Goldman Sachs Annual Report 2014

FY2014 Annual Report · Goldman Sachs

Loading PDF…

Goldman Sachs 2014 Annual Report

2014

FOUR TRENDS SHAPING MARKETS AND ECONOMIES

The Goldman Sachs Business Principles

We constantly strive to anticipate
the rapidly changing needs of our
clients and to develop new services
to meet those needs.
We know that the world of finance will
not stand still and that complacency
can lead to extinction.

We regularly receive confidential
information as part of our normal
client relationships.
To breach a confidence or to use
confidential information improperly or
carelessly would be unthinkable.

Our business is highly competitive,
and we aggressively seek to expand
our client relationships.
However, we must always be fair
competitors and must never denigrate
other firms.

Integrity and honesty are
at the heart of our business.
We expect our people to maintain high
ethical standards in everything they do,
both in their work for the firm and in
their personal lives.

Our clients’ interests
always come first.
Our experience shows that if we
serve our clients well, our own
success will follow.

Our assets are our people,
capital and reputation.
If any of these is ever diminished, the
last is the most difficult to restore. We
are dedicated to complying fully with
the letter and spirit of the laws, rules
and ethical principles that govern us.
Our continued success depends upon
unswerving adherence to this standard.

Our goal is to provide superior
returns to our shareholders.
Profitability is critical to achieving
superior returns, building our capital,
and attracting and keeping our best
people. Significant employee stock
ownership aligns the interests of our
employees and our shareholders.

We take great pride in the
professional quality of our work.
We have an uncompromising
determination to achieve excellence
in everything we undertake. Though
we may be involved in a wide variety
and heavy volume of activity, we
would, if it came to a choice, rather
be best than biggest.

We stress creativity and
imagination in everything we do.
While recognizing that the old way may
still be the best way, we constantly
strive to find a better solution to a
client’s problems. We pride ourselves
on having pioneered many of the
practices and techniques that have
become standard in the industry.

We make an unusual effort to
identify and recruit the very best
person for every job.
Although our activities are measured in
billions of dollars, we select our people
one by one. In a service business,
we know that without the best people,
we cannot be the best firm.

We offer our people the opportunity
to move ahead more rapidly than is
possible at most other places.
Advancement depends on merit and
we have yet to find the limits to the
responsibility our best people are able
to assume. For us to be successful,
our men and women must reflect the
diversity of the communities and cultures
in which we operate. That means
we must attract, retain and motivate
people from many backgrounds and
perspectives. Being diverse is
not optional; it is what we must be.

We stress teamwork
in everything we do.
While individual creativity is always
encouraged, we have found that team
effort often produces the best results.
We have no room for those who put their
personal interests ahead of the interests
of the firm and its clients.

The dedication of our people to
the firm and the intense effort
they give their jobs are greater
than one finds in most other
organizations.
We think that this is an important
part of our success.

We consider our size an asset
that we try hard to preserve.
We want to be big enough to undertake
the largest project that any of our clients
could contemplate, yet small enough to
maintain the loyalty, the intimacy and the
esprit de corps that we all treasure and
that contribute greatly to our success.

Lloyd C. Blankfein
Chairman and
Chief Executive Officer
(right)

Gary D. Cohn
President and
Chief Operating Officer
(left)

Fellow Shareholders:

For much of the last year, the global economy grew in fits
and starts. In the United States, the economic recovery
accelerated, evidenced by a steadily improving labor market.
In Europe, challenges remained pronounced as growth
was constrained. And in Asia, conditions slowed in both
China and Japan.

Different countries are clearly at different stages of the
economic cycle, and the interconnectedness of these
economies has made the transition to growth somewhat
extended, choppy and, oftentimes, unpredictable. As a
result, client activity was uneven across regions and
asset classes.

CEO confidence improved and merger and acquisition
(M&A) volumes, in particular, rebounded. However, client
volumes remained generally lower across our Institutional
Client Services business. Despite uneven conditions, we
are pleased to report that Goldman Sachs performed well,
generating solid results for the year. Our performance
benefited from the strength of our global client franchise,
diversity of our largely institutional set of businesses and
our culture of adaptability.

For 2014, the firm produced net revenues of $34.53 billion
and net earnings of $8.48 billion, a five percent increase from

$8.04 billion of net earnings in 2013. Diluted earnings per
common share were $17.07 compared with $15.46 for 2013.
Our return on average common shareholders’ equity (ROE)
was 11.2 percent. Book value per common share increased
by seven percent during 2014 and has grown from $20.94
at the end of our first year as a public company in 1999 to
$163.01, a compounded annual growth rate of approximately
15 percent over this period. Our capital management in 2014
reflected a prudent approach as our capital ratios continued
to improve despite returning $6.5 billion to common
shareholders through share buybacks and dividends.

In our previous letter to shareholders, we discussed our
focus on driving returns in a challenging macroeconomic
environment. At the same time, we emphasized the need
to protect our ability to provide significant upside to our
shareholders as the economic cycle turns.

The basis for meeting these goals rests on a strong financial
profile and a sustained operating discipline. Our capital and
liquidity levels help ensure stability during periods of market
stress and position the firm to add value to our clients when
they need it most. And, generating operating efficiency has
bolstered our capacity to improve returns consistently, despite
the lackluster operating environment of recent years.

Goldman Sachs 2014 Annual Report

Letter to Shareholders

Against this backdrop, in this year’s letter, we would like to review our fi nancial
strength and the benefi ts embedded in our business model. We will also discuss
our operating strategy in the recent environment and our major businesses with
a focus on their competitive positions and opportunities for growth. Finally, we
will update you on our efforts to protect and sustain our culture of client focus
and teamwork, as well as the important progress being made across our
corporate engagement initiatives.

Financial Profi le
Since the end of 2007, our balance sheet is down by nearly one-quarter, while
our common equity is up 85 percent. As a result, gross leverage has been cut
by more than one-half. Our liquidity is approximately three times higher than the
end of 2007, representing more than 20 percent of our total balance sheet at
the end of 2014. And, less liquid level 3 fi nancial assets are down nearly
40 percent over this period.

As represented in the charts on the right, our balance sheet measures have
improved across the board. As a result, we have demonstrated our ability to
meet or exceed the requirements of various regulations, including Basel III
capital, the supplementary leverage ratio and the liquidity coverage ratio.

The combination of a solid fi nancial foundation and a focused operating strategy
provides the ability to adapt quickly. Our balance sheet is less than one-half the
size of the peer average.* And, our total staff level is less than 20 percent of the
peer average. We are an institutional client fi rm, with a broad range of services.
Our retail clients are largely high-net-worth individuals, with an average account
size of more than $40 million. In short, we are not simple, but we are simpler.

Our strong and stable fi nancial footing has given us the wherewithal to stay
committed to our core set of businesses over the cycle. We work with tens
of thousands of companies, institutions, investing entities, governments and
high-net-worth individuals around the world.

Partly because we have remained focused on executing our strategy through
our core businesses, we have grown our client franchise over the last several
years. Institutional Client Services, for example, has seen an approximately
10 percent increase in active clients since 2010.

Our mix of businesses refl ects the diverse needs of our clients. And, the
products and services we provide produce a diverse and balanced
revenue stream.

In addition to better revenue stability, we have benefi ted from a variable cost
structure. We have long had a “pay for performance” culture. The bottom chart
depicts the strong correlation between the fi rm’s performance and its levels of
compensation and benefi ts expense.

To us, this graph underscores the value of a true partnership culture. Culture is
not preordained or guaranteed in perpetuity. Since we became a public company,
we have invested an enormous amount of time and resources to sustain our

* U.S. peers include BAC, C, JPM and MS.

Goldman Sachs 2014 Annual Report

Signifi cantly Improved
Financial Profi le

Balance Sheet

4Q07

4Q14

$1,120bn

-24%

$856bn

Common Equity

4Q07

4Q14

$40bn

+85%

$74bn

Gross Leverage

4Q07

26.2x

-61%

4Q14

10.3x

Liquidity

4Q07

4Q14

$61bn1

+3.0x

$183bn

Level 3 Assets

4Q07

4Q14

$69bn

-39%

$42bn

1 Refl ects loan value

Net Revenues and Compensation
and Benefi ts Expenses

2000 –2014
R2 = 91%

$50

$40

$30

$20

$10

081

Firmwide Net Revenues

Compensation

1 2008 includes the fi rm’s fi scal year-ended November 2008
and the month of December 2008.

culture. Rigorous partner selection and aligning
compensation with long-term performance reinforce
an ethos of long-term ownership.

The combination of a diverse set of businesses,
effective risk management and a “pay for performance”
culture has produced a track record of lower earnings
volatility than our peers. From 2005 through 2014,
Goldman Sachs’ net earnings to common volatility
averaged roughly 50 percent vs. 130 percent for peers.

Our relative earnings stability is critical to our ability to
outperform throughout the cycle. We performed when
conditions were challenged and we also performed when
the environment was more favorable.

Against the backdrop of relatively consistent revenues,
we have performed well across several key metrics.

Compared to 2012, earnings per share is 21 percent higher,
book value per share is 13 percent higher and our common
stock dividends per share have grown 27 percent. Over this
three-year period, we have returned $16 billion via share
repurchases, while maintaining stronger capital ratios.

Net revenues were roughly flat over the past three years.
But, that’s not the story. Since 2012, we undertook several
strategic initiatives to respond to new regulations, including
higher capital requirements. We sold a majority stake
in both our Americas reinsurance business and our European
insurance business — and we liquidated our investment
in the Industrial and Commercial Bank of China. We also
sold our hedge fund administration business and our
REDI platform.

In 2012, these businesses and investments produced
$2.3 billion in net revenues. So, on a “like-for-like” basis,
net revenues in 2014 were about $2.7 billion higher than
2012. Investment Management and Investment Banking
contributed $2.4 billion to this growth.

We have grown revenues while managing expenses and
capital. Our average compensation and benefits to net
revenues ratio from 2009 through 2014 was more than
900 basis points lower than it was from 2000 through
2007, despite a tougher revenue environment.

We have been equally focused on capital efficiency. We
have developed technology to help inform our capital
allocation decisions. The combination of our profitability and
risk management allowed us to pay out roughly 70 percent

of our net earnings to common shareholders since the
beginning of 2009 and basic share count has declined by
17 percent since the end of that year. Since the end of 1999,
our basic share count is seven percent lower, while our
common equity is actually more than seven times higher.

These efforts not only protected near-term returns, they
have also positioned the firm to benefit from operating
leverage when the environment improves.

As the cycle turns, our strategic focus shifts to growing
revenues and the ability to deliver greater operating leverage
to our shareholders through margin expansion. In that vein,
we want to review our businesses and opportunities.

Investment Banking
In Investment Banking, we have the preeminent client
franchise. We advised on more than $1 trillion of announced
transactions last year, the highest level since 2007. We have
maintained a leading market share over the last 25 years.
We maintained our market position when M&A activity was
dominated by technology in 1999, by financials in 2008
and by natural resources in 2014.

And, we have maintained our position when volumes were
low and when they were higher. Our performance carries
through to different industries, market environments and
regions. Our success is rooted in decades of investment,
consistency of coverage and a broad client franchise by
both industry and geography.

We see a number of growth opportunities on the horizon.
Global economic growth continues to be the biggest driver
of the opportunity set. In 2014, global M&A volume as a
percentage of market capitalization was roughly 100 basis
points below the 15-year average. Returning to the historical
average would drive $630 billion of incremental M&A volume.

We are particularly well-positioned for growth in cross-border
activity given our global footprint. And, we believe that the
demand for funding and capital remains highly correlated to
economic growth and broader corporate activity.

Institutional Client Services
In Institutional Client Services, we benefit from having
both a leading fixed income franchise and a leading equities
franchise. And, we have a global footprint. While having a
diversified mix of businesses supports revenue stability, it is
also crucial to driving stable and attractive margins. We also

Goldman Sachs 2014 Annual Report

Letter to Shareholders

have a balance of activities and products that are “high”
capital and “low” capital intensive.

Institutional Client Services is one of our most dynamic
businesses. It has always been in a state of evolution.
The introduction of new regulations has accelerated the
evolution in certain areas, including market structure.
As a consequence, the value placed on adaptability and
operational excellence has significantly grown.

Regulatory requirements and technological investments
have raised the barriers to entry higher than at any other
time in recent history. This is an expensive business to be
in if you don’t have the market share and scale. Consider
the numerous business exits that have been announced by
our peers, as they reassess their competitive positioning
and relative returns.

Longer term, we believe that the value being placed on
liquidity provisioning is likely to grow, especially in the
context of a more rational marketplace. This provides an
opportunity for market share expansion for those firms with
strong, global and stable client franchises. Technological
innovation will continue to be important and may increasingly
become a differentiator amongst competitors and a potential
driver of new or incremental revenues. Going forward, we
believe that these requirements will likely lead to only a
handful of players being able to effectively compete on
a global basis.

Investing & Lending
Another core part of our mission and strategy is to provide
promising businesses with the capital they need to grow.
Sometimes that means offering a loan and, other times,
it means making an equity investment. We are able to
leverage our global investor network and invest alongside
these clients in industries that create jobs and promote
economic growth.

These loans and commitments include major infrastructure
projects, clean energy and technology companies, and
cutting-edge healthcare businesses. Including our own
commitments, during 2014 we closed on more than
$15 billion of debt and equity capital raised in private
equity and credit funds.*

Our ability to provide equity capital has been important to
growing companies. We have a diversified portfolio of

* Fees generated through the management of client assets in such funds are included in Investment Management.
** Performance calculated using period-end data for global long-term fund assets (non-money market) for all share

classes ranked by Morningstar.

Goldman Sachs 2014 Annual Report

companies which helps drive strong performance for
both our co-investors and shareholders. For example,
between 2012 and 2014, our private equity and credit funds
distributed more than $40 billion. And generally, our
co-investors are clients of the firm, whether it is with
Investment Banking, Institutional Client Services or
Investment Management.

We will continue to invest and grow our existing investment
strategies. At the same time, we will seek growth in new
regions and across new strategies.

Lending has become an increasingly important part of our
strategy as it relates to corporate, real estate and private
wealth clients.

Our private wealth commitments and lending portfolio has
been a particular source of significant growth. The portfolio
benefits from both the level of collateralization and the fact
that borrower credit quality for our average private wealth
client is extremely high.

We see an opportunity to continue to grow our lending
activities in ways that are accretive to current returns. Since
2012, we’ve made great strides in this business, growing
lending by roughly 100 percent. As we grow, we maintain
our same conservative and rigorous risk management
policies to ensure quality and prudence.

Investment Management
We have made significant progress in our Investment
Management business over the last few years. Assets under
supervision have grown 32 percent since 2011 to nearly
$1.2 trillion at the end of 2014. Still, we are only the
10th-largest asset manager globally, so there is significant
room for growth. Within fixed income products, we are
approximately 40 percent of the size of the largest peer.
Within equities products, we are about one-quarter of the
size of our largest competitor. And for alternatives, we are
approximately two-thirds the size of the largest peer.

We remain focused on delivering strong performance for
clients, which has already driven meaningful growth. At
the end of last year, 83 percent of our client mutual fund
assets ranked in the top two quartiles on a 3-year basis,
and 75 percent ranked in the top two quartiles on a 5-year
basis.** In 2014, Investment Management attracted over
$85 billion in fee-based assets organically.

We also see attractive opportunities to expand our private
wealth management platform. Among the distinguishing
characteristics of this franchise is its connectivity to our
investment banking efforts, which serves as an important
sourcing mechanism. For example, the opportunity for our
private wealth clients to invest in Facebook and Uber
originated from a banking relationship.

We continue to invest in long-term strategic initiatives,
like advisory, defined contribution, insurance and private
banking. We have also looked for accretive acquisitions,
having recently bought Deutsche Asset & Wealth
Management’s stable value business and Dwight Asset
Management. Performing for our clients and expanding
our product offerings will help support continued growth
going forward.

Our People
This year, we marked our 145th anniversary as a firm.
Over that time, our people and culture have helped define
our success. We place a huge priority on preserving and
enhancing a tangible environment of teamwork, client
focus and long-term stewardship. We are proud that these
attributes are as strong and vibrant as ever.

In terms of recruiting, in 2014, nearly 270,000 applicants
applied for 8,300 positions. And, of those receiving offers,
nearly 90 percent chose to come to Goldman Sachs.

In November 2014, we announced our newest class of
78 partners. The rigor and focus surrounding this biennial
process is intense and that investment continues to pay
dividends. The partnership is vital to helping ensure a real
sense of long-term ownership.

For all of our people, we continue to invest in a workplace
environment, including programs and training, which has
consistently earned the firm recognition as one of the
most attractive places to work.

In 2014, we were proud to be named as one of Fortune
magazine’s “100 Best Companies to Work For.” Goldman
Sachs is one of only five companies to be recognized every
year that the Great Place to Work Institute has issued its list
since 1984. And for nine consecutive years, the firm has
been named to Working Mother magazine’s “100 Best
Companies,” which ranks companies with the best programs
that support working parents.

