas G. Connolly* Michael G. De Lathauwer James Del Favero Michele I. Docharty Thomas M. Dowling Brian J. Duffy Keith L. Hayes *Partnership Committee Member Goldman Sachs 2011 Annual Report 213

  • Page 216
    Board Members, Officers and Directors as of March 26, 2012...M. Barry Jordan M. Bender Dorothee Blessing Joseph M. Busuttil Jin Yong Cai Valentino ... Enrico S. Gaglioti Nancy Gloor Stefan Green Mary L. Harmon Edward A. Hazel Margaret J. ...Partnership Committee Member 214 Goldman Sachs 2011 Annual Report

  • Page 217
    ... Cohen... A. Cash Christopher ...Joseph W. Macaione David M. Marcinek Marvin Markus Roger C. Matthews, Jr. Thomas F. Matthias F. Scott McDermott John J. McGuire, Jr. Sean T. McHugh David R. Mittelbusher Bryan P. Mix Junko Mori Takashi Murata *Partnership Committee Member Goldman Sachs 2011 Annual Report...

  • Page 218
    Board Members, Officers and Directors as of March 26, 2012...Ragione Lachlan G. Edwards Chang-Po Yang Iain ... Beatty Henry Becker, Jr. Roger S. Begelman Oliver B. Benkert... A. McSpadden Celine-Marie G. Mechain Simon H. Moseley Jeff ... Ingrid C. Tierens Joseph K. Todd Mark ...Goldman Sachs 2011 Annual Report

  • Page 219
    ... Joseph S. Mauro Matthew D. McAskin Matthew B. McClure Carolyn E. McGuire Joseph J. McNeila Jack Mendelson Xavier C. Menguy Lance M. Meyerowich Rodney B. Miller Jason Moo Grant ...Torres Ronald Trichon, Jr. Padideh N. Trojanow Kenro Tsutsumi Peter van der Goes, Jr. Goldman Sachs 2011 Annual Report 217

  • Page 220
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