Goldman Sachs Earnings 2019-03-31

GS 10Q Quarterly Report

Balance Sheet	Income Statement	Cash Flow

10-Q 1 d729034d10q.htm FORM 10-Q Form 10-Q

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, 2019
		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)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No

Indicate 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 ☒ No

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each 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 6.20% Non-Cumulative Preferred Stock, Series B	GS PrB	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 Rate Non-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

APPLICABLE ONLY TO CORPORATE ISSUERS

As of April 18, 2019, there were 365,838,779 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, 2019

INDEX


Form 10-Q Item Number	Page No.
PART I
FINANCIAL INFORMATION		1
Item 1
Financial Statements (Unaudited)		1
Consolidated Statements of Earnings		1
Consolidated Statements of Comprehensive Income		1
Consolidated Statements of Financial Condition		2
Consolidated Statements of Changes in Shareholders’ Equity		3
Consolidated Statements of Cash Flows		4
Notes to Consolidated Financial Statements		5
Note 1. Description of Business		5
Note 2. Basis of Presentation		5
Note 3. Significant Accounting Policies		6
Note 4. Financial Instruments Owned and Financial Instruments Sold, But Not Yet Purchased		13
Note 5. Fair Value Measurements		14
Note 6. Cash Instruments		15
Note 7. Derivatives and Hedging Activities		21
Note 8. Fair Value Option		32
Note 9. Loans Receivable		37
Note 10. Collateralized Agreements and Financings		41
Note 11. Securitization Activities		44
Note 12. Variable Interest Entities		46
Note 13. Other Assets		49
Note 14. Deposits		52
Note 15. Short-Term Borrowings		53
Note 16. Long-Term Borrowings		54
Note 17. Other Liabilities		56
Note 18. Commitments, Contingencies and Guarantees		57
Note 19. Shareholders’ Equity		62
Note 20. Regulation and Capital Adequacy		64
Note 21. Earnings Per Common Share		71
Note 22. Transactions with Affiliated Funds		71
Note 23. Interest Income and Interest Expense		72
Note 24. Income Taxes		72
Note 25. Business Segments		73
Note 26. Credit Concentrations		75
Note 27. Legal Proceedings		75


	Page No.
Report of Independent Registered Public Accounting Firm		84
Statistical Disclosures		85
Item 2
Management’s Discussion and Analysis of Financial Condition and Results of Operations		87
Introduction		87
Executive Overview		87
Business Environment		87
Critical Accounting Policies		88
Recent Accounting Developments		90
Use of Estimates		90
Results of Operations		90
Balance Sheet and Funding Sources		100
Equity Capital Management and Regulatory Capital		106
Regulatory Matters and Other Developments		110
Off-Balance-Sheet Arrangements and Contractual Obligations		112
Risk Management		114
Overview and Structure of Risk Management		114
Liquidity Risk Management		119
Market Risk Management		126
Credit Risk Management		131
Operational Risk Management		137
Model Risk Management		139
Available Information		140
Cautionary Statement Pursuant to the U.S. Private Securities Litigation Reform Act of 1995		140
Item 3
Quantitative and Qualitative Disclosures About Market Risk		142
Item 4
Controls and Procedures		142
PART II
OTHER INFORMATION		142
Item 1
Legal Proceedings		142
Item 2
Unregistered Sales of Equity Securities and Use of Proceeds		142
Item 6
Exhibits		143
SIGNATURES		143


Goldman Sachs March 2019 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		2019	2018
Revenues
Investment banking		$ 1,810	$ 1,793
Investment management		1,433	1,639
Commissions and fees		743	862
Market making		2,539	3,204
Other principal transactions		1,064	1,664
Total non-interest revenues		7,589	9,162
Interest income		5,597	4,230
Interest expense		4,379	3,312
Net interest income		1,218	918
Total net revenues		8,807	10,080
Provision for credit losses		224	44
Operating expenses
Compensation and benefits		3,259	4,057
Brokerage, clearing, exchange and distribution fees		762	844
Market development		184	182
Communications and technology		286	251
Depreciation and amortization		368	299
Occupancy		225	194
Professional fees		298	293
Other expenses		482	497
Total operating expenses		5,864	6,617
Pre-tax earnings		2,719	3,419
Provision for taxes		468	587
Net earnings		2,251	2,832
Preferred stock dividends		69	95
Net earnings applicable to common shareholders		$ 2,182	$ 2,737
Earnings per common share
Basic		$ 5.73	$ 7.02
Diluted		$ 5.71	$ 6.95
Average common shares
Basic		379.8	389.1
Diluted		382.4	393.8

Consolidated Statements of Comprehensive Income

(Unaudited)



	Three Months Ended March

$ in millions		2019		2018
Net earnings		$ 2,251		$ 2,832
Other comprehensive income/(loss) adjustments, net of tax:
Currency translation		4		2
Debt valuation adjustment		(1,417	)	270
Pension and postretirement liabilities		(7	)	(4	)
Available-for-sale securities		114		(158	)
Other comprehensive income/(loss)		(1,306	)	110
Comprehensive income		$ 945		$ 2,942

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


1		Goldman Sachs March 2019 Form 10-Q

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Consolidated Statements of Financial Condition

(Unaudited)



	As of

$ in millions		March 2019		December 2018
Assets
Cash and cash equivalents		$ 87,884		$130,547
Collateralized agreements:
Securities purchased under agreements to resell (includes $132,445 and $139,220 at fair value)		132,445		139,258
Securities borrowed (includes $27,520 and $23,142 at fair value)		147,950		135,285
Receivables:
Loans receivable		82,674		80,590
Customer and other receivables (includes $1,614 and $3,189 at fair value)		73,438		79,315
Financial instruments owned (at fair value and includes $58,221 and $55,081 pledged as collateral)		363,275		336,161
Other assets		37,683		30,640
Total assets		$925,349		$931,796
Liabilities and shareholders’ equity
Deposits (includes $17,043 and $21,060 at fair value)		$164,136		$158,257
Collateralized financings:
Securities sold under agreements to repurchase (at fair value)		70,569		78,723
Securities loaned (includes $3,067 and $3,241 at fair value)		12,599		11,808
Other secured financings (includes $18,975 and $20,904 at fair value)		19,749		21,433
Customer and other payables		180,997		180,235
Financial instruments sold, but not yet purchased (at fair value)		100,947		108,897
Unsecured short-term borrowings (includes $21,251 and $16,963 at fair value)		45,432		40,502
Unsecured long-term borrowings (includes $47,473 and $46,584 at fair value)		224,473		224,149
Other liabilities (includes $132 and $132 at fair value)		16,174		17,607
Total liabilities		835,076		841,611
Commitments, contingencies and guarantees
Shareholders’ equity
Preferred stock; aggregate liquidation preference of $11,203 and $11,203		11,203		11,203
Common stock; 896,690,424 and 891,356,284 shares issued, and 366,771,581 and 367,741,973 shares outstanding		9		9
Share-based awards		2,739		2,845
Nonvoting common stock; no shares issued and outstanding		–		–
Additional paid-in capital		54,862		54,005
Retained earnings		101,988		100,100
Accumulated other comprehensive income/(loss)		(613	)	693
Stock held in treasury, at cost; 529,918,845 and 523,614,313 shares		(79,915	)	(78,670	)
Total shareholders’ equity		90,273		90,185
Total liabilities and shareholders’ equity		$925,349		$931,796

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


Goldman Sachs March 2019 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		2019		2018
Preferred stock
Beginning balance		$ 11,203		$ 11,853
Issued		–		–
Redeemed		–		(650	)
Ending balance		11,203		11,203
Common stock
Beginning balance		9		9
Issued		–		–
Ending balance		9		9
Share-based awards
Beginning balance		2,845		2,777
Issuance and amortization of share-based awards		1,506		807
Delivery of common stock underlying share-based awards		(1,596	)	(1,145	)
Forfeiture of share-based awards		(16	)	(18	)
Exercise of share-based awards		–		(6	)
Ending balance		2,739		2,415
Additional paid-in capital
Beginning balance		54,005		53,357
Delivery of common stock underlying share-based awards		1,587		1,660
Cancellation of share-based awards in satisfaction of withholding tax requirements		(730	)	(1,040	)
Preferred stock issuance costs, net of reversals upon redemption		–		15
Ending balance		54,862		53,992
Retained earnings
Beginning balance, as previously reported		100,100		91,519
Cumulative effect of change in accounting principle for:
Leases, net of tax		12		–
Revenue recognition from contracts with clients, net of tax		–		(53	)
Beginning balance, adjusted		100,112		91,466
Net earnings		2,251		2,832
Dividends and dividend equivalents declared on common stock and share-based awards		(306	)	(296	)
Dividends declared on preferred stock		(69	)	(80	)
Preferred stock redemption premium		–		(15	)
Ending balance		101,988		93,907
Accumulated other comprehensive income/(loss)
Beginning balance		693		(1,880	)
Other comprehensive income/(loss)		(1,306	)	110
Ending balance		(613	)	(1,770	)
Stock held in treasury, at cost
Beginning balance		(78,670	)	(75,392	)
Repurchased		(1,250	)	(800	)
Reissued		11		16
Other		(6	)	(1	)
Ending balance		(79,915	)	(76,177	)
Total shareholders’ equity		$ 90,273		$ 83,579

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


3		Goldman Sachs March 2019 Form 10-Q

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(Unaudited)



	Three Months Ended March

$ in millions		2019		2018
Cash flows from operating activities
Net earnings		$ 2,251		$ 2,832
Adjustments to reconcile net earnings to net cash used for operating activities:
Depreciation and amortization		368		299
Share-based compensation		1,503		1,329
Provision for credit losses		224		44
Changes in operating assets and liabilities:
Customer and other receivables and payables, net		6,168		(10,479	)
Collateralized transactions (excluding other secured financings), net		(13,215	)	14,304
Financial instruments owned (excluding available-for-sale securities)		(29,502	)	(19,708	)
Financial instruments sold, but not yet purchased		(7,888	)	12,165
Other, net		(4,915	)	(1,750	)
Net cash used for operating activities		(45,006	)	(964	)
Cash flows from investing activities
Purchase of property, leasehold improvements and equipment		(2,128	)	(1,563	)
Proceeds from sales of property, leasehold improvements and equipment		2,266		1,007
Net cash used for business acquisitions		–		(68	)
Purchase of investments		(4,803	)	(3,188	)
Proceeds from sales and paydowns of investments		5,015		183
Loans receivable, net		(1,851	)	(5,584	)
Net cash used for investing activities		(1,501	)	(9,213	)
Cash flows from financing activities
Unsecured short-term borrowings, net		381		2,875
Other secured financings (short-term), net		(2,690	)	2,728
Proceeds from issuance of other secured financings (long-term)		1,442		1,262
Repayment of other secured financings (long-term), including the current portion		(525	)	(2,282	)
Purchase of Trust Preferred Securities		–		(35	)
Proceeds from issuance of unsecured long-term borrowings		6,253		16,029
Repayment of unsecured long-term borrowings, including the current portion		(7,251	)	(9,607	)
Derivative contracts with a financing element, net		2,586		189
Deposits, net		5,594		12,336
Preferred stock redemption		–		(650	)
Common stock repurchased		(1,250	)	(800	)
Settlement of share-based awards in satisfaction of withholding tax requirements		(730	)	(1,040	)
Dividends and dividend equivalents paid on common stock, preferred stock and share-based awards		(375	)	(376	)
Other financing, net		409		–
Net cash provided by financing activities		3,844		20,629
Net increase/(decrease) in cash and cash equivalents		(42,663	)	10,452
Cash and cash equivalents, beginning balance		130,547		110,051
Cash and cash equivalents, ending balance		$ 87,884		$120,503
Supplemental disclosures:
Cash payments for interest, net of capitalized interest		$ 4,372		$ 3,554
Cash payments/(refunds) for income taxes, net		$ (109	)	$ 326

See Notes 11 and 16 for information about non-cash activities.