Few people have contributed more to our culture and
generations of leaders at Goldman Sachs than John
Whitehead. Earlier this year, John passed away. We honor
his achievements and contributions in service to his
country and our firm. John was a man of enormous grace
and integrity, and his legacy will endure in the institutions
he led and in the lives of those he cared for and mentored.
We highlight John’s extraordinary contributions later in
the Annual Report.

Our Board of Directors
We were also deeply sad to lose our former lead director,
Jim Schiro, to cancer. Jim joined our Board of Directors in
May 2009, and was elected lead director and named chair
of the Corporate Governance, Nominating and Public
Responsibilities Committee in May 2012.

Jim was an outstanding Board member and an exceptional
individual who made an invaluable contribution to our firm
and to all those who worked with him. We will remember
him for his unfailing commitment to Goldman Sachs and
to our shareholders and for the example he set as a leader
and mentor.

He lived his life to make a difference and the mark he has
left on institutions and people is powerful. Jim was
methodical and careful, yet expansive and philosophical.
He understood the black and white of the numbers better
than anyone, but appreciated the human element better
than most.

For a lot of his tenure on our Board, our firm faced tough
scrutiny. He gave us the confidence to be proactive and to
deal forthrightly with the issues we were confronting. He
asked probing questions that always got to the heart of the
matter. Jim had an enormous impact on Goldman Sachs,
and on our leadership team. He made us a better company,
and, for all those he worked with, better people.

Following Jim’s retirement, Adebayo Ogunlesi was appointed
lead director and chair of the Corporate Governance,
Nominating and Public Responsibilities Committee.

Adebayo is the managing partner and chairman of Global
Infrastructure Partners, a private equity firm that invests
worldwide in infrastructure assets. Previously, he held
various positions at Credit Suisse Investment Bank (and
predecessor firms), including as executive vice chairman
and head of global investment banking. Adebayo’s extensive

Goldman Sachs 2014 Annual Report

Letter to Shareholders

knowledge of finance and global capital markets provides
valuable insight and direction for our Board.

After 12 years of distinguished service, Claes Dahlbäck
decided to retire from the Goldman Sachs Board of Directors
this coming May.

Claes’ global experience, independent and wise judgment
and quiet leadership made him an invaluable voice on our
Board. His deep understanding of global markets, our
business and our culture has benefited the firm enormously.

We thank him for his unfailing commitment to our
shareholders and our people.

We are pleased to announce two additions to our Board of
Directors, Mark Flaherty and Mark Winkelman.

Mark Flaherty has more than 20 years of experience in
investment management. He served as vice chairman of
Wellington Management Company before retiring in 2012.
Previously, he was director of the company’s global
investment services from 2002 to 2012, and served as
partner and senior vice president from 2001 to 2012.

Mark Winkelman currently serves on the Board of Directors
of Anheuser-Busch InBev. From 2006 to 2008, he served as
operating partner of J.C. Flowers & Co. Previously, Mark
held several leadership positions at Goldman Sachs before
retiring from the firm in 1994, including co-head of the Fixed
Income Division. During the course of his career, Mark has
demonstrated exceptional judgment, market knowledge
and risk management.

We know that our Board, our shareholders and our people
will benefit from their deep and varied understanding of
economies, global markets and the financial
services industry.

Corporate Engagement
Throughout the year, Goldman Sachs continued to engage
on broader public policy matters that have the potential to
spur economic growth and stability. In June, we convened
the North American Energy Summit to discuss how to
maximize the economic benefits of North American energy
resources through enhanced regional integration and
cooperation. Policymakers and corporate and NGO leaders
examined the impact of relevant geopolitical, economic
and environmental factors around the enormous energy
opportunity that will continue to have a profound influence
on the global economy.

Goldman Sachs 2014 Annual Report

We hosted the China-U.S. CEO Bilateral Investment
Dialogue in Beijing and later in New York, bringing CEOs of
some of the largest Chinese and U.S. companies together
with policymakers to discuss how to encourage more
cross-border trade and investment. Our collective futures are
dependent on the relationship between the U.S. and China,
and there’s nothing more important to that relationship than
advancing the mechanisms for more economic activity
between these two countries.

And, as explained below, we attended various 10,000
Small Businesses graduations across the U.S. At each
event, whether it was in Detroit, Los Angeles or Miami,
we saw how the combined impact from know-how and
confidence can advance people and the local economy. And,
with each entrepreneur we meet through 10,000 Women,
we recognized how a practical business education and,
increasingly, effective access to capital can transform a small
business and consequently a family and a community.

10,000 Small Businesses
10,000 Small Businesses continued to help small business
owners grow and create jobs through access to business
and management education, business services and capital.
By year’s end, 10,000 Small Businesses was operating in
23 sites in the U.S. and U.K. and had served over 4,000
entrepreneurs. In the U.S., we launched a new site in Dallas/
Fort Worth as well as the inaugural cohort of a new national
partnership that allows qualified small business owners from
across the U.S. to receive training both online and at Babson
College. This innovative model has extended the reach of
10,000 Small Businesses to business owners in 45 states
across the U.S.

Stimulating Small Businesses Growth, a report released
in 2014 from lead academic partner Babson College,
demonstrates the impact of the program. Within six months
of graduating, 64 percent of U.S. participants have reported
increasing their revenues and 45 percent reported creating
net new jobs. We are proud that the program maintains a
99 percent graduation rate and graduates have developed
a strong marketplace among themselves, as 80 percent of
participants have done some form of business with
another graduate.

10,000 Women
10,000 Women launched an important new partnership in
2014 with International Finance Corporation (IFC), a member
of the World Bank Group, to create the first-ever global

finance facility dedicated exclusively to women-owned small-
and medium-sized enterprises. The facility is a $600 million
effort to enable approximately 100,000 women entrepreneurs
to access capital. Since its launch, seven transactions in
seven countries, including China, Brazil and Kenya, have
been closed, representing over $150 million in commitments.

10,000 Women remains committed to providing a business
and management education, mentoring and networking to
high-potential women entrepreneurs around the world. Since
it was announced in 2008, the initiative has reached more
than 10,000 women entrepreneurs from over 40 countries
around the world. Delivered through a network of 90
academic and nonprofit partners, 10,000 Women continues
to yield promising results. Nearly 70 percent of surveyed
graduates have increased revenues and 60 percent have
added new jobs.

Goldman Sachs Gives
Goldman Sachs Gives is a donor-advised fund through
which participating managing directors (PMDs) of the firm
can recommend grants to qualified nonprofit organizations
around the world. In 2014, PMD compensation was reduced
by approximately $157 million related to Goldman Sachs
Gives, $137 million of which was a charitable contribution in
2014, and 4,400 grants totaling more than $146 million were
made to nonprofit organizations assisting underserved
people and communities across a range of areas. Since the
Goldman Sachs Gives’ launch in 2010, approximately 19,000
grants totaling more than $860 million have been made to
various nonprofits in 45 countries.

A continuing focus for Goldman Sachs Gives is its support
of need-based financial aid to more than 200 colleges and
universities globally to ensure students are able to complete
their college degrees. In particular, a number of the firm’s
partners, including all of the U.S.-based members of our
Management Committee, recently made individual Goldman
Sachs Gives’ grant recommendations to support LaGuardia
Community College, based in Queens, New York. These
grants represent the largest private donation in the school’s
history. In addition, the partners’ recommendations created
the Goldman Sachs Community College Fund to provide
need-based financial aid to additional community colleges
around the country.

As part of the firm’s commitment to hire and retain veterans,
and support the military community, Goldman Sachs Gives
remains focused on making grants to honor service and

veterans. Demonstrating Goldman Sachs Gives’ scope, during
2014, it supported nonprofit activities in 29 countries — from
building libraries in Cambodia, to fighting Ebola in Africa, to
raising awareness of hunger issues in India, and advancing
cancer research in the United States and the United Kingdom.

Looking Ahead
The global economic recovery remains fragile and geo-
political risk in Europe and the Middle East will continue to
have varying degrees of influence on market sentiment.

Still, conditions at this point are more conducive for our set
of businesses than in recent years. Job growth in the U.S. is
strong and prospects for above trend GDP growth are good.
CEO confidence is up and consumer sentiment is generally
better. More than six years after the financial crisis, we are
finally seeing dispersion in central bank policies, which, over
time, may contribute to more normalized markets and levels
of volatility.

Over the last few years, we have protected and expanded
our client franchise across our major businesses. Our client
franchise today is as strong as ever. We have transformed
the financial profile of the firm. We have been proactive in
managing our cost structure. We have significantly adjusted
both compensation levels and fixed expenses.

We have been judicious managers of capital. We have
maintained our culture of client service and partnership.
We remain the employer of choice in our industry.

Taken together, we are confident that we have positioned
the firm to provide operating leverage for our shareholders
as the economy and opportunity set improves.

Lloyd C. Blankfein
Chairman and Chief Executive Officer

Gary D. Cohn
President and Chief Operating Officer

Goldman Sachs 2014 Annual Report

TECHNOLOGY
DRIVING INNOVATION,
OPPORTUNITY
AND TRANSFORMATION

Technological megatrends are transforming
businesses, markets and entire economies

A t the 2014 Goldman Sachs Builders + Innovators Summit (B+I) honoring

the 100 most intriguing entrepreneurs in the U.S., we brought together
emerging business leaders and seasoned innovators to exchange ideas,
insights and strategies. While the range of topics discussed were as
compelling as the entrepreneurs themselves, the overarching theme
emerging from the plenary sessions and informal conversations was that

businesses across all industries must think of themselves as technology companies.

At B+I, each session returned to this central question concerning the role technology
will play in shaping the business models and markets of tomorrow. We heard from
athletic apparel executives on how wearables — devices worn on the body that
measure physical activity — will reinvent their space; from healthcare innovators on
the potential to connect tiny, ingestible sensors with users’ smartphones to track
physiological data; and from medical entrepreneurs, outlining a new doctor-patient
paradigm, with on-call medical experts and online behavioral therapies to enable people
to more readily take charge of their own well-being and achieve healthier lifestyles.

Goldman Sachs 2014 Annual Report

Technology Driving Innovation, Opportunity and Transformation

growth — as they look to become leaders in their industries.
This also means helping established companies leverage,
develop and/or acquire technology that will allow them to
pursue new markets, models and pathways to growth.

In the wake of such monumental
change, Goldman Sachs is
working with clients around the
world as they contend with the
direct and knock-on effects of
the technology revolution.

At the same time, our role at the center of the global capital
markets requires us to continually work toward staying at the
technological forefront — whether that be in how we assess
investment opportunities, raise capital or manage risks.

One of our most important technological initiatives in 2014
was the creation of a Goldman Sachs-designed messaging
platform for financial companies, enabling market participants
to communicate instantly, securely and compliantly. This
platform, called Symphony, was an outgrowth of our core
business and our efforts to meet the changing needs of our
own people and the clients we serve. Our focus on developing
an advanced technology solution to meet a complex financial
services need reflects our own mindset as a “technology
company” and demonstrates the evolution of our industry
as a whole.

The pervasiveness and permeating impact of innovation is,
like never before, a reality that is pushing companies across
all industries to think and act like disruptors in their own
spaces. And in those few sectors that have yet to realize
the transformative effects of technology, rest assured
that the innovators are coming. Ready or not, technology
is ubiquitous.

In short, technological megatrends are transforming
businesses, markets and entire economies. 2014 saw the
advancement of innovations that continue to shape our
lives, such as cloud technology, increasing accessibility of
powerful computing; seamless mobile and the Internet of
Things (IoT), connecting billions of people through personal
devices; 3-D printing, recasting the way we think about
design and production; and machine learning, bringing forth
technology that is more intelligent and driving a wave of
industrial automation and potentially disruptive applications.

Further, we see fundamental changes across the industrial
landscape, as connected and intelligent machines continue
to make processes more efficient, flexible and productive.
Likened to a new industrial revolution, the transformation
brought forth by technology is creating both enormous
opportunities and structural challenges. In addition to the
potential impacts on human capital, incumbents across
traditional sectors face increasing competition as technology
and tech companies enter their space and alter their
competitive landscape. For example, when utility companies
invest in smart grid software rather than buying transformers;
when customers demand a central hub to control their lights,
HVAC and entrance to their houses; and when automotive
manufacturers simulate and measure the impact of design
on performance, we see technology-driven disruptions that
are requiring the currently more established manufacturers
to adapt.

In this way, the small-run possibilities of 3-D printing are
providing the potential for increased customization and
geographical dispersion of manufacturing. As much as we
have seen the emergence of “Software as a Service” (SaaS)
alter the competitive landscape, a similar and likely outcome
will be the rise of “Manufacturing as a Service” (MaaS),
whereby designers send layouts for output to local 3-D
printers — or even directly to the customer for production
on-site.

In the wake of such monumental change, Goldman Sachs
is working with clients around the world as they contend
with the direct and knock-on effects of the technology
revolution. This means helping smaller innovative businesses
as well as entrepreneurs capitalize on reduced costs of entry
to compete, grow — and sometimes grapple with hyper-

10 Goldman Sachs 2014 Annual Report

Our Work with Clients

Impacts on Business

The Internet of Things

Related Content on
goldmansachs.com

View video

10,000 Small Businesses,
Inaugural Graduations
In Miami and Detroit, more
than 130 small business owners
gain skills and connections they
need to grow their companies,
create new jobs and help drive
economic progress.

Miami: goldmansachs.com/
ar-2014/10ksb-miami-video

Detroit: goldmansachs.com/
ar-2014/10ksb-detroit-video

View video

The DC Clean Rivers Project will
help restore and protect the ecosystems
and biodiversity in and around the
waterways of Washington, D.C.
goldmansachs.com/ar-2014/
dc-water-video

Case Study
Hawaii Green Bond
Goldman Sachs designed an innovative
green bond securitization to fund
affordable loans for renewable energy.
goldmansachs.com/ar-2014/hawaii-
green-bond-case-study

View video

Overview:
Environmental
Finance Innovation
Summit 2014
A number of innovative fi nancing
mechanisms and capital markets
solutions are being deployed to
scale up greater investment in
environmental markets, including
in clean tech, energy effi ciency,
water and green infrastructure.
goldmansachs.com/ar-2014/
efi -summit-video

In Memoriam

John C. Whitehead
Former Chairman and Senior Partner

Few people have contributed more to our culture and
generations of leaders at Goldman Sachs than John Whitehead,
who passed away this year. We honor his achievements and
contributions in service to his country and our firm. John was
a man of enormous grace and integrity, and his legacy will
endure in the institutions he led and in the lives of those he
cared for and mentored.

As a 22-year-old, John served as an ensign on the USS Thomas
Jefferson, where he was placed in charge of five of the landing
craft for the invasion of Normandy during World War II. His
Higgins Boat landed on Omaha Beach, a site of extraordinary
loss of life.

During his 37 years with Goldman Sachs, John was an
influential figure whose decisiveness, high ethical standards
and creativity helped lead the firm through a significant period
of growth. One of John’s most important legacies was the

codification of the Goldman Sachs Business Principles, which
he crafted in 1979.

Shortly after retiring from the firm in 1984, John was asked to
become deputy secretary of state of the United States, a role
he held until early 1989. He was later awarded the Presidential
Citizens Medal by President Ronald Reagan.

Throughout his life, he remained committed to public service
and was active in innumerable educational, civic and charitable
organizations. In late 2001, he was appointed chair of the board
of the Lower Manhattan Development Corporation to help
revitalize that part of New York City after the devastation of
September 11th.

John was a gifted leader, effective visionary and outstanding
mentor. We will miss him.

Goldman Sachs 2014 Annual Report 23

Our Business

The Goldman Sachs Group, Inc. is a leading global investment banking, securities and investment
management firm that provides a wide range of financial services to a substantial and diversified
client base that includes corporations, financial institutions, governments and high-net-worth
individuals. Founded in 1869, the firm is headquartered in New York and maintains offices in
all major financial centers around the world.

We report our activities in the following four business segments:

Investment Banking
We provide 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, as well as derivative
transactions directly related to these activities.

Investment Banking
Net Revenues (in millions)

2014

2013

2012

$6,464

$6,004

$4,926

Institutional Client Services
We facilitate client transactions and make markets in fixed income, equity,
currency and commodity products, primarily with institutional clients such
as corporations, financial institutions, investment funds and governments.
We also make markets in and clear client transactions on major stock,
options and futures exchanges worldwide and provide financing, securities
lending and other prime brokerage services to institutional clients.

Institutional Client Services
Net Revenues (in millions)

2014

2013

2012

$15,197

$15,721

$18,124

Investing & Lending
We invest in and originate loans to provide financing to clients. These
investments and loans are typically longer-term in nature. We make
investments, some of which are consolidated, directly and indirectly through
funds that we manage, in debt securities and loans, public and private equity
securities, and real estate entities.

Investment Management
We provide investment management services and offer 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.
We also offer wealth advisory services, including portfolio management and
financial counseling, and brokerage and other transaction services to high-
net-worth individuals and families.

24 Goldman Sachs 2014 Annual Report

Investing & Lending
Net Revenues (in millions)

2014

2013

2012

Investment Management
Net Revenues (in millions)

2014

2013

2012

$6,825

$7,018

$5,891

$6,042

$5,463

$5,222

Financial Highlights

$ and share amounts in millions, except per share amounts and assets under supervision

Operating Results
Net revenues
Pre-tax earnings
Net earnings
Net earnings applicable to common shareholders
Return on average common shareholders’ equity

Common Share Data
Diluted earnings per common share
Average diluted common shares outstanding
Dividends declared per common share
Book value per common share
Tangible book value per common share 1
Ending stock price

Financial Condition and Leverage Ratio
Total assets
Unsecured long-term borrowings
Total shareholders’ equity
Leverage ratio 2

Selected Data
Total staff
Assets under supervision (in billions)

Year Ended or as of December

2014

2013

2012

$ 34,528
12,357
8,477
8,077
11.2%

17.07
473.2
2.25
163.01
153.79
193.83

$856,240
167,571
82,797
10.3x

$ 34,206
11,737
8,040
7,726
11.0%

15.46
499.6
2.05
152.48
143.11
177.26

$911,507
160,965
78,467
11.6x

$ 34,163
11,207
7,475
7,292
10.7%

14.13
516.1
1.77
144.67
134.06
127.56

$938,555
167,305
75,716
12.4x

34,000
1,178

32,900
1,042

32,400
965

1. Tangible book value per common share is computed by dividing tangible common shareholders’ equity (total shareholders’ equity less preferred stock, goodwill and
identifiable intangible assets) by the number of common shares outstanding,
including restricted stock units granted to employees with no future service
requirements. See “Financial Information — Management’s Discussion and Analysis — Balance Sheet and Funding Sources — Balance Sheet Analysis and Metrics”
for further information about our tangible common shareholders’ equity and tangible book value per common share, which are both non-GAAP measures.

2. The leverage ratio equals total assets divided by total shareholders’ equity.

Goldman Sachs 2014 Annual Report 25

28
29
30
31
34
34
35
48
55
62
64
66
67
72
79
85
93
94

98
99
100
101
102

Financial Information — Table of Contents

Management’s Discussion and Analysis

Introduction
Executive Overview
Business Environment
Critical Accounting Policies
Recent Accounting Developments
Use of Estimates
Results of Operations
Balance Sheet and Funding Sources
Equity Capital Management and Regulatory Capital
Regulatory Developments
Off-Balance-Sheet Arrangements and Contractual Obligations
Risk Management and Risk Factors

Overview and Structure of Risk Management
Liquidity Risk Management
Market Risk Management
Credit Risk Management
Operational Risk Management
Certain Risk Factors That May Affect Our Businesses

Management’s Report on Internal Control over Financial Reporting

Report of Independent Registered Public Accounting Firm

Consolidated Financial Statements

Consolidated Statements of Earnings
Consolidated Statements of Comprehensive Income
Consolidated Statements of Financial Condition
Consolidated Statements of Changes in Shareholders’ Equity
Consolidated Statements of Cash Flows

26 Goldman Sachs 2014 Annual Report

Financial Information — Table of Contents

Notes to Consolidated Financial Statements

Note 1.
Note 2.
Note 3.
Note 4.

Description of Business
Basis of Presentation
Significant Accounting Policies
Financial Instruments Owned, at Fair Value and Financial Instruments Sold, But Not Yet
Purchased, at Fair Value
Fair Value Measurements
Cash Instruments
Derivatives and Hedging Activities
Fair Value Option
Loans Receivable

Securitization Activities

Note 5.
Note 6.
Note 7.
Note 8.
Note 9.
Note 10. Collateralized Agreements and Financings
Note 11.
Note 12. Variable Interest Entities
Note 13. Other Assets
Note 14. Deposits
Note 15.
Short-Term Borrowings
Note 16. Long-Term Borrowings
Note 17. Other Liabilities and Accrued Expenses
Note 18. Commitments, Contingencies and Guarantees
Shareholders’ Equity
Note 19.
Note 20. Regulation and Capital Adequacy
Note 21. Earnings Per Common Share
Note 22. Transactions with Affiliated Funds
Note 23.
Note 24.
Note 25. Business Segments
Note 26. Credit Concentrations
Note 27. Legal Proceedings
Note 28. Employee Benefit Plans
Note 29. Employee Incentive Plans
Note 30. Parent Company

Interest Income and Interest Expense
Income Taxes

Supplemental Financial Information

Quarterly Results
Common Stock Price Range
Common Stock Performance
Selected Financial Data
Statistical Disclosures

103
103
104

109
110
112
121
136
143
145
149
152
156
160
160
161
163
164
170
173
183
183
184
184
187
189
190
198
199
201

202
203
203
204
205

Goldman Sachs 2014 Annual Report 27

Management’s Discussion and Analysis

Introduction

investment banking,

The Goldman Sachs Group, Inc. (Group Inc.) is a leading
global
securities and investment
management firm that provides a wide range of financial
services to a substantial and diversified client base that
includes corporations, financial institutions, governments
and high-net-worth individuals. Founded in 1869, the firm
is headquartered in New York and maintains offices in all
major financial centers around the world.

Banking,

in four business segments:
We report our activities
Investment
Services,
Investing & Lending and Investment Management. See
“Results of Operations” below for further information
about our business segments.

Institutional Client

When we use the terms “Goldman Sachs,” “the firm,”
“we,” “us” and “our,” we mean Group Inc., a Delaware
corporation, and its consolidated subsidiaries.

the

year

statements”

“Supplemental

Form 10-K for

References to “the 2014 Form 10-K” are to our Annual
ended
Report
December 31, 2014. All references to “the consolidated
financial
Financial
Information” are to Part II, Item 8 of our Annual Report on
Form 10-K for the year ended December 31, 2014. All
references to 2014, 2013 and 2012 refer to our years ended,
or the dates, as the context requires, December 31, 2014,
December 31, 2013 and December 31, 2012, respectively.
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.

In this discussion and analysis of our financial condition
and results of operations, we have included information
that may constitute “forward-looking statements” within
the meaning of the safe harbor provisions of the U.S. Private
Securities Litigation Reform Act of 1995. Forward-looking
statements are not historical facts, but instead represent
only our beliefs regarding future events, many of which, by
their nature, are inherently uncertain and outside our
control. This information includes statements other than
historical information or statements of current condition
and may relate to our future plans and objectives and
results, among other
things, and may also include
statements about the effect of changes to the capital and
leverage rules applicable to banks and bank holding
companies, the impact of the Dodd-Frank Act on our
businesses and operations, and various legal proceedings or
mortgage-related contingencies as set forth under “Legal
Proceedings”
Mortgage-Related
Contingencies” in Notes 27 and 18, respectively, to the
consolidated financial statements, as well as statements
about the results of our Dodd-Frank Act and firm stress
tests, statements about the objectives and effectiveness of
our business continuity plan, information security program,
risk management and liquidity policies, statements about
trends in or growth opportunities for our businesses,
statements about our future status, activities or reporting
under U.S. or non-U.S. banking and financial regulation,
and statements about our investment banking transaction
backlog.

“Certain

and

By identifying these statements for you in this manner, we
are alerting you to the possibility that our actual results and
financial condition may differ, possibly materially, from the
anticipated results and financial condition indicated in
these forward-looking statements. Important factors that
could cause our actual results and financial condition to
differ from those indicated in these forward-looking
statements include, among others, those discussed below
under “Certain Risk Factors That May Affect Our
Businesses” as well as “Risk Factors” in Part I, Item 1A of
the 2014 Form 10-K and “Cautionary Statement Pursuant
to the U.S. Private Securities Litigation Reform Act of
1995” in Part I, Item 1 of the 2014 Form 10-K.

28 Goldman Sachs 2014 Annual Report

Management’s Discussion and Analysis

Executive Overview

2014 versus 2013. The firm generated net earnings of
$8.48 billion and diluted earnings per common share of
$17.07 for 2014, an increase of 5% and 10%, respectively,
compared with $8.04 billion and $15.46 per share for
2013. Return on average common shareholders’ equity
(ROE) was 11.2% for 2014, compared with 11.0% for
2013. Book value per common share was $163.01 and
tangible book value per common share 1 was $153.79 as of
December 2014, both approximately 7% higher compared
with the end of 2013.

Net revenues were $34.53 billion for 2014, essentially
unchanged compared with 2013, as higher net revenues in
both Investment Management and Investment Banking,
reflecting strong performances in these businesses, were
largely offset by slightly lower net revenues in both
Institutional Client Services and Investing & Lending.

Operating expenses were $22.17 billion for 2014,
essentially unchanged compared with 2013. Non-
compensation expenses were slightly lower compared with
the prior year, primarily reflecting lower net provisions for
litigation and regulatory proceedings, while compensation
and benefits expenses were essentially unchanged.

During 2014, as part of a firmwide initiative to reduce
activities with lower returns, total assets were reduced by
$55 billion to $856 billion as of December 2014, while pre-
tax margin improved approximately 150 basis points to
35.8%.

We also maintained strong capital ratios and liquidity,
while returning $6.52 billion of capital to shareholders
the firm repurchased
during 2014. During the year,
31.8 million shares of its common stock for a total cost of
$5.47 billion and paid common dividends of $1.05 billion.
Our Common Equity Tier 1 ratio 2 was 12.2% as of
December 2014, under the Basel III Advanced approach
reflecting
In
addition, our global core liquid assets 3 were $183 billion as
of December 2014.

transitional provisions.

applicable

the

2013 versus 2012. The firm generated net earnings of
$8.04 billion and diluted earnings per common share of
$15.46 for 2013, an increase of 8% and 9%, respectively,
compared with $7.48 billion and $14.13 per share for
2012. ROE was 11.0% for 2013, compared with 10.7%
for 2012. Book value per common share increased
approximately 5% to $152.48 and tangible book value per
common share 1 increased approximately 7% to $143.11
compared with the end of 2012.

Net revenues were $34.21 billion for 2013, essentially
unchanged compared with 2012, as significantly higher net
revenues in Investment Banking and higher net revenues in
both Investing & Lending and Investment Management
were offset by lower net revenues in Institutional Client
Services.

Operating expenses were $22.47 billion for 2013, 2%
lower than 2012, as both compensation and benefits
expenses and non-compensation expenses decreased
slightly. The decline
in non-compensation expenses
reflected the sale of a majority stake in our Americas
reinsurance
and
amortization expenses, partially offset by higher net
provisions for litigation and regulatory proceedings.

depreciation

business

lower

and

During 2013, the firm repurchased 39.3 million shares of
its common stock for a total cost of $6.17 billion, while
maintaining strong capital levels. In addition, our global
core liquid assets 3 were $184 billion as of December 2013.

See “Results of Operations — Segment Operating Results”
below for information about net revenues and pre-tax
earnings for each of our business segments.

Our businesses, by their nature, do not produce predictable
earnings. Our results in any given period can be materially
financial markets,
affected by conditions
economic conditions generally and other factors. For a
further discussion of the factors that may affect our future
operating results,
see “Certain Risk Factors That
May Affect Our Businesses” below, as well as “Risk
Factors” in Part I, Item 1A of the 2014 Form 10-K.

in global

1. Tangible book value per common share is a non-GAAP measure and may not be comparable to similar non-GAAP measures used by other companies. See “Balance
Sheet and Funding Sources — Balance Sheet Analysis and Metrics” below for further information about our calculation of tangible book value per common share.

2. See Note 20 to the consolidated financial statements for further information about our capital ratios.

3. See “Risk Management and Risk Factors — Liquidity Risk Management” for further information about our global core liquid assets.

Goldman Sachs 2014 Annual Report 29

Management’s Discussion and Analysis

Business Environment

oil

and

second half of 2014,

During 2014, real gross domestic product (GDP) growth
appeared stable and subdued in most major economies,
supported by solid private sector growth in the United
States and the reduction of fiscal headwinds, particularly in
the United States and the Euro area. Ongoing U.S. labor
market improvements and robust U.S. consumer activity
were notable trends in 2014. Monetary policy generally
remained accommodative, helping most major advanced-
economy equity markets to increase during the year, while
longer-dated government bond yields generally declined.
the U.S. dollar
During the
strengthened
declined. Although
macroeconomic conditions were fairly stable, U.S. equity
market volatility increased towards the end of the year,
alongside political uncertainty, particularly in Greece,
Russia and the Middle East, as well as short-lived Ebola
concerns.
industry-wide
underwriting activity remained strong in both equity and
and
debt,
acquisitions activity increased compared with 2013.
Industry-wide announced mergers and acquisitions activity
significantly increased compared with 2013. For a further
discussion of how market conditions may affect our
businesses, see “Certain Risk Factors That May Affect Our
Businesses” below, as well as “Risk Factors” in Part I,
Item 1A of the 2014 Form 10-K.

completed mergers

industry-wide

investment

banking,

prices

and

Global
During 2014, real GDP growth appeared to improve in
advanced economies and slow in emerging markets.
Developed market growth improvements were largest in the
United Kingdom and Euro area, while Japan’s growth
declined and the United States’ growth improvement was
modest. In emerging markets, headwinds from slowing
domestic demand offset
improving current account
balances and contributed to a general slowdown in growth.
Unemployment rates in both the United States and United
Kingdom declined in 2014 and at faster paces than in 2013.
The Euro area unemployment rate declined in 2014,
following an increase in 2013. The U.S. Federal Reserve
ended its monthly asset purchase program in the fourth
quarter of 2014, after tapering its purchases for several
months. The European Central Bank (ECB) reduced its
policy interest rate twice during the year, and along with
the Bank of Japan (BOJ), announced further easing policies.

30 Goldman Sachs 2014 Annual Report

United States
In the United States, real GDP increased by 2.4% in 2014,
compared with an increase of 2.2% in 2013. Consumer
expenditures growth and business fixed investment growth
both improved, while residential
investment growth
slowed. The pickup in consumer expenditures was
primarily driven by growth in real disposable income,
which contracted in 2013. Measures of
consumer
confidence improved, as the unemployment rate fell during
the year. House prices, housing starts and house sales
improvements,
increased in 2014, but
particularly for starts and sales, slowed compared with
2013. Measures of inflation were mostly stable during
2014. The U.S. Federal Reserve maintained its federal funds
rate at a target range of zero to 0.25% during the year,
ended its monthly program to purchase U.S. Treasury
securities and mortgage-backed securities in the fourth
quarter of 2014 and kept
forward guidance broadly
unchanged. The yield on the 10-year U.S. Treasury note
declined by 87 basis points during 2014 to 2.17%. In equity
markets, the NASDAQ Composite Index, the S&P 500
Index and the Dow Jones Industrial Average increased by
13%, 11% and 8%, respectively, during 2014.

the pace of

inflation remain subdued. The ECB cut

Europe
In the Euro area, real GDP increased by 0.9% in 2014,
compared with a contraction of 0.4% in 2013. While an
improvement from 2013, growth remained at a suppressed
level. Fixed investment and consumer spending both grew
modestly in 2014, after contracting in 2013, and measures
of
the main
refinancing operations and deposit rates by 20 basis points
to 0.05% and (0.20)%, respectively, announced a purchase
program for asset-backed securities and covered bonds in
the fourth quarter of 2014, and discussed the possibility of
a quantitative easing program targeting sovereign bonds.
The Euro depreciated by 12% against the U.S. dollar. In the
United Kingdom, real GDP increased by 2.6% in 2014,
compared with an increase of 1.7% in 2013. The Bank of
England maintained its official bank rate at 0.50%. The
British pound depreciated by 6% against the U.S. dollar.
Yields on 10-year government bonds in the region generally
fell during the year. In equity markets, the DAX Index and
the Euro Stoxx 50 Index increased by 3% and 1%,
respectively, while the FTSE 100 Index and the CAC 40
Index decreased by 3% and 1%, respectively, during 2014.

Management’s Discussion and Analysis

Asia
In Japan, real GDP had no growth in 2014, a sharp
slowdown compared with an increase of 1.6% in 2013.
Real GDP contracted significantly during the second and
third quarters of 2014, as consumer expenditures fell, in
part resulting from a consumption tax hike in April.
However, real GDP picked up again in the fourth quarter of
2014. Although measures of inflation increased in 2014,
inflation remained below the BOJ’s 2% inflation target
excluding the impact of the consumption tax hike. During
the fourth quarter of 2014, the BOJ announced further
quantitative and qualitative monetary easing and removed
the 2-year timing target for achieving 2% price stability,
making the timeframe open ended. During the year, the
yield on 10-year Japanese government bonds declined, the
U.S. dollar appreciated by 14% against the Japanese yen
and, in equity markets, the Nikkei 225 Index increased by
7%.

In China, real GDP increased by 7.4% in 2014, compared
inflation remained
with 7.7% in 2013. Measures of
moderate and the People’s Bank of China cut its one-year
lending rate by 40 basis points during the fourth quarter of
2014. The U.S. dollar appreciated by 2% against the
the Shanghai
Chinese yuan and,
Composite Index increased by 53%, as regulatory changes
influenced sentiment. In contrast, in Hong Kong, the Hang
Seng Index increased by 1%.

in equity markets,

In India, real GDP increased at a solid pace in both 2014
and 2013. The rate of wholesale inflation declined
compared with 2013. The U.S. dollar appreciated by 2%
against the Indian rupee and, in equity markets, the BSE
Sensex Index increased by 30% during 2014.