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


Goldman Sachs March 2019 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 four 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, spin-offs and risk management, and debt and equity underwriting of public offerings and private placements, including local and cross-border transactions and acquisition financing, as well as derivative transactions directly related to these activities.

Institutional Client Services

The firm facilitates client transactions and makes markets in fixed income, equity, currency and commodity products, primarily with institutional clients such as corporations, financial institutions, investment funds and governments. The firm also makes markets in and clears client transactions on major stock, options and futures exchanges worldwide and provides financing, securities lending and other prime brokerage services to institutional clients.

Investing & Lending

The firm invests in and originates loans to provide financing to clients. These investments and loans are typically longer-term in nature. The firm makes investments, some of which are consolidated, including through its Merchant Banking business and its Special Situations Group, in debt securities and loans, public and private equity securities, infrastructure and real estate entities. Some of these investments are made indirectly through funds that the firm manages. The firm also makes unsecured loans through its digital platform, Marcus: by Goldman Sachs and secured loans through its digital platform, Goldman Sachs Private Bank Select.

Investment Management

The firm provides investment management services and offers investment products (primarily through separately managed accounts and commingled vehicles, such as mutual funds and private investment funds) across all major asset classes to a diverse set of institutional and individual clients. The firm also offers wealth advisory services provided by the firm’s subsidiary, The Ayco Company, L.P., including portfolio management and financial planning and counseling, and brokerage and other transaction services to high-net-worth individuals and families.

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, 2018. References to “the 2018 Form 10-K” are to the firm’s Annual Report on Form 10-K for the year ended December 31, 2018. 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 2019 and March 2018 refer to the firm’s periods ended, or the dates, as the context requires, March 31, 2019 and March 31, 2018, respectively. All references to December 2018 refer to the date December 31, 2018. Any reference to a future year refers to a year ending on December 31 of that year. Certain reclassifications have been made to previously reported amounts to conform to the current presentation.


5		Goldman Sachs March 2019 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, accounting for goodwill and identifiable intangible assets, and when to consolidate an entity. See Notes 5 through 8 for policies on fair value measurements, Note 13 for policies on goodwill and identifiable intangible assets, and below and Note 12 for policies on consolidation accounting. All other significant accounting policies are either described below or included in the following footnotes:



Financial Instruments Owned and Financial Instruments Sold, But Not Yet Purchased			Note 4

Fair Value Measurements			Note 5

Cash Instruments			Note 6

Derivatives and Hedging Activities			Note 7

Fair Value Option			Note 8

Loans Receivable			Note 9

Collateralized Agreements and Financings			Note 10

Securitization Activities			Note 11

Variable Interest Entities			Note 12

Other Assets			Note 13

Deposits			Note 14

Short-Term Borrowings			Note 15

Long-Term Borrowings			Note 16

Other Liabilities			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. Voting interest entities are entities in which (i) the total equity investment at risk is sufficient to enable the entity to finance its activities independently and (ii) the equity holders have the power to direct the activities of the entity that most significantly impact its economic performance, the obligation to absorb the losses of the entity and the right to receive the residual returns of the entity. The usual condition for a controlling financial interest in a voting interest entity is ownership of a majority voting interest. If the firm has a controlling majority voting interest in a voting interest entity, the entity is consolidated.

Variable Interest Entities. A VIE is an entity that lacks one or more of the characteristics of a voting interest entity. The firm has a controlling financial interest in a VIE when the firm has a variable interest or interests that provide it with (i) the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and (ii) the obligation to absorb losses of the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE. See Note 12 for further information about VIEs.

Equity-Method Investments. When the firm does not have a controlling financial interest in an entity but can exert significant influence over the entity’s operating and financial policies, the investment is accounted for either (i) under the equity method of accounting or (ii) at fair value by electing the fair value option available under U.S. GAAP. Significant influence generally exists when the firm owns 20% to 50% of the entity’s common stock or in-substance common stock.

In general, the firm accounts for investments acquired after the fair value option became available, at fair value. 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 13 for further information about equity-method investments.


Goldman Sachs March 2019 Form 10-Q		6

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

Investment Funds. The firm has formed numerous investment funds with third-party investors. These funds are typically organized as limited partnerships or limited liability companies for which the firm acts as general partner or manager. Generally, the firm does not hold a majority of the economic interests in these funds. These funds are usually voting interest entities and generally are not consolidated because third-party investors typically have rights to terminate the funds or to remove the firm as general partner or manager. Investments in these funds are generally measured at net asset value (NAV) and are included in financial instruments owned. See Notes 6, 18 and 22 for further information about investments in 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, accounting for goodwill and identifiable intangible assets, discretionary compensation accruals, the allowance for credit losses on loans receivable and lending commitments held for investment, 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 Financial Liabilities at Fair Value. Financial instruments owned and financial instruments sold, but not yet purchased are recorded at fair value either under the fair value option or in accordance with other U.S. GAAP. In addition, the firm has elected to account for certain of its other financial assets and financial liabilities at fair value by electing the fair value option. 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. Fair value gains or losses are generally included in market making for positions in Institutional Client Services and other principal transactions for positions in Investing & Lending. See Notes 5 through 8 for further information about fair value measurements.

Revenue from Contracts with Clients. The firm accounts for revenue earned from contracts with clients for services such as investment banking, investment management, and execution and clearing (contracts with clients) under ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606).” As such, revenues for these services are recognized when the performance obligations related to the underlying transaction are completed.

Net revenues from contracts with clients subject to this ASU represent approximately 50% of total non-interest net revenues (including approximately 80% of investment banking revenues, approximately 95% of investment management revenues and all commissions and fees) for the three months ended March 2019, and approximately 40% of total non-interest net revenues (including approximately 75% of investment banking revenues, approximately 95% of investment management revenues and all commissions and fees) for the three months ended March 2018. Net interest income is not subject to this ASU. See Note 25 for information about net revenues by business segment.

Investment Banking

Advisory. Fees from financial advisory assignments are recognized in revenues when the services related to the underlying transaction are completed under the terms of the assignment. 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. Fees from underwriting assignments are recognized in revenues upon completion of the underlying transaction based on the terms of the assignment.

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.

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.


7		Goldman Sachs March 2019 Form 10-Q

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

Management Fees. Management fees for mutual funds are calculated as a percentage of daily net asset value and are received monthly. Management fees for hedge funds and separately managed accounts are calculated as a percentage of 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 investment management 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 are calculated as a percentage of a fund’s or separately managed account’s return, or excess return above a specified benchmark or other performance target. Incentive fees are generally based on investment performance over a twelve-month period or over the life of a fund. Fees that are based on performance over a twelve-month period are subject to adjustment prior to the end of the measurement period. For fees that are based on investment performance over the life of the fund, future investment underperformance may require fees previously distributed to the firm to be returned to the fund.

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 2019, substantially all future net revenues associated with such remaining performance obligations will be recognized through 2024. Annual revenues associated with such performance obligations average less than $250 million through 2024.

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 financial instruments owned and the transfer is accounted for as a collateralized financing, with the related interest expense recognized over the life of the transaction. See Note 10 for further information about transfers of financial assets accounted for as collateralized financings and Note 11 for further information about transfers of financial assets accounted for as sales.


Goldman Sachs March 2019 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 $11.74 billion as of March 2019 and $10.66 billion as of December 2018. Cash and cash equivalents also included interest-bearing deposits with banks of $76.14 billion as of March 2019 and $119.89 billion as of December 2018.

The firm segregates cash for regulatory and other purposes related to client activity. Cash and cash equivalents segregated for regulatory and other purposes were $21.16 billion as of March 2019 and $23.14 billion as of December 2018. In addition, the firm segregates securities for regulatory and other purposes related to client activity. See Note 10 for further information about segregated securities.

Customer and Other Receivables

Customer and other receivables included receivables from customers and counterparties of $49.36 billion as of March 2019 and $53.81 billion as of December 2018, and receivables from brokers, dealers and clearing organizations of $24.08 billion as of March 2019 and $25.50 billion as of December 2018. Such receivables primarily consist of customer margin loans, receivables resulting from unsettled transactions, collateral posted in connection with certain derivative transactions and certain transfers of assets accounted for as secured loans rather than purchases at fair value.

Substantially all of these receivables are accounted for at amortized cost net of estimated uncollectible amounts. Certain of the firm’s customer and other receivables are accounted for at fair value under the fair value option, with changes in fair value generally included in market making revenues. See Note 8 for further information about customer and other receivables accounted for at fair value under the fair value option. In addition, the firm’s customer and other receivables included $3.12 billion as of March 2019 and $3.83 billion as of December 2018 of loans held for sale accounted for at the lower of cost or fair value. See Note 5 for an overview of the firm’s fair value measurement policies. As of both March 2019 and December 2018, the carrying value of receivables not accounted for at fair value generally approximated 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 5 through 8. 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 2019 and December 2018. 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 $2.06 billion as of March 2019 and $1.94 billion as of December 2018. As of both March 2019 and December 2018 contract assets were not material.