Other Markets
In Brazil, estimated real GDP had no growth in 2014,
compared with an increase of 2.5% in 2013, as private
consumption growth decelerated and fixed investment
spending contracted. The U.S. dollar appreciated by 12%
against the Brazilian real and,
in equity markets, the
Bovespa Index decreased by 3%. In Russia, real GDP
increased by 0.6% in 2014, compared with an increase of
1.3% in 2013. Tensions related to the political situation in
Ukraine and Russia generated concern during the year. The
U.S. dollar appreciated by 76% against the Russian ruble
and, in equity markets, the MICEX Index decreased by 7%
during 2014.

Critical Accounting Policies

Fair Value
Fair Value Hierarchy. Financial instruments owned, at fair
sold, but not yet
instruments
value and Financial
purchased, at fair value (i.e., inventory), as well as certain
other financial assets and financial liabilities, are reflected
in our consolidated statements of financial condition at fair
value (i.e., marked-to-market), with related gains or losses
generally recognized in our consolidated statements of
fair value to measure financial
earnings. The use of
instruments is fundamental
to our risk management
practices and is our most critical accounting policy.

The fair value of a financial instrument is the amount that
would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market
participants at the measurement date. We measure certain
financial assets and financial liabilities as a portfolio (i.e.,
based on its net exposure to market and/or credit risks). In
determining fair value, the hierarchy under U.S. generally
accepted accounting principles (U.S. GAAP) gives (i) the
highest priority to unadjusted quoted prices in active
markets for identical, unrestricted assets or liabilities
(level 1 inputs), (ii) the next priority to inputs other than
level 1 inputs that are observable, either directly or
indirectly (level 2 inputs), and (iii) the lowest priority to
inputs that cannot be observed in market activity (level 3
inputs). Assets and liabilities are classified in their entirety
based on the lowest level of input that is significant to their
fair value measurement.

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

Goldman Sachs 2014 Annual Report 31

Management’s Discussion and Analysis

Instruments categorized within level 3 of the fair value
hierarchy are those which require one or more significant
inputs that are not observable. As of December 2014 and
December 2013, level 3 financial assets represented 4.9%
and 4.4%, respectively, of our total assets. Absent evidence
to the contrary, instruments classified within level 3 of the
fair value hierarchy are initially valued at transaction price,
which is considered to be the best initial estimate of fair
value. Subsequent to the transaction date, we use other
methodologies to determine fair value, which vary based on
the type of instrument. Estimating the fair value of level 3
financial instruments requires judgments to be made. These
judgments include:
‰ Determining the appropriate valuation methodology and/
or model for each type of level 3 financial instrument;
‰ Determining model inputs based on an evaluation of all
relevant
including prices
evidenced by market transactions, interest rates, credit
spreads, volatilities and correlations; and

empirical market data,

‰ Determining

appropriate

adjustments,
including those related to illiquidity or counterparty
credit quality.

valuation

the methodology, valuation inputs and
Regardless of
assumptions are only changed when corroborated by
substantive evidence.

control

infrastructure

instruments. Our

to ensuring that all of our

Controls Over Valuation of Financial
Instruments.
in our
Market makers and investment professionals
revenue-producing units are responsible for pricing our
financial
is
independent of
the revenue-producing units and is
financial
fundamental
instruments are appropriately valued at market-clearing
levels. In the event that there is a difference of opinion in
situations where estimating the fair value of financial
instruments requires judgment (e.g., calibration to market
comparables or trade comparison, as described below), the
final valuation decision is made by senior managers in
control and support functions that are independent of the
price
revenue-producing
verification is critical
to ensuring that our financial
instruments are properly valued.

independent

units.

This

Price Verification. All financial instruments at fair value in
levels 1, 2 and 3 of the fair value hierarchy are subject to
our independent price verification process. The objective of
price verification is to have an informed and independent
financial
opinion with regard to the valuation of
instruments under review. Instruments that have one or
more significant inputs which cannot be corroborated by
external market data are classified within level 3 of the fair
value hierarchy. Price verification strategies utilized by our
independent control and support functions include:
‰ Trade Comparison. Analysis of trade data (both internal
and external where available) is used to determine the
most relevant pricing inputs and valuations.

‰ External Price Comparison. Valuations and prices are
compared to pricing data obtained from third parties
IDC,
(e.g., broker or dealers, MarkIt, Bloomberg,
TRACE). Data obtained from various
is
compared to ensure consistency and validity. When
broker or dealer quotations or
third-party pricing
vendors are used for valuation or price verification,
greater priority is generally given to executable
quotations.

sources

‰ Calibration to Market Comparables. Market-based
transactions are used to corroborate the valuation of
positions with
and
components.

characteristics,

similar

risks

‰ Relative Value Analyses. Market-based transactions
are analyzed to determine the similarity, measured in
terms of risk, liquidity and return, of one instrument
relative to another or, for a given instrument, of one
maturity relative to another.

‰ Collateral Analyses. Margin calls on derivatives are
analyzed to determine implied values which are used to
corroborate our valuations.

‰ Execution of Trades. Where appropriate, trading desks
are instructed to execute trades in order to provide
evidence of market-clearing levels.

‰ Backtesting.

Valuations

are

corroborated

comparison to values realized upon sales.

See Notes 5 through 8 to the consolidated financial
fair value
for
statements
measurements.

information about

further

32 Goldman Sachs 2014 Annual Report

Management’s Discussion and Analysis

Review of Net Revenues.
Independent control and
support functions ensure adherence to our pricing policy
through a combination of daily procedures, including the
explanation and attribution of net revenues based on the
underlying factors. Through this process we independently
validate net revenues, identify and resolve potential fair
value or trade booking issues on a timely basis and seek to
ensure that risks are being properly categorized and
quantified.

validation group,

Review of Valuation Models. The firm’s independent
model
consisting of quantitative
professionals who are separate from model developers,
performs an independent model approval process. This
process incorporates a review of a diverse set of model and
trade parameters across a broad range of values (including
extreme and/or improbable conditions) in order to critically
evaluate:
‰ The model’s

suitability
management of a particular instrument type;

valuation and risk

for

‰ The model’s accuracy in reflecting the characteristics of

the related product and its significant risks;

‰ The suitability of the calculation techniques incorporated

in the model;

‰ The model’s consistency with models

for

similar

products; and
‰ The model’s
assumptions.

sensitivity to input parameters and

New or changed models are reviewed and approved prior
to being put into use. Models are evaluated and re-
approved annually to assess the impact of any changes in
the product or market and any market developments in
pricing theories.

Level 3 Financial Assets at Fair Value. Total level 3
financial assets were $42.01 billion and $40.01 billion as of
December 2014 and December 2013, respectively.

See Notes 5 through 8 to the consolidated financial
statements for further information about level 3 financial
assets, including changes in level 3 financial assets and
related fair value measurements.

Goodwill and Identifiable Intangible Assets
Goodwill. Goodwill is the cost of acquired companies in
excess of the fair value of net assets, including identifiable
intangible assets, at the acquisition date. Goodwill
is
assessed annually in the fourth quarter for impairment, or
more frequently if events occur or circumstances change
that indicate an impairment may exist, by first assessing
qualitative factors to determine whether it is more likely
than not that the fair value of a reporting unit is less than its
carrying amount. If the results of the qualitative assessment
are not conclusive, a quantitative goodwill test would be
performed by comparing the estimated fair value of each
reporting unit with its estimated net book value.

The

industry

qualitative

assessment

conditions,

During the fourth quarter of 2014, we assessed goodwill for
impairment.
required
management to make judgments and to evaluate several
limited to,
factors, which included, but were not
macroeconomic
and market
considerations, cost factors, overall financial performance,
entity-specific events, events affecting reporting units and
sustained changes in our stock price. Based on our
evaluation of these factors, we determined that it was more
likely than not that the fair value of each of the reporting
respective carrying amount, and
units exceeded its
therefore, we determined that goodwill was not impaired
and that a quantitative goodwill impairment test was not
required.

If we experience a prolonged or severe period of weakness
in the business environment or financial markets, our
goodwill could be impaired in the future. In addition,
significant changes to critical inputs of the quantitative
goodwill impairment test (e.g., cost of equity) could cause
the estimated fair value of our reporting units to decline,
which could result in an impairment of goodwill in the
future.

See Note 13 to the consolidated financial statements for
further information about our goodwill.

Goldman Sachs 2014 Annual Report 33

Use of Estimates

The use of generally accepted accounting principles requires
management to make certain estimates and assumptions. In
addition to the estimates we make in connection with fair
value measurements, and the accounting for goodwill and
identifiable intangible assets, the use of estimates and
assumptions is also important in determining provisions for
losses that may arise from litigation, regulatory proceedings
and tax audits.

We estimate and provide for potential losses that may arise
out of litigation and regulatory proceedings to the extent
that such losses are probable and can be reasonably
estimated. In addition, we estimate the upper end of the
range of reasonably possible aggregate loss in excess of the
related reserves for litigation proceedings where the firm
believes the risk of loss is more than slight. See Notes 18
and 27 to the consolidated financial statements for
information about certain judicial, regulatory and legal
proceedings.

Significant judgment is required in making these estimates
and our final
liabilities may ultimately be materially
different. Our total estimated liability in respect of litigation
and regulatory proceedings is determined on a case-by-case
basis and represents an estimate of probable losses after
considering, among other factors, the progress of each case
or proceeding, our experience and the experience of others
in similar cases or proceedings, and the opinions and views
of legal counsel.

In accounting for income taxes, we recognize tax positions
in the financial statements only when it is more likely than
not that the position will be sustained on examination by
the relevant taxing authority based on the technical merits
of the position. See Note 24 to the consolidated financial
statements for further information about accounting for
income taxes.

Management’s Discussion and Analysis

for

certain

commodities-related

Identifiable Intangible Assets. We amortize our
identifiable intangible assets over their estimated useful
lives using the straight-line method or based on economic
usage
intangibles.
Identifiable intangible assets are tested for impairment
whenever events or changes in circumstances suggest that
an asset’s or asset group’s carrying value may not be fully
recoverable. See Note 13 to the consolidated financial
statements for the carrying value and estimated remaining
useful lives of our identifiable intangible assets by major
asset class.

the value of our

A prolonged or severe period of market weakness, or
significant changes in regulation could adversely impact our
businesses and impair
identifiable
intangible assets. In addition, certain events could indicate a
potential impairment of our identifiable intangible assets,
including weaker business performance resulting in a
decrease in our customer base and decreases in revenues
from commodities-related transportation rights, customer
is
contracts and relationships. Management
required to evaluate whether indications of potential
impairment have occurred, and to test intangible assets for
impairment if required.

judgment

An impairment, generally calculated as the difference
between the estimated fair value and the carrying value of
an asset or asset group, is recognized if the total of the
estimated undiscounted cash flows relating to the asset or
asset group is less than the corresponding carrying value.

See Note 13 to the consolidated financial statements for
information about
identifiable
intangible assets.

impairments of our

Recent Accounting Developments

See Note 3 to the consolidated financial statements for
information about Recent Accounting Developments.

34 Goldman Sachs 2014 Annual Report

Management’s Discussion and Analysis

Results of Operations

The composition of our net revenues has varied over time as
financial markets and the scope of our operations have
changed. The composition of net revenues can also vary
over the shorter term due to fluctuations in U.S. and global
economic and market conditions. See “Certain Risk Factors
That May Affect Our Businesses” below and “Risk
Factors” in Part I, Item 1A of the 2014 Form 10-K for a
further discussion of the impact of economic and market
conditions on our results of operations.

Financial Overview
The table below presents an overview of our financial
results.

$ in millions, except
per share amounts

Net revenues
Pre-tax earnings
Net earnings
Net earnings applicable to common

shareholders

Diluted earnings per common share
Return on average common

Year Ended December

2014

2013

2012

$34,528
12,357
8,477

$34,206
11,737
8,040

$34,163
11,207
7,475

8,077
17.07

7,726
15.46

7,292
14.13

shareholders’ equity 1

11.2%

11.0%

10.7%

1. ROE is computed by dividing net earnings applicable to common
shareholders by average monthly common shareholders’ equity. The table
below presents our average common shareholders’ equity.

$ in millions

Total shareholders’ equity
Preferred stock
Common shareholders’ equity

Average for the
Year Ended December

2014

2013

2012

$80,839
(8,585)
$72,254

$77,353
(6,892)
$70,461

$72,530
(4,392)
$68,138

The table below presents selected financial ratios.

Net earnings to average assets
Return on average total shareholders’

equity 1

Total average equity to average assets
Dividend payout ratio 2

Year Ended December

2014

0.9%

2013

0.9%

2012

0.8%

10.5%
9.0%
13.2%

10.4% 10.3%
7.7%
13.3% 12.5%

8.2%

1. Return on average total shareholders’ equity is computed by dividing net

earnings by average monthly total shareholders’ equity.

2. Dividend payout

ratio is computed by dividing dividends declared per

common share by diluted earnings per common share.

Net Revenues
The table below presents our net revenues by line item on
the consolidated statements of earnings.

$ in millions

2014

2013

2012

Year Ended December

Investment banking
Investment management
Commissions and fees
Market making
Other principal transactions
Total non-interest revenues
Interest income
Interest expense
Net interest income
Total net revenues

$ 6,464
5,748
3,316
8,365
6,588
30,481
9,604
5,557
4,047
$34,528

$ 6,004
5,194
3,255
9,368
6,993
30,814
10,060
6,668
3,392
$34,206

$ 4,941
4,968
3,161
11,348
5,865
30,283
11,381
7,501
3,880
$34,163

In the table above:
‰ “Investment banking” is

comprised of

interest)
assignments,

revenues
from financial advisory and
(excluding net
underwriting
derivative
transactions directly related to these assignments. These
activities are included in our
Investment Banking
segment.

as well

interest)

‰ “Investment management” is comprised of revenues
(excluding net
from providing investment
management services to a diverse set of clients, as well as
wealth advisory services and certain transaction services
to high-net-worth individuals and families. These
activities are included in our Investment Management
segment.

‰ “Commissions and fees” is comprised of revenues from
executing and clearing client transactions on major stock,
options and futures exchanges worldwide, as well as
over-the-counter (OTC) transactions. These activities are
included in our
Institutional Client Services and
Investment Management segments.

‰ “Market making” is comprised of revenues (excluding
net interest) from client execution activities related to
making markets in interest rate products, credit products,
mortgages, currencies, commodities and equity products.
These activities are included in our Institutional Client
Services segment.

‰ “Other principal transactions” is comprised of revenues
(excluding net interest) from our investing activities and
the origination of loans to provide financing to clients. In
addition, “Other principal
transactions” includes
revenues related to our consolidated investments. These
activities are included in our Investing & Lending
segment.

Goldman Sachs 2014 Annual Report 35

Management’s Discussion and Analysis

2014 versus 2013
Net revenues on the consolidated statements of earnings
were $34.53 billion for 2014, essentially unchanged
compared with 2013, reflecting higher net interest income,
investment management revenues and investment banking
revenues, as well as slightly higher commissions and fees,
largely offset by lower market-making revenues and other
principal transactions revenues.

banking

activities,

During 2014, the operating environment was favorable for
investment
industry-wide
underwriting activity was strong and industry-wide mergers
and acquisitions activity increased. Improved asset prices
resulted in appreciation in the value of client assets in
investment management.
In addition, other principal
transactions were impacted by favorable company-specific
events and strong corporate performance. However, the
operating environment remained challenging for market-
making activities as economic uncertainty and low
volatility levels contributed to generally low levels of
If
activity, particularly in fixed income products.
macroeconomic concerns continue over the long term, and
client activity levels in investment banking broadly decline
or market-making activity levels remain low, or if asset
prices were to decline, net revenues would likely be
negatively impacted. See “Segment Operating Results”
below for further information about material trends and
uncertainties that may impact our results of operations.

completed mergers

Non-Interest Revenues. Investment banking revenues on
the consolidated statements of earnings were $6.46 billion
for 2014, 8% higher than 2013, due to significantly higher
revenues in financial advisory, reflecting an increase in
acquisitions,
industry-wide
primarily in the United States. Revenues in underwriting
were essentially unchanged compared with a strong 2013,
as industry-wide activity levels remained high. Revenues in
debt underwriting were slightly lower compared with 2013,
reflecting lower revenues from commercial mortgage-
related activity, while revenues in equity underwriting were
slightly higher, principally from initial public offerings.

and

Investment management revenues on the consolidated
statements of earnings were $5.75 billion for 2014, 11%
higher than 2013, reflecting higher management and other
fees, primarily due to higher average assets under
supervision, as well as higher incentive fees and transaction
revenues.

Commissions and fees on the consolidated statements of
earnings were $3.32 billion for 2014, 2% higher than 2013,
due to higher commissions and fees in both Europe and the
United States, reflecting generally higher client activity,
consistent with increases in listed cash equity market
volumes in these regions.