Customer and Other Payables

Customer and other payables included payables to customers and counterparties of $174.62 billion as of March 2019 and $173.99 billion as of December 2018, and payables to brokers, dealers and clearing organizations of $6.38 billion as of March 2019 and $6.24 billion as of December 2018. 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 5 through 8. 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 2019 and December 2018. 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 the non-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 2019 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 statements of financial condition 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 a net-by-counterparty basis in the consolidated statements of financial condition when such transactions meet certain settlement criteria and are subject to netting agreements.

In the consolidated statements of financial condition, derivatives are reported net of cash collateral received and posted under enforceable credit support agreements, when transacted under an enforceable netting agreement. In the consolidated statements of financial condition, resale and repurchase agreements, and securities borrowed and loaned, are not reported net of the related cash and securities received or posted as collateral. See Note 10 for further information about collateral received and pledged, including rights to deliver or repledge collateral. See Notes 7 and 10 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 statements of financial condition 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 a non-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

Revenue from Contracts with Customers (ASC 606). In May 2014, the FASB issued ASU No. 2014-09. This ASU, as amended, provides comprehensive guidance on the recognition of revenue earned from contracts with customers arising from the transfer of goods and services, guidance on accounting for certain contract costs and new disclosures.

The firm adopted this ASU in January 2018 under a modified retrospective approach. As a result of adopting this ASU, the firm, among other things, delays recognition of non-refundable and milestone payments on financial advisory assignments until the assignments are completed, and recognizes certain investment management fees earlier than under the firm’s previous revenue recognition policies.

The firm also prospectively changed the presentation of certain costs from a net presentation within revenues to a gross basis, and vice versa. Beginning in 2018, certain underwriting expenses, which were netted against investment banking revenues, and certain distribution fees, which were netted against investment management revenues, are presented gross as operating expenses. Costs incurred in connection with certain soft-dollar arrangements, which were presented gross as operating expenses, are presented net within commissions and fees.

The cumulative effect of adopting this ASU as of January 1, 2018 was a decrease to retained earnings of $53 million (net of tax).

Recognition and Measurement of Financial Assets and Financial Liabilities (ASC 825). In January 2016, the FASB issued ASU No. 2016-01, “Financial Instruments (Topic 825) — Recognition and Measurement of Financial Assets and Financial Liabilities.” This ASU amends certain aspects of recognition, measurement, presentation and disclosure of financial instruments. It includes a requirement to present separately in other comprehensive income changes in fair value attributable to a firm’s own credit spreads (debt valuation adjustment or DVA), net of tax, on financial liabilities for which the fair value option was elected.


Goldman Sachs March 2019 Form 10-Q		10

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

In January 2016, the firm early adopted this ASU for the requirements related to DVA and reclassified the cumulative DVA from retained earnings to accumulated other comprehensive income/(loss). The adoption of the remaining provisions of the ASU in January 2018 did not have a material impact on the firm’s financial condition, results of operations or cash flows.

Leases (ASC 842). In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842).” This ASU requires that, for leases longer than one year, a lessee recognize in the statements of financial condition 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 lease payments. It also requires that for finance leases, a lessee recognize interest expense on the lease liability, separately from the amortization of the right-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 statements of financial condition and an increase to retained earnings of $12 million (net of tax) as of January 1, 2019.

Measurement of Credit Losses on Financial Instruments (ASC 326). In June 2016, the FASB issued ASU No. 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 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.

Under CECL, the allowance for losses for financial assets 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, as well as changes to expected credit losses during the period, would be recognized in earnings. For certain purchased financial assets with deterioration in credit quality since origination, an initial allowance would be recorded for expected credit losses and recognized as an increase to the purchase price rather than as an expense. The ASU eliminates the existing accounting guidance for Purchased Credit Impaired (PCI) loans. The ASU is effective for the firm in January 2020 under a modified retrospective approach with early adoption permitted. The firm plans to adopt this ASU on January 1, 2020.

Expected credit losses, including losses on off-balance-sheet exposures such as lending commitments, will be measured based on historical experience, current conditions and forecasts that affect the collectability of the reported amount.

The firm has substantially completed development of credit loss models for significant loan portfolios and is in the process of testing these models and validating data inputs, while continuing to develop the policies, systems and controls that will be required to implement CECL. Based on the work completed to date, the current loan portfolio and the weighted average of a range of current forecasts of future economic conditions, the firm estimates that the allowance for credit losses will increase by approximately $600 million to $800 million when CECL is adopted. The estimated increase is driven by the fact that the allowance will cover expected credit losses over the full expected life of the loan portfolios and will also take into account forecasts of expected future economic conditions. This increased allowance will not impact the firm’s realized losses in these loan portfolios. In addition, an allowance will be recorded for certain purchased loans with deterioration in credit quality since origination with a corresponding increase to their gross carrying value. Ultimately, the extent of the impact of adoption of this ASU on the firm’s consolidated financial statements may vary and will depend on, among other things, the economic environment, the completion of the firm’s models, policies and other management judgments, and the size and type of loan portfolios held by the firm on the date of adoption.


11		Goldman Sachs March 2019 Form 10-Q

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

Classification of Certain Cash Receipts and Cash Payments (ASC 230). In August 2016, the FASB issued ASU No. 2016-15, “Statement of Cash Flows (Topic 230) — Classification of Certain Cash Receipts and Cash Payments.” This ASU provides guidance on the disclosure and classification of certain items within the statements of cash flows. The firm adopted this ASU in January 2018 and upon adoption reclassified these items within the consolidated statements of cash flows on a retrospective basis.

Clarifying the Definition of a Business (ASC 805). In January 2017, the FASB issued ASU No. 2017-01, “Business Combinations (Topic 805) — Clarifying the Definition of a Business.” The ASU amends the definition of a business and provides a threshold which must be considered to determine whether a transaction is an acquisition (or disposal) of an asset or a business.

The firm adopted this ASU in January 2018 under a prospective approach. Adoption of the ASU did not have a material impact on the firm’s financial condition, results of operations or cash flows. The firm expects that fewer transactions will be treated as acquisitions (or disposals) of businesses as a result of adopting this ASU.

Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets (ASC 610-20). In February 2017, the FASB issued ASU No. 2017-05, “Other Income — Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20) — Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets.” The ASU clarifies the scope of guidance applicable to sales of nonfinancial assets and also provides guidance on accounting for partial sales of such assets.

The firm adopted this ASU in January 2018 under a modified retrospective approach. Adoption of the ASU did not have an impact on the firm’s financial condition, results of operations or cash flows.

Targeted Improvements to Accounting for Hedging Activities (ASC 815). In August 2017, the FASB issued ASU No. 2017-12, “Derivatives and Hedging (Topic 815) — Targeted Improvements to Accounting for Hedging Activities.” The ASU amends certain rules for hedging relationships, expands the types of strategies that are eligible for hedge accounting treatment to more closely align the results of hedge accounting with risk management activities and amends disclosure requirements related to fair value and net investment hedges.

The firm early adopted this ASU in January 2018 under a modified retrospective approach for hedge accounting treatment, and under a prospective approach for the amended disclosure requirements. Adoption of this ASU did not have a material impact on the firm’s financial condition, results of operations or cash flows. See Note 7 for further information.

Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income (ASC 220). In February 2018, the FASB issued ASU No. 2018-02, “Income Statement — Reporting Comprehensive Income (Topic 220) — Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.” This ASU permits a reporting entity to reclassify the income tax effects of the Tax Cuts and Jobs Act (Tax Legislation) on items within accumulated other comprehensive income to retained earnings.

The firm adopted this ASU in January 2019 and did not elect to reclassify the income tax effects of Tax Legislation from accumulated other comprehensive income to retained earnings. Therefore, the adoption of the ASU did not have an impact on the firm’s financial condition, results of operations or cash flows.

Changes to the Disclosure Requirements for Fair Value Measurement (ASC 820). In August 2018, the FASB issued ASU No. 2018-13, “Fair Value Measurement (Topic 820) — Changes to the Disclosure Requirements for Fair Value Measurement.” This ASU, among other amendments, eliminates the requirement to disclose the amounts and reasons for transfers between level 1 and level 2 of the fair value hierarchy and modifies the disclosure requirement relating to investments in funds at NAV. The firm early adopted this ASU in the third quarter of 2018 and disclosures were modified in accordance with the ASU. See Notes 5 through 8 for further information.


Goldman Sachs March 2019 Form 10-Q		12

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

Note 4.


Financial Instruments Owned and Financial Instruments Sold, But Not Yet Purchased

Financial instruments owned and financial instruments sold, but not yet purchased are accounted for at fair value either under the fair value option or in accordance with other U.S. GAAP. See Note 8 for information about other financial assets and financial liabilities at fair value.

The table below presents financial instruments owned and financial instruments sold, but not yet purchased.



$ in millions	Financial Instruments Owned	Financial Instruments Sold, But Not Yet Purchased
As of March 2019
Money market instruments	$ 2,759	$ –
Government and agency obligations:
U.S.	107,220	9,169
Non-U.S.	51,763	19,262
Loans and securities backed by:
Commercial real estate	3,673	1
Residential real estate	13,030	1
Corporate debt instruments	31,848	7,767
State and municipal obligations	812	–
Other debt obligations	1,639	2
Equity securities	101,166	24,413
Commodities	3,462	–
Investments in funds at NAV	4,036	–
Subtotal	321,408	60,615
Derivatives	41,867	40,332
Total	$363,275	$100,947
As of December 2018
Money market instruments	$ 2,635	$ –
Government and agency obligations:
U.S.	110,616	5,080
Non-U.S.	43,607	25,347
Loans and securities backed by:
Commercial real estate	3,369	–
Residential real estate	12,949	1
Corporate debt instruments	31,207	10,411
State and municipal obligations	1,233	–
Other debt obligations	1,864	1
Equity securities	76,170	25,463
Commodities	3,729	–
Investments in funds at NAV	3,936	–
Subtotal	291,315	66,303
Derivatives	44,846	42,594
Total	$336,161	$108,897

In the table above:

•

Money market instruments includes commercial paper, certificates of deposit and time deposits, substantially all of which have a maturity of less than one year.

•

Corporate debt instruments includes corporate loans and debt securities.

•

Equity securities includes public and private equities, exchange-traded funds and convertible debentures. Such amounts include investments accounted for at fair value under the fair value option where the firm would otherwise apply the equity method of accounting of $8.01 billion as of March 2019 and $7.91 billion as of December 2018.

Gains and Losses from Market Making and Other Principal Transactions

The table below presents market making revenues by major product type and other principal transactions revenues.