36 Goldman Sachs 2014 Annual Report

Market-making revenues on the consolidated statements of
earnings were $8.37 billion for 2014, 11% lower than
2013. Results for 2014 included a gain of $289 million
($270 million of which was recorded at extinguishment in
the third quarter) related to the extinguishment of certain of
our junior subordinated debt. Excluding this gain and a
gain of $211 million on the sale of a majority stake in our
European insurance business in 2013, the decrease in
market-making revenues compared with 2013 reflected
significantly lower revenues in both credit products and
equity derivatives, lower revenues in mortgages and the sale
of our Americas reinsurance business in 2013. These
decreases were partially offset by significantly higher
revenues in commodities, as well as higher revenues in
equity cash products, currencies and interest rate products.

Other principal transactions revenues on the consolidated
statements of earnings were $6.59 billion for 2014, 6%
lower than 2013. Net gains from investments in equity
securities were slightly lower due to a significant decrease in
net gains from investments in public equities, as movements
in global equity prices during 2014 were less favorable
compared with 2013, partially offset by an increase in net
gains from investments in private equities, primarily driven
by company-specific events. Net gains from debt securities
and loans were slightly higher than 2013, primarily due to
sales of certain investments during 2014. Revenues related
to our consolidated investments were significantly lower
compared with 2013, reflecting a decrease in operating
consolidated
revenues
investments.

commodities-related

from

interest

Interest

Income. Net

Net
income on the
consolidated statements of earnings was $4.05 billion for
2014, 19% higher than 2013. The increase compared with
2013 was primarily due to lower interest expense resulting
from a reduction in our total liabilities, lower costs of long-
term funding due to a decline in interest rates and the
impact of rebates in the securities services business, partially
offset by lower interest income due to a reduction in our
total assets. See “Supplemental Financial Information —
Statistical Disclosures — Distribution of Assets, Liabilities
and Shareholders’ Equity” for further information about
our sources of net interest income.

2013 versus 2012
Net revenues on the consolidated statements of earnings
were $34.21 billion for 2013, essentially unchanged
compared with 2012. 2013 included significantly higher
investment banking revenues, as well as higher other
investment
principal
management revenues. In addition, commissions and fees
were slightly higher compared with 2012. These increases
were offset by lower market-making revenues and lower net
interest income compared with 2012.

transactions

revenues

and

Management’s Discussion and Analysis

equities

in public

performance,

During 2013, a significant increase in global equity prices
contributed to improved industry-wide equity underwriting
activity in investment banking, appreciation in the value of
client assets in investment management and net gains from
in other principal
investments
transactions. Other principal
transactions were also
impacted by favorable company-specific events and strong
corporate
debt
underwriting activity in investment banking remained solid,
as interest rates remained low. However, macroeconomic
concerns continued to weigh on industry-wide mergers and
acquisitions
and
contributed to a challenging operating environment for
market-making activities,
in
activity levels during 2013. See “Segment Operating
Results” below for further information about material
trends and uncertainties that may impact our results of
operations.

resulting in fluctuations

industry-wide

investment

banking,

activity

and

Non-Interest Revenues. Investment banking revenues on
the consolidated statements of earnings were $6.00 billion
for 2013, 22% higher than 2012, reflecting significantly
higher revenues in underwriting, due to strong revenues in
both equity and debt underwriting. Revenues in equity
underwriting were significantly higher compared with
2012, reflecting an increase in client activity, particularly in
initial public offerings. Revenues in debt underwriting were
significantly higher compared with 2012, principally due to
leveraged finance activity. Revenues in financial advisory
were essentially unchanged compared with 2012.

Investment management revenues on the consolidated
statements of earnings were $5.19 billion for 2013, 5%
higher than 2012, reflecting higher management and other
fees, primarily due to higher average assets under
supervision.

Commissions and fees on the consolidated statements of
earnings were $3.26 billion for 2013, slightly higher than
2012, primarily reflecting higher commissions and fees in
Asia and Europe. During 2013, our average daily volumes
were higher in Asia and Europe and lower in the United
States compared with 2012, consistent with listed cash
equity market volumes.

Market-making revenues on the consolidated statements of
earnings were $9.37 billion for 2013, 17% lower than
2012. The decrease compared with 2012 was primarily due
to significantly lower
in equity products,
revenues
mortgages and interest rate products, as well as lower
revenues in currencies. The decrease in equity products was
due to the sale of our Americas reinsurance business in
2013, the sale of our hedge fund administration business in
2012 (2012 included a gain on sale of $494 million) and
lower
in derivatives, partially offset by
significantly higher revenues in cash products compared
with 2012. Revenues in commodities were higher, while
revenues in credit products were essentially unchanged
compared with 2012. In December 2013, we completed the
sale of a majority stake in our European insurance business
and recognized a gain of $211 million.

revenues

Other principal transactions revenues on the consolidated
statements of earnings were $6.99 billion for 2013, 19%
higher than 2012, reflecting a significant increase in net
gains from investments in equity securities, driven by
company-specific
corporate
performance, as well as significantly higher global equity
prices. In addition, net gains from debt securities and loans
related to our
were slightly higher, while revenues
consolidated investments were lower compared with 2012.

stronger

events

and

interest

Interest

Income. Net

Net
income on the
consolidated statements of earnings was $3.39 billion for
2013, 13% lower than 2012. The decrease compared with
2012 was primarily due to lower average yields on financial
instruments owned, at fair value, partially offset by lower
interest expense on financial instruments sold, but not yet
purchased, at fair value and collateralized financings. See
“Supplemental
Information — Statistical
Disclosures — Distribution of Assets, Liabilities and
Shareholders’ Equity” for further information about our
sources of net interest income.

Financial

Goldman Sachs 2014 Annual Report 37

Management’s Discussion and Analysis

Operating Expenses
Our operating expenses are primarily influenced by
compensation, headcount and levels of business activity. In
addition, see “Use of Estimates” for expenses that may arise
from litigation and regulatory proceedings. Compensation
and benefits includes salaries, discretionary compensation,
amortization of equity awards and other items such as
benefits. Discretionary compensation is
significantly
impacted by, among other factors, the level of net revenues,
overall financial performance, prevailing labor markets,
business mix,
share-based
structure
compensation programs and the external environment.

our

the

The table below presents our operating expenses and total
staff (which includes employees, consultants and temporary
staff).

$ in millions

Year Ended December

2014

2013

2012

Compensation and benefits

$12,691

$12,613

$12,944

Brokerage, clearing, exchange and

distribution fees
Market development
Communications and technology
Depreciation and amortization
Occupancy
Professional fees
Insurance reserves 1
Other expenses
Total non-compensation expenses
Total operating expenses

2,501
549
779
1,337
827
902
—
2,585
9,480
$22,171

2,341
541
776
1,322
839
930
176
2,931
9,856
$22,469

2,208
509
782
1,738
875
867
598
2,435
10,012
$22,956

Total staff at period-end

34,000

32,900

32,400

1. Consists of changes in reserves related to our Americas reinsurance
business, including interest credited to policyholder account balances, and
expenses related to property catastrophe reinsurance claims. In April 2013,
we completed the sale of a majority stake in our Americas reinsurance
business and no longer consolidate this business.

2014 versus 2013. Operating expenses on the consolidated
statements of earnings were $22.17 billion for 2014,
essentially unchanged compared with 2013. Compensation
and benefits expenses on the consolidated statements of
essentially
earnings were $12.69 billion for 2014,
unchanged
of
ratio
2013. The
compared with
compensation and benefits to net revenues for 2014 was
36.8% compared with 36.9% for 2013. Total staff
increased 3% during 2014.

38 Goldman Sachs 2014 Annual Report

the

expenses

operating

Non-compensation
consolidated
statements of earnings were $9.48 billion for 2014, 4%
lower than 2013. The decrease compared with 2013
included a decrease in other expenses, due to lower net
provisions for litigation and regulatory proceedings and
lower
consolidated
investments, as well as a decline in insurance reserves,
reflecting the sale of our Americas reinsurance business in
2013. These decreases were partially offset by an increase in
brokerage, clearing, exchange and distribution fees. Net
provisions for litigation and regulatory proceedings for
2014 were $754 million compared with $962 million for
2013 (both primarily comprised of net provisions for
mortgage-related matters). 2014 included a charitable
contribution of $137 million to Goldman Sachs Gives, our
donor-advised fund. Compensation was reduced to fund
this charitable contribution to Goldman Sachs Gives. The
firm asks its participating managing directors to make
recommendations regarding potential charitable recipients
for this contribution.

2013 versus 2012. Operating expenses on the consolidated
statements of earnings were $22.47 billion for 2013, 2%
lower than 2012. Compensation and benefits expenses on
the consolidated statements of earnings were $12.61 billion
for 2013, 3% lower compared with $12.94 billion for
2012. The ratio of compensation and benefits to net
revenues for 2013 was 36.9% compared with 37.9% for
2012. Total staff increased 2% during 2013.

the

and

expenses

expenses,

amortization

Non-compensation
consolidated
statements of earnings were $9.86 billion for 2013, 2%
lower than 2012. The decrease compared with 2012
included a decline in insurance reserves, reflecting the sale
of our Americas reinsurance business, and a decrease in
depreciation
primarily
reflecting lower impairment charges and lower operating
expenses
related to consolidated investments. These
decreases were partially offset by an increase in other
expenses, due to higher net provisions for litigation and
regulatory proceedings, and higher brokerage, clearing,
exchange and distribution fees. Net provisions for litigation
and regulatory proceedings for 2013 were $962 million
(primarily comprised of net provisions for mortgage-related
matters) compared with $448 million for 2012 (including a
settlement with the Board of Governors of the Federal
Reserve System (Federal Reserve Board) regarding the
independent
review). 2013 included a
charitable contribution of $155 million to Goldman Sachs
Gives, our donor-advised fund. Compensation was reduced
to fund this charitable contribution to Goldman Sachs
Gives. The firm asks its participating managing directors to
make recommendations regarding potential charitable
recipients for this contribution.

foreclosure

Management’s Discussion and Analysis

Provision for Taxes
The effective income tax rate for 2014 was 31.4%,
essentially unchanged compared with 31.5% for 2013.

Segment Operating Results
The table below presents the net revenues, operating
expenses and pre-tax earnings of our segments.

The effective income tax rate for 2013 was 31.5%, down
from 33.3% for 2012. The decrease from 33.3% to 31.5%
was primarily due to a determination that certain non-U.S.
earnings will be permanently reinvested abroad.

In December 2014, the rules related to the deferral of U.S.
tax on certain non-repatriated active financing income were
extended retroactively to January 1, 2014 through
December 31, 2014. The expiration of these rules effective
December 31, 2014 is not expected to have a material
impact on our effective tax rate for 2015.

In March 2014, New York State enacted executive budget
legislation for the 2014-2015 fiscal year which changes the
taxation of corporations doing business in the state. This
change did not have a material impact on our effective tax
rate for 2014, and we do not expect it will have a material
impact on our effective tax rate for 2015.

$ in millions

Investment Banking
Net revenues
Operating expenses
Pre-tax earnings

Institutional Client Services
Net revenues
Operating expenses
Pre-tax earnings

Investing & Lending
Net revenues
Operating expenses
Pre-tax earnings

Investment Management
Net revenues
Operating expenses
Pre-tax earnings

Total net revenues
Total operating expenses 1
Total pre-tax earnings

Year Ended December

2014

2013

2012

$ 6,464
3,688
$ 2,776

$ 6,004
3,479
$ 2,525

$ 4,926
3,333
$ 1,593

$15,197
10,880
$ 4,317

$15,721
11,792
$ 3,929

$18,124
12,490
$ 5,634

$ 6,825
2,819
$ 4,006

$ 7,018
2,686
$ 4,332

$ 5,891
2,668
$ 3,223

$ 6,042
4,647
$ 1,395

$34,528
22,171
$12,357

$ 5,463
4,357
$ 1,106

$34,206
22,469
$11,737

$ 5,222
4,296
926

$34,163
22,956
$11,207

1. Includes charitable contributions that have not been allocated to our
segments of $137 million for 2014, $155 million for 2013 and $169 million for
2012. Operating expenses related to real estate-related exit costs, previously
not allocated to our segments, have now been allocated. This allocation
reflects the change in the manner
in which management views the
performance of our segments. Reclassifications have been made to
previously
to conform to the current
amounts
presentation.

reported segment

Net revenues in our segments include allocations of interest
income and interest
securities,
expense
commodities and other positions in relation to the cash
generated by, or funding requirements of, such underlying
positions. See Note 25 to the consolidated financial
statements for further information about our business
segments.

to specific

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

Goldman Sachs 2014 Annual Report 39

2014 versus 2013. Net revenues in Investment Banking
were $6.46 billion for 2014, 8% higher than 2013.

revenues

Net revenues in Financial Advisory were $2.47 billion,
25% higher than 2013, reflecting an increase in industry-
wide completed mergers and acquisitions, primarily in the
United States. Net
in Underwriting were
$3.99 billion, essentially unchanged compared with a
strong 2013, as industry-wide activity levels remained high.
Net revenues in debt underwriting were slightly lower
compared with 2013, reflecting lower net revenues from
commercial mortgage-related activity, while net revenues in
equity underwriting were slightly higher, principally from
initial public offerings.

industry-wide

During 2014,
Investment Banking operated in an
environment generally characterized by strong industry-
wide underwriting activity in both equity and debt, and an
increase
and
acquisitions activity compared with 2013. Industry-wide
announced mergers and acquisitions activity significantly
increased compared with 2013. In the future, if market
conditions become less favorable, and client activity levels
broadly decline, net revenues in Investment Banking would
likely be negatively impacted.

completed mergers

revenues

from potential

During 2014, our investment banking transaction backlog
increased significantly due to a significant increase in
estimated
advisory
net
from potential
transactions. Estimated net
underwriting transactions were lower compared with the
end of 2013, as a significant decrease in estimated net
revenues from potential equity underwriting transactions,
particularly in initial public offerings, was partially offset
by an increase in estimated net revenues from potential debt
underwriting transactions, reflecting increases across most
products.

Management’s Discussion and Analysis

Investment Banking
Our Investment Banking segment is comprised of:

Includes

Financial Advisory.
advisory
assignments with respect to mergers and acquisitions,
divestitures, corporate defense activities, restructurings,
spin-offs, risk management and derivative transactions
directly related to these client advisory assignments.

strategic

Underwriting.
Includes public offerings and private
placements, including local and cross-border transactions,
of a wide range of securities, loans and other financial
instruments, and derivative transactions directly related to
these client underwriting activities.

The table below presents the operating results of our
Investment Banking segment.

$ in millions

Financial Advisory

Equity underwriting
Debt underwriting
Total Underwriting
Total net revenues
Operating expenses
Pre-tax earnings

Year Ended December

2014

2013

2012

$2,474

$1,978

$1,975

1,750
2,240
3,990
6,464
3,688
$2,776

1,659
2,367
4,026
6,004
3,479
$2,525

987
1,964
2,951
4,926
3,333
$1,593

The table below presents our financial advisory and
underwriting transaction volumes. 1

$ in billions

Announced mergers and acquisitions
Completed mergers and acquisitions
Equity and equity-related offerings 2
Debt offerings 3

Year Ended December

2014

2013

2012

$1,002
659
78
268

$ 620
632
91
280

$ 745
575
58
243

1. Source: Thomson Reuters. Announced and completed mergers and
acquisitions volumes are based on full credit to each of the advisors in a
transaction. Equity and equity-related offerings and debt offerings are based
on full credit for single book managers and equal credit for joint book
managers. Transaction volumes may not be indicative of net revenues in a
given period. In addition, transaction volumes for prior periods may vary from
amounts previously reported due to the subsequent withdrawal or a change
in the value of a transaction.

2. Includes Rule 144A and public common stock offerings, convertible offerings

and rights offerings.

3. Includes non-convertible preferred stock, mortgage-backed securities, asset-
backed securities and taxable municipal debt. Includes publicly registered
and Rule 144A issues. Excludes leveraged loans.

40 Goldman Sachs 2014 Annual Report

Management’s Discussion and Analysis

Our investment banking transaction backlog represents an
estimate of our future net revenues from investment
banking transactions where we believe that future revenue
realization is more likely than not. We believe changes in
our investment banking transaction backlog may be a
useful indicator of client activity levels which, over the long
term, impact our net revenues. However, the time frame for
completion and corresponding revenue recognition of
transactions in our backlog varies based on the nature of
the assignment, as certain transactions may remain in our
backlog for longer periods of time and others may enter and
leave within the same reporting period. In addition, our
transaction backlog is subject to certain limitations, such as
assumptions about the likelihood that individual client
transactions will occur in the future. Transactions may be
cancelled or modified, and transactions not included in the
estimate may also occur.

Operating expenses were $3.69 billion for 2014, 6% higher
than 2013, primarily due to increased compensation and
benefits expenses, reflecting higher net revenues. Pre-tax
earnings were $2.78 billion in 2014, 10% higher than
2013.

2013 versus 2012. Net revenues in Investment Banking
were $6.00 billion for 2013, 22% higher than 2012.

Net revenues in Financial Advisory were $1.98 billion,
essentially unchanged compared with 2012. Net revenues
in Underwriting were $4.03 billion, 36% higher than 2012,
due to strong net revenues in both equity and debt
underwriting. Net revenues in equity underwriting were
significantly higher compared with 2012, reflecting an
increase in client activity, particularly in initial public
in debt underwriting were
offerings. Net
significantly higher compared with 2012, principally due to
leveraged finance activity.

revenues

During 2013,
Investment Banking operated in an
environment generally characterized by improved industry-
wide equity underwriting activity, particularly in initial
public offerings, as global equity prices significantly
increased during the year. In addition, industry-wide debt
underwriting activity remained solid, and included
significantly higher leveraged finance activity, as interest
rates remained low. However, ongoing macroeconomic
concerns continued to weigh on investment banking
activity as industry-wide mergers and acquisitions activity
declined compared with 2012.

During 2013, our investment banking transaction backlog
increased significantly due to significantly higher estimated
net revenues from both potential advisory transactions and
potential underwriting transactions. The increase in
underwriting reflects significantly higher estimated net
revenues from potential equity underwriting transactions,
primarily in initial public offerings, and higher estimated
net revenues from potential debt underwriting transactions,
principally from leveraged finance activity.

Operating expenses were $3.48 billion for 2013, 4% higher
than 2012, due to increased compensation and benefits
expenses, primarily resulting from higher net revenues. Pre-
tax earnings were $2.53 billion in 2013, 59% higher than
2012.

Goldman Sachs 2014 Annual Report 41

Management’s Discussion and Analysis

Institutional Client Services
Our Institutional Client Services segment is comprised of:

Fixed Income, Currency and Commodities Client
Execution. Includes client execution activities related to
making markets in interest rate products, credit products,
mortgages, currencies and commodities.
‰ Interest Rate Products. Government bonds, money
market instruments such as commercial paper, treasury
bills, repurchase agreements and other highly liquid
securities and instruments, as well as interest rate swaps,
options and other derivatives.

‰ Credit Products. Investment-grade corporate securities,
high-yield securities, credit derivatives, bank and bridge
loans, municipal
emerging market and
distressed debt, and trade claims.

securities,

loans

‰ Mortgages. Commercial mortgage-related securities,
loans and derivatives,
residential mortgage-related
and
securities,
(including U.S.
derivatives
collateralized mortgage
agency-issued
government
obligations, other prime, subprime and Alt-A securities
and loans), and other asset-backed securities, loans and
derivatives.

‰ Currencies. Most currencies, including growth-market

currencies.

Equities. Includes client execution activities related to
making markets in equity products and commissions and
fees
from executing and clearing institutional client
transactions on major stock, options and futures exchanges
worldwide, as well as OTC transactions. Equities also
includes our securities services business, which provides
financing, securities lending and other prime brokerage
including hedge funds,
services to institutional clients,
mutual
funds, pension funds and foundations, and
generates revenues primarily in the form of interest rate
spreads or fees.

The table below presents the operating results of our
Institutional Client Services segment.

$ in millions

Fixed Income, Currency and

Year Ended December

2014

2013

2012

Commodities Client Execution

$ 8,461

$ 8,651

$ 9,914

Equities client execution 1
Commissions and fees
Securities services
Total Equities
Total net revenues
Operating expenses
Pre-tax earnings

2,079
3,153
1,504
6,736
15,197
10,880
$ 4,317

2,594
3,103
1,373
7,070
15,721
11,792
$ 3,929

3,171
3,053
1,986
8,210
18,124
12,490
$ 5,634

‰ Commodities. Crude oil and petroleum products,
natural gas, base, precious and other metals, electricity,
coal, agricultural and other commodity products.

1. Net

revenues related to the Americas reinsurance business were
$317 million for 2013 and $1.08 billion for 2012. In April 2013, we completed
the sale of a majority stake in our Americas reinsurance business and no
longer consolidate this business.

42 Goldman Sachs 2014 Annual Report

Management’s Discussion and Analysis

2014 versus 2013. Net revenues in Institutional Client
Services were $15.20 billion for 2014, 3% lower than
2013. Results for 2014 included a gain of $289 million
($270 million of which was recorded at extinguishment in
the third quarter) related to the extinguishment of certain of
our junior subordinated debt, of which $168 million was
included in Fixed Income, Currency and Commodities
Client Execution and $121 million in Equities ($30 million
and $91 million included in equities client execution and
securities services, respectively).

gain

2013. Excluding

Net revenues in Fixed Income, Currency and Commodities
Client Execution were $8.46 billion for 2014, 2% lower
than
the
the
extinguishment of debt in 2014 and a gain of $211 million
on the sale of a majority stake in our European insurance
business in 2013, net revenues in Fixed Income, Currency
and Commodities Client Execution were slightly lower
compared with 2013. This decline reflected significantly
lower net revenues in credit products and slightly lower net
revenues in both interest rate products and mortgages. The
decrease in credit products primarily reflected difficult
market-making conditions, particularly during the second
half of 2014, and generally low levels of activity. These
results were largely offset by significantly higher net
revenues in commodities and higher net revenues in
currencies. The increase in commodities reflected more
favorable market-making conditions in certain energy
products, primarily during the first quarter of 2014. The
increase in currencies reflected a stronger performance
towards the end of the year, as activity levels improved and
volatility was higher.

Net revenues in Equities were $6.74 billion for 2014, 5%
lower than 2013. Excluding the gain related to the
extinguishment of debt in 2014 and net revenues of
$317 million related to the sale of a majority stake in our
Americas reinsurance business in 2013, net revenues in
Equities were slightly lower compared with 2013. This
decline reflected lower net revenues in derivatives, partially
offset by slightly higher commissions and fees and slightly
higher net revenues in securities services. The increase in
securities services net revenues reflected the impact of
higher average
in
commissions and fees was due to higher commissions and
fees in both Europe and the United States, reflecting
generally higher client activity, consistent with increases in
listed cash equity market volumes in these regions.

customer balances. The

increase

The net gain attributable to the impact of changes in our
own credit spreads on borrowings for which the fair value
option was elected was $144 million ($108 million and
$36 million related to Fixed Income, Currency and
client
Commodities Client Execution and equities
execution, respectively) for 2014, compared with a net loss
of $296 million ($220 million and $76 million related to
Fixed Income, Currency
and Commodities Client
Execution and equities client execution, respectively) for
2013.

During 2014, Institutional Client Services continued to
operate in a challenging environment, as economic
uncertainty contributed to subdued risk appetite for our
clients and generally low levels of activity, particularly in
credit products, interest rate products and mortgages. In
addition, volatility levels remained low, although volatility
increased in certain businesses towards the end of the year.
Debt markets were also impacted by the widening of high-
yield credit spreads and the decline in oil prices during the
second half of the year, which contributed to low liquidity,
particularly in credit. Equity markets, however, generally
increased during the year. If macroeconomic concerns
continue over the long term and activity levels remain low,
net revenues in Fixed Income, Currency and Commodities
Client Execution and Equities would likely continue to be
negatively impacted.

Operating expenses were $10.88 billion for 2014, 8%
lower than 2013, due to decreased compensation and
benefits expenses, reflecting lower net revenues, lower net
provisions for litigation and regulatory proceedings, and
lower expenses as a result of the sale of a majority stake in
our Americas reinsurance business. Pre-tax earnings were
$4.32 billion in 2014, 10% higher than 2013.

Goldman Sachs 2014 Annual Report 43

Management’s Discussion and Analysis

2013 versus 2012. Net revenues in Institutional Client
Services were $15.72 billion for 2013, 13% lower than
2012.

Net revenues in Fixed Income, Currency and Commodities
Client Execution were $8.65 billion for 2013, 13% lower
than 2012, reflecting significantly lower net revenues in
interest rate products compared with a solid 2012, and
significantly lower net revenues in mortgages compared
with a strong 2012. The decrease in interest rate products
and mortgages primarily reflected the impact of a more
levels
challenging
in
compared with 2012.
currencies were slightly lower, while net revenues in credit
products and commodities were essentially unchanged
compared with 2012. In December 2013, we completed the
sale of a majority stake in our European insurance business
and recognized a gain of $211 million.

and lower
In addition, net

environment

revenues

activity

Net revenues in Equities were $7.07 billion for 2013, 14%
lower compared with 2012, due to the sale of our Americas
reinsurance business 1 in 2013 and the sale of our hedge
fund administration business in 2012. Net revenues in
equities client execution (excluding net revenues from our
Americas reinsurance business) were higher compared with
2012, including significantly higher net revenues in cash
products, partially offset by significantly lower net revenues
in derivatives. Commissions and fees were slightly higher
compared with 2012, reflecting higher commissions and
in Asia and Europe, partially offset by lower
fees
commissions and fees in the United States. Our average
daily volumes during 2013 were higher in Asia and Europe
and lower in the United States compared with 2012,
consistent with listed cash equity market volumes.
Securities services net revenues were significantly lower
compared with 2012, primarily due to the sale of our hedge
fund administration business in 2012 (2012 included a gain
on sale of $494 million). During 2013, Equities operated in
an environment characterized by a significant increase in
global equity prices, particularly in Japan and the U.S., and
generally lower volatility levels.

The net loss attributable to the impact of changes in our
own credit spreads on borrowings for which the fair value
option was elected was $296 million ($220 million and
$76 million related to Fixed Income, Currency and
client
Commodities Client Execution and equities
execution, respectively) for 2013, compared with a net loss
of $714 million ($433 million and $281 million related to
Fixed Income, Currency
and Commodities Client
Execution and equities client execution, respectively) for
2012.

that

required

environment

During 2013, Institutional Client Services operated in a
continual
challenging
reassessment of the outlook for the global economy, as
uncertainty about when the U.S. Federal Reserve would
begin tapering its asset purchase program, as well as
risk and uncertainty, were
constant global political
interspersed with improvements in the U.S. economy over
the course of the year. As a result, our clients’ risk appetite
and activity levels fluctuated during 2013. Compared with
2012, activity levels were generally lower, global equity
prices significantly increased and credit spreads tightened.

Operating expenses were $11.79 billion for 2013, 6%
lower than 2012, due to decreased compensation and
benefits expenses, primarily resulting from lower net
revenues, and lower expenses as a result of the sale of a
majority stake in our Americas reinsurance business in
April 2013. These decreases were partially offset by
increased net provisions for litigation and regulatory
proceedings, primarily comprised of net provisions for
mortgage-related matters, and higher brokerage, clearing,
exchange and distribution fees. Pre-tax earnings were
$3.93 billion in 2013, 30% lower than 2012.

1. Net revenues related to the Americas reinsurance business were $317 million for 2013 and $1.08 billion for 2012. In April 2013, we completed the sale of a majority

stake in our Americas reinsurance business and no longer consolidate this business.

44 Goldman Sachs 2014 Annual Report

Management’s Discussion and Analysis

Investing & Lending
Investing & Lending includes our investing activities and
the origination of loans to provide financing to clients.
These investments and loans are typically longer-term in
some of which are
nature. We make investments,
consolidated, directly and indirectly through funds that we
manage, in debt securities and loans, public and private
equity securities, and real estate entities.

The table below presents the operating results of our
Investing & Lending segment.

$ in millions

Equity securities
Debt securities and loans
Other 1
Total net revenues
Operating expenses
Pre-tax earnings

Year Ended December

2014

2013

2012

$3,813
2,165
847
6,825
2,819
$4,006

$3,930
1,947
1,141
7,018
2,686
$4,332

$2,800
1,850
1,241
5,891
2,668
$3,223

1. Includes net revenues of $325 million for 2014, $329 million for 2013 and
$362 million for 2012 related to Metro International Trade Services LLC. We
completed the sale of this consolidated investment in December 2014.

2014 versus 2013. Net revenues in Investing & Lending
were $6.83 billion for 2014, 3% lower than 2013. Net
gains from investments in equity securities were slightly
lower due to a significant decrease in net gains from
investments in public equities, as movements in global
equity prices during 2014 were less favorable compared
with 2013, partially offset by an increase in net gains from
investments
in private equities, primarily driven by
company-specific events. Net revenues from debt securities
and loans were higher than 2013, reflecting a significant
increase in net
income, primarily driven by
increased lending, and a slight increase in net gains,
primarily due to sales of certain investments during 2014.
Other net
consolidated
investments, were significantly lower compared with 2013,
reflecting
from
commodities-related consolidated investments.

related to our

in operating

a decrease

revenues,

revenues

interest

Operating expenses were $2.82 billion for 2014, 5% higher
than 2013, reflecting higher compensation and benefits
expenses, partially offset by lower expenses related to
earnings were
investments.
consolidated
$4.01 billion in 2014, 8% lower than 2013.

Pre-tax

increase

2013 versus 2012. Net revenues in Investing & Lending
were $7.02 billion for 2013, 19% higher than 2012,
reflecting a significant
from
investments in equity securities, driven by company-specific
events and stronger corporate performance, as well as
significantly higher global equity prices. In addition, net
gains and net interest income from debt securities and loans
were slightly higher, while other net revenues, related to our
consolidated investments, were lower compared with 2012.

in net gains

During 2013, net revenues in Investing & Lending generally
reflected favorable company-specific events and strong
corporate performance, as well as
impact of
significantly higher global equity prices and tighter
corporate credit spreads.

the

Operating expenses were $2.69 billion for 2013, essentially
unchanged compared with 2012. Operating expenses
during 2013 included lower impairment charges and lower
operating expenses related to consolidated investments,
partially offset by increased compensation and benefits
expenses due to higher net revenues compared with 2012.
Pre-tax earnings were $4.33 billion in 2013, 34% higher
than 2012.

During 2014, net revenues in Investing & Lending generally
reflected favorable company-specific events,
including
initial public offerings and financings, and strong corporate
performance, as well as net gains from sales of certain
investments. However, concerns about the outlook for the
global economy and uncertainty over the impact of
financial regulatory reform continue to be meaningful
considerations for the global marketplace. If equity markets
decline or credit spreads widen, net revenues in Investing &
Lending would likely be negatively impacted.

Goldman Sachs 2014 Annual Report 45

The table below presents the operating results of our
Investment Management segment.

$ in millions

Management and other fees
Incentive fees
Transaction revenues
Total net revenues
Operating expenses
Pre-tax earnings

Year Ended December

2014

2013

2012

$4,800
776
466
6,042
4,647
$1,395

$4,386
662
415
5,463
4,357
$1,106

$4,105
701
416
5,222
4,296
$ 926

The tables below present our period-end assets under
supervision (AUS) by asset class and by distribution
channel.

$ in billions

Assets under management
Other client assets
Total AUS

Asset Class
Alternative investments 1
Equity
Fixed income
Long-term AUS
Liquidity products
Total AUS

Distribution Channel
Directly distributed:
Institutional
High-net-worth individuals
Third-party distributed:
Institutional, high-net-worth individuals

As of December

2014

2013

2012

$1,027
151
$1,178

$ 919
123
$1,042

$ 854
111
$ 965

$ 143
236
516
895
283
$1,178

$ 142
208
446
796
246
$1,042

$ 151
153
411
715
250
$ 965

$ 412
363

$ 363
330

$ 343
294

and retail
Total AUS

403
$1,178

349
$1,042

328
$ 965

1. Primarily includes hedge funds, credit funds, private equity, real estate,

currencies, commodities and asset allocation strategies.

Management’s Discussion and Analysis

Investment Management
Investment Management provides investment management
services and offers investment products (primarily through
separately managed accounts and commingled vehicles,
such as mutual funds and private investment funds) across
all major asset classes to a diverse set of institutional and
individual clients.
Investment Management also offers
wealth advisory services, including portfolio management
and financial counseling, and brokerage and other
transaction services to high-net-worth individuals and
families.

Assets under supervision include assets under management
and other client assets. Assets under management include
client assets where we earn a fee for managing assets on a
discretionary basis. This includes net assets in our mutual
funds, hedge funds, credit funds and private equity funds
(including real estate funds), and separately managed
accounts for institutional and individual investors. Other
client assets include client assets invested with third-party
managers, bank deposits and advisory relationships where
we earn a fee for advisory and other services, but do not
have investment discretion. Assets under supervision do not
include the self-directed brokerage assets of our clients.
Long-term assets under supervision represent assets under
supervision
products. Liquidity
products represent money markets and bank deposit assets.

excluding

liquidity

Assets under supervision typically generate fees as a
percentage of net asset value, which vary by asset class and
are affected by investment performance as well as asset
inflows and redemptions. Asset classes such as alternative
investment and equity assets typically generate higher fees
relative to fixed income and liquidity product assets. The
average effective management fee (which excludes non-
asset-based fees) we earned on our assets under supervision
was 40 basis points for both 2014 and 2013, and 39 basis
points for 2012.

In certain circumstances, we are also entitled to receive
incentive fees based on a percentage of a fund’s or a
separately managed account’s return, or when the return
exceeds a specified benchmark or other performance
targets. Incentive fees are recognized only when all material
contingencies are resolved.