	Three Months Ended March

$ in millions		2019	2018
Interest rates		$1,234	$ 905
Credit		238	318
Currencies		572	402
Equities		382	1,136
Commodities		113	443
Market making		2,539	3,204
Other principal transactions		1,064	1,664
Total		$3,603	$4,868

In the table above:

•

Gains/(losses) include both realized and unrealized gains and losses, and are primarily related to the firm’s financial instruments owned and financial instruments sold, but not yet purchased, including both derivative and non-derivative financial instruments.

•

Gains/(losses) exclude related interest income and interest expense. See Note 23 for further information about interest income and interest expense.

•

Gains/(losses) on other principal transactions are included in the firm’s Investing & Lending segment. See Note 25 for net revenues, including net interest income, by product type for Investing & Lending, as well as the amount of net interest income included in Investing & Lending.

•

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 cash instruments and derivatives across product types has exposure to foreign currencies and may be economically hedged with foreign currency contracts.


13		Goldman Sachs March 2019 Form 10-Q

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

Note 5.

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 financial 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. Inputs are unadjusted quoted prices in active markets to which the firm had access at the measurement date for identical, unrestricted assets or liabilities.

Level 2. Inputs to valuation techniques are observable, either directly or indirectly.

Level 3. One or more inputs to valuation techniques are significant and unobservable.

The fair values for substantially all of the firm’s financial assets and financial liabilities are based on observable prices and inputs and are classified in levels 1 and 2 of the fair value hierarchy. Certain level 2 and level 3 financial assets and financial liabilities may require appropriate valuation adjustments that a market participant would require to arrive at fair value for factors such as counterparty and the firm’s credit quality, funding risk, transfer restrictions, liquidity and bid/offer spreads. Valuation adjustments are generally based on market evidence.

See Notes 6 through 8 for further information about fair value measurements of cash instruments, derivatives and other financial assets and financial liabilities at fair value.

The table below presents financial assets and financial liabilities accounted for at fair value under the fair value option or in accordance with other U.S. GAAP.



	As of

$ in millions		March 2019		December 2018
Total level 1 financial assets		$195,787		$170,463
Total level 2 financial assets		354,812		354,515
Total level 3 financial assets		22,596		22,181
Investments in funds at NAV		4,036		3,936
Counterparty and cash collateral netting		(52,377	)	(49,383	)
Total financial assets at fair value		$524,854		$501,712
Total assets		$925,349		$931,796
Total level 3 financial assets divided by:
Total assets		2.4%		2.4%
Total financial assets at fair value		4.3%		4.4%
Total level 1 financial liabilities		$ 50,605		$ 54,151
Total level 2 financial liabilities		242,196		258,335
Total level 3 financial liabilities		26,424		23,804
Counterparty and cash collateral netting		(39,768	)	(39,786	)
Total financial liabilities at fair value		$279,457		$296,504
Total level 3 financial liabilities divided by total financial liabilities at fair value		9.5%		8.0%

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 2019	December 2018
Cash instruments		$ 17,935	$ 17,227
Derivatives		4,658	4,948
Other financial assets		3	6
Total		$ 22,596	$ 22,181

Level 3 financial assets as of March 2019 increased compared with December 2018, primarily reflecting an increase in level 3 cash instruments. See Notes 6 through 8 for further information about level 3 financial assets (including information about unrealized gains and losses related to level 3 financial assets and financial liabilities, and transfers in and out of level 3).


Goldman Sachs March 2019 Form 10-Q		14

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

Note 6.

Cash Instruments

Cash instruments include U.S. government and agency obligations, non-U.S. government and agency obligations, mortgage-backed loans and securities, corporate debt instruments, equity securities, investments in funds at NAV, and other non-derivative financial instruments owned and financial instruments sold, but not yet purchased. See below for the types of cash instruments included in each level of the fair value hierarchy and the valuation techniques and significant inputs used to determine their fair values. See Note 5 for an overview of the firm’s fair value measurement policies.

Level 1 Cash Instruments

Level 1 cash instruments include certain money market instruments, U.S. government obligations, most non-U.S. government obligations, certain government agency obligations, certain corporate debt 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 Cash Instruments

Level 2 cash instruments include most money market instruments, most government agency obligations, certain non-U.S. government obligations, most mortgage-backed loans and securities, most corporate debt instruments, most state and municipal obligations, most other debt obligations, restricted or less liquid listed equities, commodities and certain lending commitments.

Valuations of level 2 cash 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 cash instruments (i) if the cash 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 Cash Instruments

Level 3 cash instruments have one or more significant valuation inputs that are not observable. Absent evidence to the contrary, level 3 cash instruments are initially valued at transaction price, which is considered to be the best initial estimate of fair value. Subsequently, the firm uses other methodologies to determine fair value, which vary based on the type of instrument. Valuation inputs and assumptions are changed when corroborated by substantive observable evidence, including values realized on sales.

Valuation Techniques and Significant Inputs of Level 3 Cash Instruments

Valuation techniques of level 3 cash 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 cash 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 commercial real estate 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, capitalization rates and multiples. Recovery rates are expressed as a percentage of notional or face value of the instrument and reflect the benefit of credit enhancements on certain instruments; and

•

Timing of expected future cash flows (duration) which, in certain cases, may incorporate the impact of other unobservable inputs (e.g., prepayment speeds).


15		Goldman Sachs March 2019 Form 10-Q

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

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.

Corporate Debt Instruments. Corporate debt instruments includes corporate loans and debt securities. 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 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 cash instrument, the cost of borrowing the underlying reference obligation; and

•

Duration.

Equity Securities. Equity securities includes private equity securities and convertible debentures. Recent third-party completed or pending transactions (e.g., merger proposals, tender offers, debt restructurings) are considered to be 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 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 Cash Instruments. Other cash instruments includes U.S. government and agency obligations, non-U.S. government and agency obligations, state and municipal obligations, and other debt obligations. Significant inputs are generally determined based on relative value analyses, which incorporate comparisons both to prices of credit default swaps that reference the same or similar underlying instrument or entity and to other debt instruments for the same issuer for which observable prices or broker quotations are available. Significant inputs include:

•

Market yields implied by transactions of similar or related assets and/or current levels and trends of market indices;

•

Current performance and recovery assumptions and, where the firm uses credit default swaps to value the related cash instrument, the cost of borrowing the underlying reference obligation; and

•

Duration.


Goldman Sachs March 2019 Form 10-Q		16

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

Fair Value of Cash Instruments by Level

The table below presents cash instrument assets and liabilities at fair value by level within the fair value hierarchy.



$ in millions	Level 1		Level 2		Level 3		Total
As of March 2019
Assets
Money market instruments	$ 1,111		$ 1,648		$ –		$ 2,759
Government and agency obligations:
U.S.	77,043		30,152		25		107,220
Non-U.S.	37,421		14,326		16		51,763
Loans and securities backed by:
Commercial real estate	–		2,662		1,011		3,673
Residential real estate	–		12,476		554		13,030
Corporate debt instruments	1,044		26,552		4,252		31,848
State and municipal obligations	–		775		37		812
Other debt obligations	–		1,025		614		1,639
Equity securities	79,076		10,664		11,426		101,166
Commodities	–		3,462		–		3,462
Subtotal	$195,695		$103,742		$17,935		$317,372
Investments in funds at NAV							4,036
Total cash instrument assets							$321,408
Liabilities
Government and agency obligations:
U.S.	$ (9,160	)	$ (9	)	$ –		$ (9,169	)
Non-U.S.	(17,315	)	(1,947	)	–		(19,262	)
Loans and securities backed by:
Commercial real estate	–		(1	)	–		(1	)
Residential real estate	–		(1	)	–		(1	)
Corporate debt instruments	(1	)	(7,630	)	(136	)	(7,767	)
Other debt obligations	–		(2	)	–		(2	)
Equity securities	(24,040	)	(350	)	(23	)	(24,413	)
Total cash instrument liabilities	$ (50,516	)	$ (9,940	)	$ (159	)	$ (60,615	)
As of December 2018
Assets
Money market instruments	$ 1,489		$ 1,146		$ –		$ 2,635
Government and agency obligations:
U.S.	82,264		28,327		25		110,616
Non-U.S.	33,231		10,366		10		43,607
Loans and securities backed by:
Commercial real estate	–		2,350		1,019		3,369
Residential real estate	–		12,286		663		12,949
Corporate debt instruments	468		26,515		4,224		31,207
State and municipal obligations	–		1,210		23		1,233
Other debt obligations	–		1,326		538		1,864
Equity securities	52,989		12,456		10,725		76,170
Commodities	–		3,729		–		3,729
Subtotal	$170,441		$ 99,711		$17,227		$287,379
Investments in funds at NAV							3,936
Total cash instrument assets							$291,315
Liabilities
Government and agency obligations:
U.S.	$ (5,067	)	$ (13	)	$ –		$ (5,080	)
Non-U.S.	(23,872	)	(1,475	)	–		(25,347	)
Loans and securities backed by residential real estate	–		(1	)	–		(1	)
Corporate debt instruments	(4	)	(10,376	)	(31	)	(10,411	)
Other debt obligations	–		(1	)	–		(1	)
Equity securities	(25,147	)	(298	)	(18	)	(25,463	)
Total cash instrument liabilities	$ (54,090	)	$ (12,164	)	$ (49	)	$ (66,303	)

In the table above:

•

Cash instrument assets are included in financial instruments owned and cash instrument liabilities are included in financial instruments sold, but not yet purchased.

•

Cash instrument assets are shown as positive amounts and cash instrument liabilities are shown as negative amounts.

•

Money market instruments includes commercial paper, certificates of deposit and time deposits, substantially all of which have a maturity of less than one year.

•

Corporate debt instruments includes corporate loans and debt securities.

•

Equity securities includes public and private equities, exchange-traded funds and convertible debentures.

•

As of both March 2019 and December 2018, substantially all level 3 equity securities consisted of private equity securities.

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 cash instruments.