46 Goldman Sachs 2014 Annual Report

Management’s Discussion and Analysis

The table below presents a summary of the changes in our
assets under supervision.

$ in billions

Balance, beginning of year
Net inflows/(outflows)

Alternative investments
Equity
Fixed income

Long-term AUS net inflows/(outflows)
Liquidity products
Total AUS net inflows/(outflows)
Net market appreciation/(depreciation)
Balance, end of year

Year Ended December

2014

2013

$1,042

$ 965

2012

$895

1
15
58
74
37
111 1
25
$1,178

(13)
13
41
41 2
(4)
37
40
$1,042

1
(17)
34
18 3
3
21
49
$965

1. Net inflows in long-term assets under supervision include $19 billion of fixed
income asset inflows in connection with our acquisition of Deutsche Asset &
inflows in liquidity
Wealth Management’s stable value business. Net
products include $6 billion of inflows in connection with our acquisition of
RBS Asset Management’s money market funds.

2. Fixed income flows include $10 billion in assets managed by the firm related
to our Americas reinsurance business, in which a majority stake was sold in
April 2013, that were previously excluded from assets under supervision as
they were assets of a consolidated subsidiary.

3. Includes $34 billion of fixed income asset inflows in connection with our
acquisition of Dwight Asset Management Company LLC and $5 billion of
fixed income and equity asset outflows related to our liquidation of Goldman
Sachs Asset Management Korea Co., Ltd.

The table below presents our average monthly assets under
supervision by asset class.

$ in billions

Alternative investments
Equity
Fixed income
Long-term AUS
Liquidity products
Total AUS

Average for the
Year Ended December

2014

2013

$ 145
225
499
869
248
$1,117

$ 145
180
425
750
235
$ 985

2012

$149
153
384
686
238
$924

revenues

2014 versus 2013. Net
in Investment
Management were $6.04 billion for 2014, 11% higher than
fees,
reflecting higher management and other
2013,
primarily due to higher average assets under supervision, as
well as higher incentive fees and transaction revenues.
During the year, total assets under supervision increased
$136 billion to $1.18 trillion. Long-term assets under
supervision increased $99 billion, including net inflows of
$74 billion (including $19 billion of fixed income asset
inflows in connection with our acquisition of Deutsche
Asset & Wealth Management’s stable value business) and
net market appreciation of $25 billion, both primarily in
fixed income and equity assets. In addition,
liquidity
products increased $37 billion (including $6 billion of
inflows in connection with our acquisition of RBS Asset
Management’s money market funds).

During 2014, Investment Management operated in an
environment generally characterized by improved asset
prices, primarily in equity and fixed income assets, resulting
in appreciation in the value of client assets. In addition, the
mix of average assets under supervision shifted slightly
from liquidity products
to long-term assets under
supervision, due to growth in fixed income and equity
assets, compared with 2013. In the future, if asset prices
were to decline, or investors favor asset classes that
typically generate lower fees or investors withdraw their
assets, net revenues in Investment Management would
likely be negatively impacted. In addition, concerns about
the global economic outlook could result in downward
pressure on assets under supervision.

Operating expenses were $4.65 billion for 2014, 7% higher
than 2013, primarily due to increased compensation and
benefits expenses, reflecting higher net revenues, and higher
fund distribution fees. Pre-tax earnings were $1.40 billion
in 2014, 26% higher than 2013.

revenues

2013 versus 2012. Net
in Investment
Management were $5.46 billion for 2013, 5% higher than
2012,
fees,
reflecting higher management and other
primarily due to higher average assets under supervision.
During 2013, total assets under supervision increased
$77 billion to $1.04 trillion. Long-term assets under
supervision increased $81 billion, including net inflows of
$41 billion (including $10 billion of fixed income asset
inflows managed by the firm related to our Americas
reinsurance business, in which a majority stake was sold in
April 2013, that were previously excluded from assets
under supervision as they were assets of a consolidated
subsidiary), reflecting inflows in fixed income and equity
assets, partially offset by outflows in alternative investment
assets. Net market appreciation of $40 billion during 2013
was primarily in equity assets. Liquidity products decreased
$4 billion.

During 2013, Investment Management operated in an
environment generally characterized by improved asset
prices, particularly in equities, resulting in appreciation in
the value of client assets. In addition, the mix of average
assets under supervision shifted slightly compared with
2012 from liquidity products to long-term assets under
supervision, primarily due to growth in equity and fixed
income assets.

Operating expenses were $4.36 billion for 2013, up slightly
compared to 2012, due to increased compensation and
benefits expenses, primarily resulting from higher net
revenues. Pre-tax earnings were $1.11 billion in 2013, 19%
higher than 2012.

Geographic Data
See Note 25 to the consolidated financial statements for a
summary of our total net revenues, pre-tax earnings and net
earnings by geographic region.

Goldman Sachs 2014 Annual Report 47

To prepare our quarterly balance sheet plan, business risk
managers and managers from our independent control and
support functions meet with business managers to review
current and prior period metrics and discuss expectations
for the upcoming quarter. The specific metrics reviewed
include asset and liability size and composition, aged
inventory, limit utilization, risk and performance measures,
and capital usage.

Our consolidated quarterly plan, including our balance
sheet plans by business, funding projections, and projected
key metrics,
reviewed by the Firmwide Finance
Committee. See “Overview and Structure of Risk
Management” for an overview of our risk management
structure.

Firmwide

Business-Specific
Limits. The
Finance
Committee sets asset and liability limits for each business
and aged inventory limits for certain financial instruments
as a disincentive to hold inventory over longer periods of
time. These limits are set at levels which are close to actual
operating levels in order to ensure prompt escalation and
discussion among business managers and managers in our
independent control and support functions on a routine
basis. The Firmwide Finance Committee reviews and
approves balance sheet limits on a quarterly basis and may
also approve changes in limits on an ad hoc basis in
response to changing business needs or market conditions.
Requests for changes in limits are evaluated after giving
consideration to their
impact on key firm metrics.
Compliance with limits is monitored on a daily basis by
business risk managers, as well as managers in our
independent control and support functions.

Monitoring of Key Metrics. We monitor key balance
sheet metrics daily both by business and on a consolidated
basis, including asset and liability size and composition,
aged inventory, limit utilization, risk measures and capital
usage. We allocate assets to businesses and review and
analyze movements resulting from new business activity as
well as market fluctuations.

Management’s Discussion and Analysis

Balance Sheet and Funding Sources

Balance Sheet Management
One of our most important risk management disciplines is
our ability to manage the size and composition of our
balance sheet. While our asset base changes due to client
activity, market fluctuations and business opportunities,
the size and composition of our balance sheet reflect (i) our
overall risk tolerance, (ii) our ability to access stable
funding sources and (iii) the amount of equity capital we
hold. See “Equity Capital Management and Regulatory
Capital — Equity Capital Management” for information
about our equity capital management process.

Although our balance sheet fluctuates on a day-to-day
basis, our total assets at quarterly and year-end dates are
generally not materially different from those occurring
within our reporting periods.

In order to ensure appropriate risk management, we seek to
maintain a liquid balance sheet and have processes in place
to dynamically manage our assets and liabilities which
include (i) quarterly planning, (ii) business-specific limits,
(iii) monitoring of key metrics and (iv) scenario analyses.

Quarterly Planning. We prepare a quarterly balance sheet
plan that combines our projected total assets and
composition of assets with our expected funding sources for
the upcoming quarter. The objectives of this quarterly
planning process are:
‰ To develop our near-term balance sheet projections,
taking into account the general state of the financial
markets and expected business activity levels, as well as
current regulatory requirements;

‰ To determine the target amount, tenor and type of
funding to raise, based on our projected assets and
forecasted maturities; and

‰ To allow business risk managers and managers from our
independent control and support functions to objectively
evaluate balance sheet
limit requests from business
managers in the context of the firm’s overall balance sheet
including the firm’s liability profile and
constraints,
equity capital levels, and key metrics. Limits are typically
set at levels that will be periodically exceeded, rather than
at levels which reflect our maximum risk appetite.

48 Goldman Sachs 2014 Annual Report

Management’s Discussion and Analysis

conduct

Scenario Analyses. We
scenario analyses
including as part of the Comprehensive Capital Analysis
and Review (CCAR) and Dodd-Frank Act Stress Tests
(DFAST) as well as our resolution and recovery planning.
and Regulatory
See “Equity Capital Management
Capital — Equity Capital Management” below for further
information. These scenarios cover short-term and long-
term time horizons using various macroeconomic and firm-
specific assumptions, based on a range of economic
scenarios. We use these analyses to assist us in developing
our
strategy,
including the level and composition of assets, funding and
equity capital. Additionally, these analyses help us develop
approaches for maintaining appropriate funding, liquidity
and capital across a variety of situations,
including a
severely stressed environment.

longer-term balance sheet management

Balance Sheet Allocation
In addition to preparing our consolidated statements of
financial condition in accordance with U.S. GAAP, we
prepare a balance sheet that generally allocates assets to our
businesses, which is a non-GAAP presentation and may not
be comparable to similar non-GAAP presentations used by
other companies. We believe that presenting our assets on
this basis is meaningful because it is consistent with the way
management views and manages risks associated with the
firm’s assets and better enables investors to assess the
liquidity of the firm’s assets. The table below presents our
balance sheet allocation.

$ in millions

Global Core Liquid Assets (GCLA)
Other cash
GCLA and cash
Secured client financing

Inventory
Secured financing agreements
Receivables
Institutional Client Services

Public equity
Private equity
Debt 1
Loans receivable 2
Other
Investing & Lending
Total inventory and related assets
Other assets
Total assets

As of December

2014

2013

$182,947
7,805
190,752
210,641

230,667
74,767
47,317
352,751

4,041
17,979
24,768
28,938
3,771
79,497
432,248
22,599
$856,240

$184,070
5,793
189,863
263,386

255,534
79,635
39,557
374,726

4,308
16,236
23,274
14,895
2,310
61,023
435,749
22,509
$911,507

1. Includes $18.24 billion and $15.76 billion as of December 2014 and
December 2013, respectively, of direct loans primarily extended to corporate
and private wealth management clients that are accounted for at fair value.

2. See Note 9 to the consolidated financial statements for further information

about loans receivable.

Below is a description of the captions in the table above.
‰ Global Core Liquid Assets and Cash. We maintain
substantial liquidity to meet a broad range of potential
cash outflows and collateral needs in the event of a
stressed environment. See “Liquidity Risk Management”
below for details on the composition and sizing of our
“Global Core Liquid Assets” (GCLA), previously Global
Core Excess (GCE). In addition to our GCLA, we
maintain other operating cash balances, primarily for use
in specific currencies, entities, or jurisdictions where we
do not have immediate access to parent company
liquidity.

‰ Secured Client Financing. We provide collateralized
financing for client positions,
including margin loans
secured by client collateral, securities borrowed, and
resale agreements primarily collateralized by government
obligations. As a result of client activities, we are required
to segregate cash and securities to satisfy regulatory
requirements. Our secured client financing arrangements,
which are generally short-term, are accounted for at fair
value or at amounts that approximate fair value, and
include
to mitigate
daily margin
counterparty credit risk.

requirements

‰ Institutional Client Services. In Institutional Client
Services, we maintain inventory positions to facilitate
market-making in fixed income, equity, currency and
commodity products. Additionally, as part of market-
making activities, we enter into resale or securities
borrowing arrangements to obtain securities which we
can use to cover transactions in which we or our clients
have sold securities that have not yet been purchased. The
receivables in Institutional Client Services primarily relate
to securities transactions.

‰ Investing & Lending. In Investing & Lending, we make
investments and originate loans to provide financing to
clients. These investments and loans are typically longer-
term in nature. We make investments, directly and
indirectly through funds that we manage,
in debt
securities, loans, public and private equity securities, real
estate entities and other investments.

assets,

‰ Other Assets. Other assets are generally less liquid, non-
financial
leasehold
including
improvements and equipment, goodwill and identifiable
intangible assets, income tax-related receivables, equity-
method investments, assets classified as held for sale and
miscellaneous receivables.

property,

Goldman Sachs 2014 Annual Report 49

Management’s Discussion and Analysis

The tables below present the reconciliation of this balance
sheet allocation to our U.S. GAAP balance sheet. In the
tables below, total assets for Institutional Client Services
and Investing & Lending represent inventory and related
assets. These amounts differ from total assets by business
segment disclosed in Note 25 to the consolidated financial

statements because total assets disclosed in Note 25 include
allocations of our GCLA and cash, secured client financing
and other assets. See “Balance Sheet Analysis and Metrics”
below for explanations on the changes in our balance sheet
from December 2013 to December 2014.

$ in millions

Cash and cash equivalents
Cash and securities segregated for regulatory and other purposes
Securities purchased under agreements to resell and federal funds

sold

Securities borrowed
Receivables from brokers, dealers and clearing organizations
Receivables from customers and counterparties
Loans receivable
Financial instruments owned, at fair value
Other assets
Total assets

$ in millions

Cash and cash equivalents
Cash and securities segregated for regulatory and other purposes
Securities purchased under agreements to resell and federal funds

sold

GCLA

and Cash 1

$ 57,600
—

66,928
32,311
—
—
—
33,913
—
$190,752

GCLA
and Cash 1

$ 61,133
—

64,595
25,113
—
—
—
39,022
—
$189,863

Secured
Client
Financing

—
51,716

34,506
78,584
8,908
36,927
—
—
—
$210,641

Secured
Client
Financing

—
49,671

61,510
94,899
6,650
50,656
—
—
—
$263,386

As of December 2014

Institutional
Client
Services

—
—

24,940
49,827
21,656
25,661
—
230,667
—
$352,751

Investing &
Lending

Other
Assets

Total
Assets

— $
—

— $ 57,600
51,716
—

1,564
—
107
1,220
28,938
47,668
—
$79,497

—
—
—
—
—
—
22,599
$22,599

127,938
160,722
30,671
63,808
28,938
312,248
22,599
$856,240

As of December 2013

Institutional
Client
Services

—
—

35,081
44,554
17,098
22,459
—
255,534
—
$374,726

Investing &
Lending

Other
Assets

Total
Assets

$ — $ — $ 61,133
49,671

—

546
—
92
925
14,895
44,565
—
$61,023

—
—
—
—
—
—
22,509
$22,509

161,732
164,566
23,840
74,040
14,895
339,121
22,509
$911,507

1. Includes unencumbered cash, U.S. government and federal agency obligations (including highly liquid U.S. federal agency mortgage-backed obligations), and

German, French, Japanese and United Kingdom government obligations.

50 Goldman Sachs 2014 Annual Report

Management’s Discussion and Analysis

Balance Sheet Analysis and Metrics
During 2014, we undertook an initiative to reduce our
balance sheet in response to regulatory developments, to
improve the overall efficiency of our balance sheet and to
position the firm to provide additional risk capacity to our
clients. We performed a comprehensive analysis of our
balance sheet and identified opportunities for reduction,
primarily related to lower return activities within our
matched book and other secured client financing activities.

As of December 2014, total assets on our consolidated
statements of financial condition were $856.24 billion, a
decrease of $55.27 billion from December 2013. This
decrease was primarily due to a decrease in collateralized
agreements of $37.64 billion, principally reflecting a
decline in the matched book and a decrease in financial
fair value of $26.87 billion,
instruments owned, at
primarily due to a decrease in U.S. government and federal
agency obligations. These decreases were partially offset by
an increase in loans receivable of $14.04 billion.

As of December 2014, total liabilities on our consolidated
statements of financial condition were $773.44 billion, a
decrease of $59.60 billion from December 2013. This
decrease was primarily due to a decrease in collateralized
financings of $91.75 billion, due to client activity and firm
financing activity, including a decline in the matched book.
This decrease was partially offset by an increase in deposits
of $12.20 billion primarily used to fund the growth in our
loans receivable, an increase in payables to customers and
counterparties of $7.52 billion and an increase in unsecured
long-term borrowings of $6.61 billion.

As of December 2014, our total securities sold under
agreements to repurchase, accounted for as collateralized
financings, were $88.22 billion, which was 3% lower and
26% lower than the daily average amount of repurchase
agreements during the quarter ended and year ended
December 2014,
in our
repurchase agreements relative to the daily average during
2014 resulted from a decrease in client and firm financing
activity during the second half of the year, including a
reduction in our matched book, primarily resulting from a
firmwide initiative to reduce activities with lower returns.

respectively. The decrease

As of December 2013, our total securities sold under
agreements to repurchase, accounted for as collateralized
financings, were $164.78 billion, which was 5% higher and
4% higher than the daily average amount of repurchase
agreements during the quarter ended and year ended
December 2013,
in our
respectively. The
repurchase agreements relative to the daily average during
2013 was primarily due to an increase in client activity at
the end of the period.

increase

The level of our repurchase agreements fluctuates between
and within periods, primarily due to providing clients with
access to highly liquid collateral, such as U.S. government
and federal agency, and investment-grade sovereign
obligations through collateralized financing activities.