	Level 3 Assets and Range of Significant Unobservable Inputs (Weighted Average) as of

$ in millions		March 2019		December 2018
Loans and securities backed by commercial real estate
Level 3 assets		$1,011		$1,019
Yield		4.0% to 22.0% (11.6%	)	6.9% to 22.5% (12.4%	)
Recovery rate		7.4% to 77.2% (44.3%	)	9.7% to 78.4% (42.9%	)
Duration (years)		0.7 to 5.5 (3.5	)	0.4 to 7.1 (3.7	)
Loans and securities backed by residential real estate
Level 3 assets		$554		$663
Yield		0.8% to 20.0% (8.8%	)	2.6% to 19.3% (9.2%	)
Cumulative loss rate		2.1% to 34.2% (17.6%	)	8.3% to 37.7% (19.2%	)
Duration (years)		1.2 to 16.4 (6.8	)	1.4 to 14.0 (6.7	)
Corporate debt instruments
Level 3 assets		$4,252		$4,224
Yield		1.5% to 24.1% (12.2%	)	0.7% to 32.3% (11.9%	)
Recovery rate		0.0% to 73.0% (55.5%	)	0.0% to 78.0% (57.8%	)
Duration (years)		0.3 to 6.3 (3.0	)	0.4 to 13.5 (3.4	)
Equity securities
Level 3 assets		$11,426		$10,725
Multiples		0.8x to 26.0x (6.6x	)	1.0x to 23.6x (8.1x	)
Discount rate/yield		6.0% to 22.1% (14.5%	)	6.5% to 22.1% (14.3%	)
Capitalization rate		3.7% to 12.6% (5.9%	)	3.5% to 12.3% (6.1%	)
Other cash instruments
Level 3 assets		$692		$596
Yield		2.5% to 12.7% (9.2%	)	4.1% to 11.5% (9.2%	)
Duration (years)		2.0 to 5.7 (3.2	)	2.2 to 4.8 (2.8	)


17		Goldman Sachs March 2019 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 cash instrument.

•

Weighted averages are calculated by weighting each input by the relative fair value of the 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 cash instrument. 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 cash instruments.

•

Increases in yield, discount rate, capitalization rate, duration or cumulative loss rate used in the valuation of level 3 cash instruments 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 2019 and December 2018. Due to the distinctive nature of each level 3 cash instrument, the interrelationship of inputs is not necessarily uniform within each product type.

•

Loans and securities backed by commercial and residential real estate, corporate debt instruments and other cash instruments 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 cash instrument assets and liabilities.



	Three Months Ended March

$ in millions		2019		2018
Total cash instrument assets
Beginning balance		$17,227		$15,395
Net realized gains/(losses)		86		122
Net unrealized gains/(losses)		229		564
Purchases		372		549
Sales		(329	)	(213	)
Settlements		(439	)	(722	)
Transfers into level 3		1,478		1,942
Transfers out of level 3		(689	)	(695	)
Ending balance		$17,935		$16,942
Total cash instrument liabilities
Beginning balance		$ (49	)	$ (68	)
Net realized gains/(losses)		–		2
Net unrealized gains/(losses)		(63	)	7
Purchases		18		15
Sales		(52	)	(13	)
Settlements		8		23
Transfers into level 3		(24	)	(9	)
Transfers out of level 3		3		4
Ending balance		$ (159	)	$ (39	)

In the table above:

•

Changes in fair value are presented for all cash instrument 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.

•

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 cash instrument asset or 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 cash instrument assets, increases are shown as positive amounts, while decreases are shown as negative amounts. For level 3 cash instrument liabilities, increases are shown as negative amounts, while decreases are shown as positive amounts.

•

Level 3 cash instruments are frequently economically hedged with level 1 and level 2 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 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 2019 Form 10-Q		18

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

The table below disaggregates, by product type, the information for cash instrument assets included in the summary table above.



	Three Months Ended March

$ in millions		2019		2018
Loans and securities backed by commercial real estate
Beginning balance		$ 1,019		$ 1,126
Net realized gains/(losses)		14		11
Net unrealized gains/(losses)		1		23
Purchases		13		41
Sales		(31	)	(4	)
Settlements		(68	)	(78	)
Transfers into level 3		89		231
Transfers out of level 3		(26	)	(84	)
Ending balance		$ 1,011		$ 1,266
Loans and securities backed by residential real estate
Beginning balance		$ 663		$ 668
Net realized gains/(losses)		13		15
Net unrealized gains/(losses)		4		14
Purchases		27		35
Sales		(111	)	(60	)
Settlements		(43	)	(29	)
Transfers into level 3		22		34
Transfers out of level 3		(21	)	(4	)
Ending balance		$ 554		$ 673
Corporate debt instruments
Beginning balance		$ 4,224		$ 3,270
Net realized gains/(losses)		26		48
Net unrealized gains/(losses)		42		74
Purchases		170		141
Sales		(135	)	(92	)
Settlements		(116	)	(346	)
Transfers into level 3		447		460
Transfers out of level 3		(406	)	(197	)
Ending balance		$ 4,252		$ 3,358
Equity securities
Beginning balance		$10,725		$ 9,904
Net realized gains/(losses)		22		44
Net unrealized gains/(losses)		171		453
Purchases		124		314
Sales		(39	)	(36	)
Settlements		(164	)	(239	)
Transfers into level 3		816		1,205
Transfers out of level 3		(229	)	(399	)
Ending balance		$11,426		$11,246
Other cash instruments
Beginning balance		$ 596		$ 427
Net realized gains/(losses)		11		4
Net unrealized gains/(losses)		11		–
Purchases		38		18
Sales		(13	)	(21	)
Settlements		(48	)	(30	)
Transfers into level 3		104		12
Transfers out of level 3		(7	)	(11	)
Ending balance		$ 692		$ 399

Level 3 Rollforward Commentary

Three Months Ended March 2019. The net realized and unrealized gains on level 3 cash instrument assets of $315 million (reflecting $86 million of net realized gains and $229 million of net unrealized gains) for the three months ended March 2019 included gains/(losses) of $(28) million reported in market making, $240 million reported in other principal transactions and $103 million reported in interest income.

The net unrealized gains on level 3 cash instrument assets for the three months ended March 2019 primarily reflected gains on private equity securities, principally driven by company-specific events and corporate performance.

Transfers into level 3 during the three months ended March 2019 primarily reflected transfers of certain private equity securities and 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.

Transfers out of level 3 during the three months ended March 2019 primarily reflected transfers of certain corporate debt instruments and 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 2018. The net realized and unrealized gains on level 3 cash instrument assets of $686 million (reflecting $122 million of net realized gains and $564 million of net unrealized gains) for the three months ended March 2018 included gains/(losses) of $(2) million reported in market making, $597 million reported in other principal transactions and $91 million reported in interest income.

The net unrealized gains on level 3 cash instrument assets for the three months ended March 2018 primarily reflected gains on private equity securities, principally driven by strong corporate performance and company-specific events.

Transfers into level 3 during the three months ended March 2018 primarily reflected transfers of certain private equity securities and 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.

Transfers out of level 3 during the three months ended March 2018 primarily reflected transfers of certain private equity securities and corporate debt instruments to level 2, principally due to increased price transparency as a result of market evidence, including market transactions in these instruments, and transfers of certain other corporate debt instruments to level 2, principally due to certain unobservable yield and duration inputs no longer being significant to the valuation of these instruments.


19		Goldman Sachs March 2019 Form 10-Q

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

Available-for-Sale Securities

The table below presents information about cash instruments that are accounted for as available-for-sale.

$ in millions

Amortized
Cost

Fair
Value

Weighted
Average
Yield

As of March 2019

Less than 5 years

$ 3,827

$ 3,800

1.95%

Greater than 5 years

3,691

3,719

2.50%

Total

$ 7,518

$ 7,519

2.22%

As of December 2018

Less than 5 years

$ 5,954

$ 5,879

2.10%

Greater than 5 years

6,231

6,153

2.44%

Total

$12,185

$12,032

2.28%

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 2019 and December 2018.

•

During the three months ended March 2019, the firm sold $4.96 billion of available-for-sale securities. The realized gains on sales of such securities were not material.

•

The gross unrealized gains/(losses) included in accumulated other comprehensive income/(loss) were not material as of March 2019. The gross unrealized losses included in accumulated other comprehensive income/(loss) were $153 million as of December 2018 and were related to securities in a continuous unrealized loss position for greater than a year.

•

Available-for-sale securities in an unrealized loss position are periodically reviewed for other-than-temporary impairment. The firm considers various factors, including market conditions, changes in issuer credit ratings, severity and duration of the unrealized losses, and the intent and ability to hold the security until recovery to determine if the securities are other-than-temporarily impaired. There were no such impairments during either the three months ended March 2019 or the year ended December 2018.

Investments in Funds at Net Asset Value Per Share

Cash instruments at fair value include investments in funds that are measured at NAV of the investment fund. The firm uses NAV to measure the fair value of its fund investments when (i) the fund investment does not have a readily determinable fair value and (ii) the NAV of the investment fund is calculated in a manner consistent with the measurement principles of investment company accounting, including measurement of the investments at fair value.

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.


Goldman Sachs March 2019 Form 10-Q		20

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

Many of the funds described above are “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.

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 2019
Private equity funds	$2,627	$ 794
Credit funds	696	957
Hedge funds	162	–
Real estate funds	551	215
Total	$4,036	$1,966
As of December 2018
Private equity funds	$2,683	$ 809
Credit funds	548	1,099
Hedge funds	161	–
Real estate funds	544	203
Total	$3,936	$2,111

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. As a market maker, the firm enters into derivative transactions to provide liquidity to clients and to facilitate the transfer and hedging of their risks. In this role, the firm typically acts as principal and is required to commit capital to provide execution, and maintains inventory in response to, or in anticipation of, client demand.

Risk Management. The firm also enters into derivatives to actively manage risk exposures that arise from its market-making and investing and lending activities in derivative and cash instruments. The firm’s holdings and exposures are hedged, in many cases, on either a portfolio or risk-specific basis, as opposed to an 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 certain non-U.S. operations.

The firm enters into various types of derivatives, including:

•

Futures and Forwards. Contracts that commit counterparties to purchase or sell financial instruments, commodities or currencies in the future.

•

Swaps. Contracts that require counterparties to exchange cash flows such as currency or interest payment streams. The amounts exchanged are based on the specific terms of the contract with reference to specified rates, financial instruments, commodities, currencies or indices.

•

Options. Contracts in which the option purchaser has the right, but not the obligation, to purchase from or sell to the option writer financial instruments, commodities or currencies within a defined time period for a specified price.

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 financial instruments owned and derivative liabilities are included in financial instruments sold, but not yet purchased. Realized and unrealized gains and losses on derivatives not designated as hedges are included in market making and other principal transactions in Note 4.


21		Goldman Sachs March 2019 Form 10-Q

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 statements of financial condition, 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 2019					As of December 2018

$ in millions		Derivative Assets		Derivative Liabilities			Derivative Assets		Derivative Liabilities
Not accounted for as hedges
Exchange-traded		$ 601		$ 1,255			$ 760		$ 1,553
OTC-cleared		7,219		5,973			5,040		3,552
Bilateral OTC		247,629		229,113			227,274		211,091
Total interest rates		255,449		236,341			233,074		216,196
OTC-cleared		5,703		5,215			4,778		4,517
Bilateral OTC		14,338		14,324			14,658		13,784
Total credit		20,041		19,539			19,436		18,301
Exchange-traded		11		14			11		16
OTC-cleared		698		602			656		800
Bilateral OTC		79,011		77,888			85,772		87,953
Total currencies		79,720		78,504			86,439		88,769
Exchange-traded		2,729		2,546			4,445		4,093
OTC-cleared		305		317			433		439
Bilateral OTC		7,951		10,548			12,746		15,595
Total commodities		10,985		13,411			17,624		20,127
Exchange-traded		11,061		11,029			13,431		11,765
Bilateral OTC		33,821		41,397			34,687		40,668
Total equities		44,882		52,426			48,118		52,433
Subtotal		411,077		400,221			404,691		395,826
Accounted for as hedges
OTC-cleared		–		–			2		–
Bilateral OTC		3,208		4			3,024		7
Total interest rates		3,208		4			3,026		7
OTC-cleared		53		36			25		53
Bilateral OTC		84		17			54		61
Total currencies		137		53			79		114
Subtotal		3,345		57			3,105		121
Total gross fair value		$ 414,422		$ 400,278			$ 407,796		$ 395,947
Offset in consolidated statements of financial condition
Exchange-traded		$ (11,820	)	$ (11,820	)		$ (14,377	)	$ (14,377	)
OTC-cleared		(11,928	)	(11,928	)		(8,888	)	(8,888	)
Bilateral OTC		(297,392	)	(297,392	)		(290,961	)	(290,961	)
Counterparty netting		(321,140	)	(321,140	)		(314,226	)	(314,226	)
OTC-cleared		(1,605	)	(7	)		(1,389	)	(164	)
Bilateral OTC		(49,810	)	(38,799	)		(47,335	)	(38,963	)
Cash collateral netting		(51,415	)	(38,806	)		(48,724	)	(39,127	)
Total amounts offset		$(372,555	)	$(359,946	)		$(362,950	)	$(353,353	)
Included in consolidated statements of financial condition
Exchange-traded		$ 2,582		$ 3,024			$ 4,270		$ 3,050
OTC-cleared		445		208			657		309
Bilateral OTC		38,840		37,100			39,919		39,235
Total		$ 41,867		$ 40,332			$ 44,846		$ 42,594
Not offset in consolidated statements of financial condition
Cash collateral		$ (599	)	$ (1,391	)		$ (614	)	$ (1,328	)
Securities collateral		(12,777	)	(8,995	)		(12,740	)	(8,414	)
Total		$ 28,491		$ 29,946			$ 31,492		$ 32,852



	Notional Amounts as of

$ in millions		March 2019	December 2018
Not accounted for as hedges
Exchange-traded		$ 5,814,243	$ 5,139,159
OTC-cleared		19,542,492	14,290,327
Bilateral OTC		14,860,761	12,858,248
Total interest rates		40,217,496	32,287,734
OTC-cleared		386,010	394,494
Bilateral OTC		741,127	762,653
Total credit		1,127,137	1,157,147
Exchange-traded		7,396	5,599
OTC-cleared		112,778	113,360
Bilateral OTC		7,208,580	6,596,741
Total currencies		7,328,754	6,715,700
Exchange-traded		261,210	259,287
OTC-cleared		1,425	1,516
Bilateral OTC		237,984	244,958
Total commodities		500,619	505,761
Exchange-traded		712,848	635,988
Bilateral OTC		1,104,537	1,070,211
Total equities		1,817,385	1,706,199
Subtotal		50,991,391	42,372,541
Accounted for as hedges
OTC-cleared		90,907	85,681
Bilateral OTC		11,946	12,022
Total interest rates		102,853	97,703
OTC-cleared		3,397	2,911
Bilateral OTC		7,231	8,089
Total currencies		10,628	11,000
Subtotal		113,481	108,703
Total notional amounts		$51,104,872	$42,481,244

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 $9.27 billion as of March 2019 and $10.68 billion as of December 2018, and derivative liabilities of $15.77 billion as of March 2019 and $14.58 billion as of December 2018, which are not subject to an enforceable netting agreement or are subject to a netting agreement that the firm has not yet determined to be enforceable.


Goldman Sachs March 2019 Form 10-Q		22

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

Valuation Techniques 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. In general, the key inputs used to value interest rate derivatives are transparent, even for most long-dated contracts. Interest rate swaps and options denominated in the currencies of leading industrialized nations are characterized by high trading volumes and tight bid/offer spreads. Interest rate derivatives that reference indices, such as an inflation index, or the shape of the yield curve (e.g., 10-year swap rate vs. 2-year swap rate) are more complex, but the key inputs are generally observable.

•

Credit. Price transparency for credit default swaps, including both single names and baskets of credits, varies by market and underlying reference entity or obligation. Credit default swaps that reference indices, large corporates and major sovereigns generally exhibit the most price transparency. For credit default swaps with other underliers, price transparency varies based on credit rating, the cost of borrowing the underlying reference obligations, and the availability of the underlying reference obligations for delivery upon the default of the issuer. Credit default swaps that reference loans, asset-backed securities and emerging market debt instruments tend to have less price transparency than those that reference corporate bonds. In addition, more complex credit derivatives, such as those sensitive to the correlation between two or more underlying reference obligations, generally have less price transparency.

•

Currency. Prices for currency derivatives based on the exchange rates of leading industrialized nations, including those with longer tenors, are generally transparent. The primary difference between the price transparency of developed and emerging market currency derivatives is that emerging markets tend to be observable for contracts with shorter tenors.

•

Commodity. Commodity derivatives include transactions referenced to energy (e.g., oil and natural gas), metals (e.g., precious and base) and soft commodities (e.g., agricultural). Price transparency varies based on the underlying commodity, delivery location, tenor and product quality (e.g., diesel fuel compared to unleaded gasoline). In general, price transparency for commodity derivatives is greater for contracts with shorter tenors and contracts that are more closely aligned with major and/or benchmark commodity indices.

•

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. Equity derivatives generally have observable market prices, except for contracts with long tenors or reference prices that differ significantly from current market prices. More complex equity derivatives, such as those sensitive to the correlation between two or more individual stocks, generally have less price transparency.

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. See Note 5 for an overview of the firm’s fair value measurement policies.

Level 1 Derivatives

Level 1 derivatives include short-term contracts for future delivery of securities when the underlying security is a level 1 instrument, and exchange-traded derivatives if they are actively traded and are valued at their quoted market price.

Level 2 Derivatives

Level 2 derivatives include OTC derivatives for which all significant valuation inputs are corroborated by market evidence and exchange-traded derivatives that are not actively traded and/or that are valued using models that calibrate to market-clearing levels of OTC derivatives.

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.


23		Goldman Sachs March 2019 Form 10-Q

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

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 Derivatives

Level 3 derivatives are valued using models which utilize observable level 1 and/or level 2 inputs, as well as unobservable level 3 inputs. The significant unobservable inputs used to value the firm’s level 3 derivatives are described below.

•

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.

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 below for further information about significant unobservable inputs used in the valuation of level 3 derivatives.

Valuation Adjustments

Valuation adjustments are integral to determining the fair value of derivative portfolios and are used to adjust the mid-market valuations produced by derivative pricing models to the appropriate 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.


Goldman Sachs March 2019 Form 10-Q		24

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

Fair Value of Derivatives by Level

The table below presents the fair value of derivatives on a gross basis by level and major product type, as well as the impact of netting.



$ in millions	Level 1		Level 2		Level 3		Total
As of March 2019
Assets
Interest rates	$ 84		$ 258,105		$ 468		$ 258,657
Credit	–		16,526		3,515		20,041
Currencies	–		79,597		260		79,857
Commodities	–		10,678		307		10,985
Equities	8		43,954		920		44,882
Gross fair value	92		408,860		5,470		414,422
Counterparty netting in levels	–		(319,366	)	(812	)	(320,178	)
Subtotal	$ 92		$ 89,494		$ 4,658		$ 94,244
Cross-level counterparty netting							(962	)
Cash collateral netting							(51,415	)
Net fair value							$ 41,867
Liabilities
Interest rates	$(83	)	$(235,775	)	$ (487	)	$(236,345	)
Credit	–		(17,898	)	(1,641	)	(19,539	)
Currencies	–		(78,326	)	(231	)	(78,557	)
Commodities	–		(13,249	)	(162	)	(13,411	)
Equities	(6	)	(48,783	)	(3,637	)	(52,426	)
Gross fair value	(89	)	(394,031	)	(6,158	)	(400,278	)
Counterparty netting in levels	–		319,366		812		320,178
Subtotal	$(89	)	$ (74,665	)	$(5,346	)	$ (80,100	)
Cross-level counterparty netting							962
Cash collateral netting							38,806
Net fair value							$ (40,332	)
As of December 2018
Assets
Interest rates	$ 12		$ 235,680		$ 408		$ 236,100
Credit	–		15,992		3,444		19,436
Currencies	–		85,837		681		86,518
Commodities	–		17,193		431		17,624
Equities	10		47,168		940		48,118
Gross fair value	22		401,870		5,904		407,796
Counterparty netting in levels	–		(312,611	)	(956	)	(313,567	)
Subtotal	$ 22		$ 89,259		$ 4,948		$ 94,229
Cross-level counterparty netting							(659	)
Cash collateral netting							(48,724	)
Net fair value							$ 44,846
Liabilities
Interest rates	$ (24	)	$ (215,662	)	$ (517	)	$ (216,203	)
Credit	–		(16,529	)	(1,772	)	(18,301	)
Currencies	–		(88,663	)	(220	)	(88,883	)
Commodities	–		(19,808	)	(319	)	(20,127	)
Equities	(37	)	(49,910	)	(2,486	)	(52,433	)
Gross fair value	(61	)	(390,572	)	(5,314	)	(395,947	)
Counterparty netting in levels	–		312,611		956		313,567
Subtotal	$ (61	)	$ (77,961	)	$ (4,358	)	$ (82,380	)
Cross-level counterparty netting							659
Cash collateral netting							39,127
Net fair value							$ (42,594	)

In the table above:

•

The 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.

Significant Unobservable Inputs

The table below presents the amount of level 3 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		March 2019	December 2018
Interest rates, net		$(19)	$(109)
Correlation		(55)% to 81% (50%/60%)	(10)% to 86% (66%/64%)
Volatility (bps)		31 to 150 (79/76)	31 to 150 (74/65)
Credit, net		$1,874	$1,672
Credit spreads (bps)		1 to 697 (96/55)	1 to 810 (109/63)
Upfront credit points		2 to 99 (45/41)	2 to 99 (44/40)
Recovery rates		25% to 60% (38%/33%)	25% to 70% (40%/40%)
Currencies, net		$29	$461
Correlation		10% to 70% (43%/36%)	10% to 70% (40%/36%)
Commodities, net		$145	$112
Volatility		8% to 48% (22%/22%)	10% to 75% (28%/27%)
Natural gas spread		$(2.61) to $3.19 ($(0.26)/$(0.27))	$(2.32) to $4.68 ($(0.26)/$(0.30))
Oil spread		$(6.53) to $7.47 ($1.65/$4.77)	$(3.44) to $16.62 ($4.53/$3.94)
Equities, net		$(2,717)	$(1,546)
Correlation		(68)% to 97% (45%/44%)	(68)% to 97% (48%/51%)
Volatility		3% to 87% (18%/16%)	3% to 102% (20%/18%)

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.


25		Goldman Sachs March 2019 Form 10-Q

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 is information about the ranges of significant unobservable inputs used to value the firm’s level 3 derivative instruments:

•

Correlation. Ranges for correlation cover a variety of underliers both within one product type (e.g., equity index and equity single stock names) and across product types (e.g., correlation of an interest rate and a currency), as well as across regions. Generally, cross-product type correlation inputs are used to value more complex instruments and are lower than correlation inputs on assets within the same derivative product type.

•

Volatility. Ranges for volatility cover numerous underliers across a variety of markets, maturities and strike prices. For example, volatility of equity indices is generally lower than volatility of single stocks.

•

Credit spreads, upfront credit points and recovery rates. The ranges for credit spreads, upfront credit points and recovery rates cover a variety of underliers (index and single names), regions, sectors, maturities and credit qualities (high-yield and investment-grade). The broad range of this population gives rise to the width of the ranges of significant unobservable inputs.

•

Commodity prices and spreads. The ranges for commodity prices and spreads cover variability in products, maturities and delivery locations.

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, as of both March 2019 and December 2018, to changes in significant unobservable inputs, in isolation:

•

Correlation. In general, for contracts where the holder benefits from the convergence of the underlying asset or index prices (e.g., interest rates, credit spreads, foreign exchange rates, inflation rates and equity prices), an increase in correlation results in a higher fair value measurement.

•

Volatility. In general, for purchased options, an increase in volatility results in a higher fair value measurement.

•

Credit spreads, upfront credit points and recovery rates. In general, the fair value of purchased credit protection increases as credit spreads or upfront credit points increase or recovery rates decrease. Credit spreads, upfront credit points and recovery rates are strongly related to distinctive risk factors of the underlying reference obligations, which include reference entity-specific factors such as leverage, volatility and industry, market-based risk factors, such as borrowing costs or liquidity of the underlying reference obligation, and macroeconomic conditions.

•

Commodity prices and spreads. In general, for contracts where the holder is receiving a commodity, an increase in the spread (price difference from a benchmark index due to differences in quality or delivery location) or price results in a higher fair value measurement.

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.


Goldman Sachs March 2019 Form 10-Q		26

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		2019		2018
Total level 3 derivatives
Beginning balance		$ 590		$(288	)
Net realized gains/(losses)		49		52
Net unrealized gains/(losses)		(91	)	219
Purchases		110		134
Sales		(1,574	)	(124	)
Settlements		384		329
Transfers into level 3		(34	)	41
Transfers out of level 3		(122	)	45
Ending balance		$ (688	)	$ 408

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 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 disaggregates, by major product type, the information for level 3 derivatives included in the summary table above.



	Three Months Ended March

$ in millions		2019		2018
Interest rates, net
Beginning balance		$ (109	)	$ (410	)
Net realized gains/(losses)		–		(5	)
Net unrealized gains/(losses)		111		105
Purchases		2		6
Sales		(4	)	(7	)
Settlements		(17	)	29
Transfers into level 3		(11	)	38
Transfers out of level 3		9		(5	)
Ending balance		$ (19	)	$ (249	)
Credit, net
Beginning balance		$ 1,672		$ 1,505
Net realized gains/(losses)		8		15
Net unrealized gains/(losses)		80		(297	)
Purchases		42		19
Sales		(28	)	(23	)
Settlements		(32	)	55
Transfers into level 3		55		(15	)
Transfers out of level 3		77		23
Ending balance		$ 1,874		$ 1,282
Currencies, net
Beginning balance		$ 461		$ (181	)
Net realized gains/(losses)		(12	)	(17	)
Net unrealized gains/(losses)		(131	)	125
Purchases		2		7
Sales		(16	)	(2	)
Settlements		29		210
Transfers into level 3		(1	)	27
Transfers out of level 3		(303	)	–
Ending balance		$ 29		$ 169
Commodities, net
Beginning balance		$ 112		$ 47
Net realized gains/(losses)		18		(6	)
Net unrealized gains/(losses)		15		31
Purchases		3		12
Sales		(6	)	(1	)
Settlements		(12	)	(8	)
Transfers into level 3		(8	)	(8	)
Transfers out of level 3		23		6
Ending balance		$ 145		$ 73
Equities, net
Beginning balance		$(1,546	)	$(1,249	)
Net realized gains/(losses)		35		65
Net unrealized gains/(losses)		(166	)	255
Purchases		61		90
Sales		(1,520	)	(91	)
Settlements		416		43
Transfers into level 3		(69	)	(1	)
Transfers out of level 3		72		21
Ending balance		$(2,717	)	$ (867	)


27		Goldman Sachs March 2019 Form 10-Q

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

Level 3 Rollforward Commentary

Three Months Ended March 2019. The net realized and unrealized losses on level 3 derivatives of $42 million (reflecting $49 million of net realized gains and $91 million of net unrealized losses) for the three months ended March 2019 included losses of $28 million reported in market making and $14 million reported in other principal transactions.

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.

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.

Three Months Ended March 2018. The net realized and unrealized gains on level 3 derivatives of $271 million (reflecting $52 million of net realized gains and $219 million of net unrealized gains) for the three months ended March 2018 included gains of $184 million reported in market making and $87 million reported in other principal transactions.

The net unrealized gains on level 3 derivatives for the three months ended March 2018 were primarily attributable to gains on certain equity derivatives, reflecting the impact of a decrease in equity 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 the impact of an increase in interest rates, partially offset by losses on certain credit derivatives reflecting the impact of changes in foreign exchange rates.

Both transfers into level 3 derivatives and transfers out of level 3 derivatives during the three months ended March 2018 were not material.

OTC Derivatives

The table below presents the fair values of 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 2019
Assets
Interest rates	$ 4,523		$13,257		$48,013		$ 65,793
Credit	901		3,276		3,696		7,873
Currencies	10,817		5,296		6,084		22,197
Commodities	2,900		1,284		173		4,357
Equities	3,222		5,325		1,190		9,737
Counterparty netting in tenors	(2,381	)	(4,005	)	(2,650	)	(9,036	)
Subtotal	$19,982		$24,433		$56,506		$100,921
Cross-tenor counterparty netting							(10,221	)
Cash collateral netting							(51,415	)
Total OTC derivative assets							$ 39,285
Liabilities
Interest rates	$ 5,653		$ 8,986		$28,090		$ 42,729
Credit	1,028		4,511		1,832		7,371
Currencies	9,845		7,114		4,034		20,993
Commodities	2,530		1,454		2,982		6,966
Equities	8,703		5,683		2,926		17,312
Counterparty netting in tenors	(2,381	)	(4,005	)	(2,650	)	(9,036	)
Subtotal	$25,378		$23,743		$37,214		$ 86,335
Cross-tenor counterparty netting							(10,221	)
Cash collateral netting							(38,806	)
Total OTC derivative liabilities							$ 37,308
As of December 2018
Assets
Interest rates	$ 2,810		$13,177		$47,426		$ 63,413
Credit	807		3,676		3,364		7,847
Currencies	10,976		5,076		6,486		22,538
Commodities	4,978		2,101		145		7,224
Equities	4,962		5,244		1,329		11,535
Counterparty netting in tenors	(3,409	)	(3,883	)	(2,822	)	(10,114	)
Subtotal	$21,124		$25,391		$55,928		$102,443
Cross-tenor counterparty netting							(13,143	)
Cash collateral netting							(48,724	)
Total OTC derivative assets							$ 40,576
Liabilities
Interest rates	$ 4,193		$ 9,153		$29,377		$ 42,723
Credit	1,127		4,173		1,412		6,712
Currencies	13,553		6,871		4,474		24,898
Commodities	4,271		2,663		3,145		10,079
Equities	9,278		5,178		3,060		17,516
Counterparty netting in tenors	(3,409	)	(3,883	)	(2,822	)	(10,114	)
Subtotal	$29,013		$24,155		$38,646		$ 91,814
Cross-tenor counterparty netting							(13,143	)
Cash collateral netting							(39,127	)
Total OTC derivative liabilities							$ 39,544

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.


Goldman Sachs March 2019 Form 10-Q		28

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 in locations around the world to facilitate client transactions and to manage the credit risk associated with market-making and investing and lending 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. Single-name credit default swaps protect the buyer against the loss of principal on one or more bonds, loans or mortgages (reference obligations) in the event the issuer of the reference obligations suffers a credit event. The buyer of protection pays an initial or periodic premium to the seller and receives protection for the period of the contract. If there is no credit event, as defined in the contract, the seller of protection makes no payments to the buyer. If a credit event occurs, the seller of protection is required to make a payment to the buyer, calculated according to the terms of the contract.

•

Credit Options. In a credit option, the option writer assumes the obligation to purchase or sell a reference obligation at a specified price or credit spread. The option purchaser buys the right, but does not assume the obligation, to sell the reference obligation to, or purchase it from, the option writer. The payments on credit options depend either on a particular credit spread or the price of the reference obligation.

•

Credit Indices, Baskets and Tranches. Credit derivatives may reference a basket of single-name credit default swaps or a broad-based index. If a credit event occurs in one of the underlying reference obligations, the protection seller pays the protection buyer. The payment is typically a 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. A total return swap transfers the risks relating to economic performance of a reference obligation from the protection buyer to the protection seller. Typically, the protection buyer receives a floating rate of interest and protection against any reduction in fair value of the reference obligation, and the protection seller receives the cash flows associated with the reference obligation, plus any increase in the fair value of the reference obligation.

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 2019, written credit derivatives had a total gross notional amount of $530.40 billion and purchased credit derivatives had a total gross notional amount of $596.76 billion, for total net notional purchased protection of $66.36 billion. As of December 2018, written credit derivatives had a total gross notional amount of $554.17 billion and purchased credit derivatives had a total gross notional amount of $603.00 billion, for total net notional purchased protection of $48.83 billion. Substantially all of the firm’s written and purchased credit derivatives are credit default swaps.


29		Goldman Sachs March 2019 Form 10-Q

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 2019
Maximum Payout/Notional Amount of Written Credit Derivatives by Tenor
Less than 1 year		$123,030	$ 7,548		$ 1,053		$ 2,782		$134,413
1 – 5 years		281,554	15,327		8,980		6,194		312,055
Greater than 5 years		73,217	8,001		2,210		505		83,933
Total		$477,801	$30,876		$12,243		$ 9,481		$530,401
Maximum Payout/Notional Amount of Purchased Credit Derivatives
Offsetting		$420,734	$22,348		$10,634		$ 8,634		$462,350
Other		120,611	8,997		3,042		1,757		134,407
Fair Value of Written Credit Derivatives
Asset		$ 9,600	$ 623		$ 147		$ 125		$ 10,495
Liability		1,540	1,344		831		2,762		6,477
Net asset/(liability)		$ 8,060	$ (721	)	$ (684	)	$ (2,637	)	$ 4,018
As of December 2018
Maximum Payout/Notional Amount of Written Credit Derivatives by Tenor
Less than 1 year		$145,828	$ 9,763		$ 1,151		$ 3,848		$160,590
1 – 5 years		298,228	21,100		13,835		7,520		340,683
Greater than 5 years		45,690	5,966		1,121		122		52,899
Total		$489,746	$36,829		$16,107		$11,490		$554,172
Maximum Payout/Notional Amount of Purchased Credit Derivatives
Offsetting		$413,445	$25,373		$14,243		$ 8,841		$461,902
Other		115,754	14,273		7,555		3,513		141,095
Fair Value of Written Credit Derivatives
Asset		$ 8,656	$ 543		$ 95		$ 80		$ 9,374
Liability		1,990	1,415		1,199		3,368		7,972
Net asset/(liability)		$ 6,666	$ (872	)	$ (1,104	)	$ (3,288	)	$ 1,402

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 Spreads on Derivatives

On an ongoing basis, the firm realizes gains or losses relating to changes in credit risk through the unwind of derivative contracts and changes in credit mitigants.

The net gains/(losses), including hedges, attributable to the impact of changes in credit exposure and credit spreads (counterparty and the firm’s) on derivatives was $(163) million for the three months ended March 2019 and $152 million for the three months ended March 2018.

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 2019	December 2018
Fair value of assets		$ 978	$ 980
Fair value of liabilities		1,381	1,297
Net liability		$ 403	$ 317
Notional amount		$10,627	$10,229

In the table above, these derivatives, which are recorded at fair value, primarily consist of interest rate, equity and commodity products and are included in unsecured short-term borrowings and unsecured long-term borrowings with the related borrowings. See Note 8 for further information.

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.

The table below presents information about net derivative liabilities under such bilateral agreements (excluding application of collateral posted), the related fair value of collateral posted and the additional collateral or termination payments that could have been called by counterparties in the event of a one-notch and two-notch downgrade in the firm’s credit ratings.



	As of

$ in millions		March 2019	December 2018
Net derivative liabilities under bilateral agreements		$30,598	$29,583
Collateral posted		$27,425	$24,393
Additional collateral or termination payments:
One-notch downgrade		$ 312	$ 262
Two-notch downgrade		$ 959	$ 959


Goldman Sachs March 2019 Form 10-Q		30

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

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		2019		2018
Interest rate hedges		$ 1,256		$(1,369	)
Hedged borrowings and deposits		$(1,351	)	$ 1,230
Interest expense		$ 4,379		$ 3,312

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 that are currently 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 2019
Deposits	$12,963	$ (33	)
Unsecured short-term borrowings	$ 5,155	$ (1	)
Unsecured long-term borrowings	$73,623	$4,657
As of December 2018
Deposits	$11,924	$ (156	)
Unsecured short-term borrowings	$ 4,450	$ (12	)
Unsecured long-term borrowings	$68,839	$2,759

In the table above, cumulative hedging adjustment included $2.16 billion as of March 2019 and $1.74 billion as of December 2018 of hedging adjustments from prior hedging relationships that were de-designated and were related to unsecured long-term borrowings.

In addition, cumulative hedging adjustments for items no longer designated in a hedging relationship were $1.03 billion as of March 2019 and $1.51 billion as of December 2018 and substantially all were related to unsecured long-term borrowings.


31		Goldman Sachs March 2019 Form 10-Q

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		2019	2018
Hedges:
Foreign currency forward contract		$14	$(210	)
Foreign currency-denominated debt		$31	$(107	)

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 in non-U.S. operations reclassified to earnings from accumulated other comprehensive income/(loss) were not material for both the three months ended March 2019 and March 2018.

The firm had designated $2.90 billion as of March 2019 and $1.99 billion as of December 2018 of foreign currency-denominated debt, included in unsecured long-term borrowings and unsecured short-term borrowings, as hedges of net investments in non-U.S. subsidiaries.

Note 8.

Fair Value Option

Other Financial Assets and Financial Liabilities at Fair Value

In addition to cash and derivative instruments included in financial instruments owned and financial instruments sold, but not yet purchased, the firm accounts for certain of its other financial assets and financial 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 instruments owned 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 financial liabilities accounted for at fair value under the fair value option include:

•

Repurchase agreements and substantially all resale agreements;

•

Securities borrowed and loaned in Fixed Income, Currency and Commodities (FICC) Client Execution;

•

Substantially all other secured financings, including transfers of assets accounted for as financings;

•

Certain unsecured short-term and long-term borrowings, substantially all of which are hybrid financial instruments;

•

Certain customer and other receivables, including transfers of assets accounted for as secured loans and 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.


Goldman Sachs March 2019 Form 10-Q		32

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

Fair Value of Other Financial Assets and Financial Liabilities by Level

The table below presents, by level within the fair value hierarchy, other financial assets and financial 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 2019

Assets

Resale agreements

$ –

$ 132,445

$ –

$ 132,445

Securities borrowed

–

27,520

–

27,520

Customer and other receivables

–

1,611

1,614

Total

$ –

$ 161,576

$ 3

$ 161,579

Liabilities

Deposits

$ –

$ (13,692

)

$ (3,351

)

$ (17,043

)

Repurchase agreements

–

(70,540

)

(29

)

(70,569

)

Securities loaned

–

(3,067

)

–

(3,067

)

Other secured financings

–

(18,783

)

(192

)

(18,975

)

Unsecured borrowings:

Short-term

–

(15,738

)

(5,513

)

(21,251

)

Long-term

–

(35,771

)

(11,702

)

(47,473

)

Other liabilities

–

(132

)

(132

)

Total

$ –

$(157,591

)

$(20,919

)

$(178,510

)

As of December 2018

Assets

Resale agreements

$ –

$ 139,220

$ –

$ 139,220

Securities borrowed

–

23,142

–

23,142

Customer and other receivables

–

3,183

3,189

Total

$ –

$ 165,545

$ 6

$ 165,551

Liabilities

Deposits

$ –

$ (17,892

)

Closing Price ($)	Shares Out (MM)	Market Cap ($MM)
$201.63	366	$73,760

10-Q	2019-03-31	Quarter: 2019-03-31
10-K	2018-12-31	Annual: 2018-12-31
10-Q	2018-09-30	Quarter: 2018-09-30
10-Q	2018-06-30	Quarter: 2018-06-30
10-Q	2018-03-31	Quarter: 2018-03-31
10-K	2017-12-31	Annual: 2017-12-31
10-Q	2017-09-30	Quarter: 2017-09-30
10-Q	2017-06-30	Quarter: 2017-06-30
10-Q	2017-03-31	Quarter: 2017-03-31
10-K	2016-12-31	Annual: 2016-12-31
10-Q	2016-09-30	Quarter: 2016-09-30
10-Q	2016-06-30	Quarter: 2016-06-30
10-Q	2016-03-31	Quarter: 2016-03-31
10-K	2015-12-31	Annual: 2015-12-31
10-Q	2015-06-30	Quarter: 2015-06-30
10-Q	2015-03-31	Quarter: 2015-03-31
10-Q	2014-03-31	Quarter: 2014-03-31
10-K	2013-12-31	Annual: 2013-12-31

8-K	2019-06-14	Shareholder Rights, Amend Bylaw, Exhibits
8-K	2019-06-12	Other Events
8-K	2019-05-02	Shareholder Vote
8-K	2019-04-15	Earnings, Regulation FD, Exhibits
8-K	2019-02-20	Exhibits
8-K	2019-02-01	Other Events
8-K	2019-01-16	Earnings, Regulation FD, Other Events, Exhibits
8-K	2018-12-19	Officers, Exhibits
8-K	2018-10-16	Earnings, Earnings, Exhibits
8-K	2018-09-28	Other Events, Exhibits
8-K	2018-09-18	Other Events, Exhibits
8-K	2018-09-13	Officers, Exhibits
8-K	2018-07-17	Earnings, Earnings, Exhibits
8-K	2018-07-16	Officers, Exhibits
8-K	2018-06-28	Officers, Exhibits
8-K	2018-06-28	Other Events, Exhibits
8-K	2018-06-21	Other Events
8-K	2018-05-17	Exhibits
8-K	2018-05-14	Officers
8-K	2018-04-23	Exhibits
8-K	2018-04-17	Earnings, Earnings, Exhibits
8-K	2018-03-12	Officers, Exhibits
8-K	2018-03-06	Exhibits
8-K	2018-02-15	Other Events
8-K	2018-01-29	Exhibits
8-K	2018-01-23	Amend Bylaw, Exhibits
8-K	2018-01-17	Earnings, Earnings, Exhibits

MO	Altria Group	97,270
BXP	Boston Properties	20,220
PLOW	Douglas Dynamics	843
AXSM	Axsome Therapeutics	660
WRLS	Pensare Acquisition	372
AMOT	Allied Motion Technologies	359
ALCO	Alico	201
FNJN	Finjan Holdings	84
COTV	Cotiviti Holdings	0
TSSI	TSS	0

EX-15.1	d729034dex151.htm
EX-31.1	d729034dex311.htm
EX-32.1	d729034dex321.htm

Goldman Sachs Earnings 2019-03-31

GS 10Q Quarterly Report

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