Goldman Sachs 2014 Annual Report 51

In the table above:
‰ Tangible common shareholders’ equity equals total
shareholders’ equity less preferred stock, goodwill and
identifiable intangible assets. We believe that tangible
common shareholders’ equity is meaningful because it is a
measure that we and investors use to assess capital
adequacy. Tangible common shareholders’ equity is a
non-GAAP measure and may not be comparable to
similar non-GAAP measures used by other companies.
‰ Book value per common share and tangible book value
per common share are based on common shares
including restricted stock units (RSUs)
outstanding,
granted to employees with no future service requirements,
of 451.5 million and 467.4 million as of December 2014
and December 2013, respectively. We believe that
tangible book value per common share (tangible common
shareholders’
common shares
outstanding, including RSUs granted to employees with
no future service requirements) is meaningful because it is
a measure that we and investors use to assess capital
adequacy. Tangible book value per common share is a
non-GAAP measure and may not be comparable to
similar non-GAAP measures used by other companies.

equity divided by

Management’s Discussion and Analysis

The table below presents information about our assets,
unsecured long-term borrowings, shareholders’ equity and
leverage ratios.

$ in millions

Total assets
Unsecured long-term borrowings
Total shareholders’ equity
Leverage ratio
Debt to equity ratio

As of December

2014

2013

$856,240
$167,571
$ 82,797
10.3x
2.0x

$911,507
$160,965
$ 78,467
11.6x
2.1x

In the table above:
‰ The leverage ratio equals total assets divided by total
shareholders’ equity and measures the proportion of
equity and debt the firm is using to finance assets. This
ratio is different from the Tier 1 leverage ratio included in
Note 20 to the consolidated financial statements.

‰ The debt to equity ratio equals unsecured long-term

borrowings divided by total shareholders’ equity.

table below presents

The
information about our
shareholders’ equity and book value per common share,
including the reconciliation of total shareholders’ equity to
tangible common shareholders’ equity.

$ in millions, except per share amounts

Total shareholders’ equity
Deduct: Preferred stock
Common shareholders’ equity
Deduct: Goodwill and identifiable intangible

assets

Tangible common shareholders’ equity

Book value per common share
Tangible book value per common share

As of December

2014

2013

$ 82,797
(9,200)
73,597

$ 78,467
(7,200)
71,267

(4,160)
$ 69,437

$ 163.01
153.79

(4,376)
$ 66,891

$ 152.48
143.11

52 Goldman Sachs 2014 Annual Report

Management’s Discussion and Analysis

Funding Sources
Our primary sources of funding are secured financings,
unsecured long-term and short-term borrowings, and
deposits. We seek to maintain broad and diversified
funding sources globally across products, programs,
markets, currencies and creditors
to avoid funding
concentrations.

We raise funding through a number of different products,
including:
‰ Collateralized financings, such as repurchase agreements,

securities loaned and other secured financings;

‰ Long-term unsecured debt (including structured notes)
through syndicated U.S.
registered offerings, U.S.
registered and Rule 144A medium-term note programs,
offshore medium-term note offerings and other debt
offerings;

‰ Savings and demand deposits through deposit sweep
programs and time deposits through internal and third-
party broker-dealers; and

‰ Short-term unsecured debt through U.S. and non-U.S.
instruments, commercial paper and

hybrid financial
promissory note issuances and other methods.

Our funding is primarily raised in U.S. dollar, Euro, British
pound and Japanese yen. We generally distribute our
funding products through our own sales force and third-
party distributors, to a large, diverse creditor base in a
variety of markets in the Americas, Europe and Asia. We
believe that our relationships with our creditors are critical
to our liquidity. Our creditors include banks, governments,
insurance companies,
securities lenders, pension funds,
mutual funds and individuals. We have imposed various
internal guidelines to monitor creditor concentration across
our funding programs.

Secured Funding. We fund a significant amount of
inventory on a secured basis. Secured funding is less
sensitive to changes in our credit quality than unsecured
funding, due to our posting of collateral to our lenders.
Nonetheless, we continually analyze the refinancing risk of
our secured funding activities, taking into account trade
tenors, maturity profiles, counterparty concentrations,
collateral eligibility and counterparty rollover probabilities.
We seek to mitigate our refinancing risk by executing term
trades
diversifying
counterparties, raising excess secured funding, and pre-
funding residual risk through our GCLA.

maturities,

staggered

with

We seek to raise secured funding with a term appropriate
for the liquidity of the assets that are being financed, and we
seek longer maturities for secured funding collateralized by
asset classes that may be harder to fund on a secured basis
especially during times of market stress. Substantially all of
our secured funding, excluding funding collateralized by
liquid government obligations, is executed for tenors of one
month or greater. Assets that may be harder to fund on a
secured basis during times of market stress include certain
financial instruments in the following categories: mortgage
and other asset-backed loans and securities, non-
investment-grade corporate debt securities, equities and
convertible debentures and emerging market securities.
Assets that are classified as level 3 in the fair value hierarchy
are generally funded on an unsecured basis. See Notes 5 and
6 to the consolidated financial statements for further
information
financial
instruments in the fair value hierarchy and “— Unsecured
Long-Term Borrowings” below for further information
about the use of unsecured long-term borrowings as a
source of funding.

classification

about

the

The weighted average maturity of our secured funding,
excluding funding collateralized by highly liquid securities
eligible for inclusion in our GCLA, exceeded 120 days as of
December 2014.

such as

and notes.

secured loans

A majority of our secured funding for securities not eligible
for inclusion in the GCLA is executed through term
repurchase agreements and securities lending contracts. We
also raise financing through other types of collateralized
financings,
In
December 2014, Goldman Sachs Bank USA (GS Bank USA)
received approval to access funding from the Federal Home
Loan Bank. As of December 2014, we had not accessed this
funding. In addition, GS Bank USA has access to funding
through the Federal Reserve Bank discount window. While
we do not rely on this funding in our liquidity planning and
stress
testing, we maintain policies and procedures
necessary to access this funding and test discount window
borrowing procedures.

Goldman Sachs 2014 Annual Report 53

Management’s Discussion and Analysis

Unsecured Long-Term Borrowings. We issue unsecured
long-term borrowings as a source of funding for inventory
and other assets and to finance a portion of our GCLA. We
tenors, currencies and products to
issue in different

maximize the diversification of our investor base. The chart
below presents our quarterly unsecured long-term
borrowings maturity profile through the fourth quarter of
2020 as of December 2014.

Unsecured Long-Term Borrowings Maturity Profile
$ in millions

)
$
(

s
g
n
w
o
r
r
o
B
m
r
e
T
-
g
n
o
L

d
e
r
u
c
e
s
n
U

15,000

14,000

13,000

12,000

11,000

10,000

9,000

8,000

7,000

6,000

5,000

4,000

3,000

2,000

1,000

M ar 2016

Jun 2016

S ep 2016

D ec 2016

M ar 2017

Jun 2017

S ep 2017

D ec 2017

M ar 2018

Jun 2018

S ep 2018

D ec 2018

M ar 2019

Jun 2019

S ep 2019

D ec 2019

M ar 2020

Jun 2020

S ep 2020

D ec 2020

Quarters Ended

The weighted average maturity of our unsecured long-term
borrowings as of December 2014 was approximately eight
years. To mitigate refinancing risk, we seek to limit the
principal amount of debt maturing on any one day or
during any week or year. We enter into interest rate swaps

to convert a substantial portion of our unsecured long-term
borrowings into floating-rate obligations in order to
manage our exposure to interest rates. See Note 16 to the
consolidated financial statements for further information
about our unsecured long-term borrowings.

54 Goldman Sachs 2014 Annual Report

Management’s Discussion and Analysis

Deposits. As part of our efforts to diversify our funding
base, we raise deposits mainly through GS Bank USA and
Goldman Sachs International Bank (GSIB). The tables
below present the types and sources of our deposits.

$ in millions

Private bank deposits 3
Certificates of deposit
Deposit sweep programs 4
Institutional
Total 5

$ in millions

Private bank deposits 3
Certificates of deposit
Deposit sweep programs 4
Institutional
Total 5

As of December 2014

Savings and

Demand 1

Time 2

Total

$33,590
—
15,691
12
$49,293

$ 1,609
25,908
—
6,198
$33,715

$35,199
25,908
15,691
6,210
$83,008

As of December 2013

Savings and

Demand 1

$30,475
—
15,511
33
$46,019

Time 2

Total

212
19,709
—
4,867
$24,788

$30,687
19,709
15,511
4,900
$70,807

1. Represents deposits with no stated maturity.

2. Weighted average maturity of approximately three years as of both

December 2014 and December 2013.

3. Substantially all were from overnight deposit sweep programs related to

private wealth management clients.

4. Represents long-term contractual agreements with several U.S. broker-

dealers who sweep client cash to FDIC-insured deposits.

5. Deposits insured by the FDIC as of December 2014 and December 2013

were approximately $45.72 billion and $41.22 billion, respectively.

Unsecured Short-Term Borrowings. A significant
portion of our unsecured short-term borrowings was
originally long-term debt that is scheduled to mature within
one year of the reporting date. We use unsecured short-term
borrowings to finance liquid assets and for other cash
management
hybrid financial
instruments, commercial paper and promissory notes.

purposes. We

issue

As of December 2014 and December 2013, our unsecured
short-term borrowings, including the current portion of
unsecured long-term borrowings, were $44.54 billion and
$44.69 billion,
respectively. See Note 15 to the
consolidated financial statements for further information
about our unsecured short-term borrowings.

Equity Capital Management and Regulatory
Capital

Capital adequacy is of critical
importance to us. Our
objective is to be conservatively capitalized in terms of the
amount and composition of our equity base, both relative
to our
risk exposures and compared to external
requirements and benchmarks. Accordingly, we have in
place a comprehensive capital management policy that
provides a framework and set of guidelines to assist us in
determining the level and composition of capital that we
target and maintain.

and future

consolidated regulatory

Equity Capital Management
We determine the appropriate level and composition of our
equity capital by considering multiple factors including our
current
capital
requirements, the results of our capital planning and stress
testing process and other factors such as rating agency
guidelines, subsidiary capital requirements, the business
environment, conditions in the financial markets, and
future losses due to adverse
assessments of potential
changes in our business and market environments. Our
capital planning and stress testing process incorporates our
internally designed stress tests and those required under
CCAR and DFAST rules, and is also designed to identify
and measure material risks associated with our business
activities, including market risk, credit risk and operational
risk. We project sources and uses of capital given a range of
business environments, including stressed conditions. In
addition, as part of our comprehensive capital management
policy, we maintain a contingency capital plan that
provides a framework for analyzing and responding to an
actual or perceived capital shortfall.

We principally manage the level and composition of our
equity capital through issuances and repurchases of our
common stock. We may also, from time to time, issue or
repurchase our preferred stock, junior subordinated debt
issued to trusts, and other subordinated debt or other forms
of capital as business conditions warrant. Prior to any
repurchases, we must receive confirmation that the Federal
Reserve Board does not object to such capital actions. We
manage our capital requirements and the levels of our
capital usage principally by setting limits on balance sheet
assets and/or limits on risk,
in each case both at the
consolidated and business levels. See Notes 16 and 19 to the
consolidated financial statements for further information
about our preferred stock, junior subordinated debt issued
to trusts and other subordinated debt.

Goldman Sachs 2014 Annual Report 55

‰ Capital Attribution. We attribute capital usage to each
of our businesses based upon regulatory capital
requirements as well as our internal risk-based capital
assessment. We manage the levels of our capital usage
based upon balance sheet and risk limits, as well as capital
return analyses of our businesses based on our capital
attribution. We also attribute risk-weighted assets
(RWAs) to our business segments. As of December 2014,
approximately 70% of RWAs calculated under the
Basel
to transitional
provisions, were attributed to our Institutional Client
Services segment and substantially all of the remaining
RWAs were attributed to our Investing & Lending
segment.

III Advanced Rules,

subject

‰ Contingency Capital

part

Plan. As

our
comprehensive capital management policy, we maintain a
contingency capital plan. Our contingency capital plan
provides a framework for analyzing and responding to a
perceived or actual capital deficiency, including, but not
limited to, identification of drivers of a capital deficiency,
as well as mitigants and potential actions. It outlines the
appropriate communication procedures to follow during
a crisis period,
including internal dissemination of
information as well as timely communication with
external stakeholders.

As required by the Federal Reserve Board’s annual CCAR
rules, we submit a capital plan for review by the Federal
Reserve Board. The purpose of the Federal Reserve Board’s
review is to ensure that we have a robust, forward-looking
capital planning process that accounts for our unique risks
and that permits continued operation during times of
economic and financial stress.

Management’s Discussion and Analysis

Capital Planning and Stress Testing Process. Our
capital planning and stress testing process incorporates our
internally designed stress tests and those required under
CCAR and DFAST. The process is designed to identify and
risks associated with our business
measure material
activities. We also perform an internal risk-based capital
assessment, attribute capital usage to each of our businesses
and maintain a contingency capital plan. The following is a
description of our capital planning and stress testing
process:
‰ Stress Testing. Our stress testing process incorporates
an internal capital adequacy assessment with the
objective of ensuring that
the firm is appropriately
capitalized relative to the risks in our business. As part of
our assessment, we project sources and uses of capital
given a range of business environments, including stressed
conditions. Our stress tests incorporate our internally
designed stress
internally
developed severely adverse scenario, and those required
under CCAR and DFAST rules, and are designed to
capture our specific vulnerabilities and risks and to
analyze whether we hold an appropriate amount of
capital. Our goal is to hold sufficient capital to ensure we
remain adequately capitalized after experiencing a severe
stress event. Our assessment of capital adequacy is viewed
in tandem with our assessment of liquidity adequacy and
is integrated into our overall risk management structure,
governance and policy framework. We provide additional
information about our stress test processes and a
summary of the results on our web site as described under
“Business — Available Information” in Part I, Item 1 of
the 2014 Form 10-K.

including our

scenarios,

‰ Internal Risk-Based Capital Assessment. Our capital
planning process includes an internal risk-based capital
assessment. This assessment incorporates market risk,
credit risk and operational risk. Market risk is calculated
by using Value-at-Risk (VaR) calculations supplemented
by risk-based add-ons which include risks related to rare
events (tail risks). Credit risk utilizes assumptions about
our counterparties’ probability of default and the size of
our losses in the event of a default. Operational risk is
calculated based on scenarios incorporating multiple
types of operational failures as well as incorporating
internal and external actual loss experience. Backtesting is
used to gauge the effectiveness of models at capturing and
measuring relevant risks.

56 Goldman Sachs 2014 Annual Report

Management’s Discussion and Analysis

The Federal Reserve Board evaluates us based, in part, on
whether we have the capital necessary to continue
operating under the baseline and stress scenarios provided
by the Federal Reserve Board and those developed
internally. This evaluation also takes into account our
process for identifying risk, our controls and governance
for capital planning, and our guidelines for making capital
planning decisions. In addition, the Federal Reserve Board
evaluates our plan to make capital distributions (i.e.,
dividend payments and repurchases or redemptions of
stock, subordinated debt or other capital securities) and
issue capital, across a range of macroeconomic scenarios
and firm-specific assumptions.

In addition, the DFAST rules require us to conduct stress
tests on a semi-annual basis and publish a summary of
certain results. The annual DFAST submission is
incorporated into our CCAR submission. The Federal
Reserve Board also conducts its own annual stress tests and
publishes a summary of certain results.

We submitted our initial 2014 CCAR to the Federal
Reserve Board in January 2014 and, based on the Federal
Reserve Board feedback, we submitted revised capital
actions in March 2014. The Federal Reserve Board
informed us that it did not object to our revised capital
actions, including the repurchase of outstanding common
stock, an increase in our quarterly common stock dividend
and the possible issuance, redemption and modification of
other capital securities through the first quarter of 2015.
We published a summary of our annual DFAST results in
March 2014. See “Business — Available Information” in
Part I, Item 1 of the 2014 Form 10-K. We submitted our
2015 CCAR to the Federal Reserve Board in January 2015
and expect to publish a summary of our annual DFAST
results in March 2015.

In addition, we submitted the results of our mid-cycle
DFAST to the Federal Reserve Board in July 2014 and
published a summary of our mid-cycle DFAST results under
our internally developed severely adverse scenario in
September 2014. We provide additional information on our
internal stress test processes, our internally developed
severely adverse scenario used for mid-cycle DFAST and a
summary of the results on our web site as described under
“Business — Available Information” in Part I, Item 1 of the
2014 Form 10-K.

In October 2014, the Federal Reserve Board issued a final
rule modifying the regulations for capital planning and
stress testing. The modifications change the dates for
submitting the capital plan and stress test results beginning
with the 2016 cycle and include a limitation on capital
distributions to the extent that actual capital issuances are
less
indicated in the capital plan
submission.

than the amount

In addition, the rules adopted by the Federal Reserve Board
under the U.S. Dodd-Frank Wall Street Reform and
Consumer Protection Act (Dodd-Frank Act) require GS
Bank USA to conduct stress tests on an annual basis and
publish a summary of certain results. GS Bank USA
submitted its 2014 annual DFAST stress results to the
Federal Reserve Board in January 2014 and published a
summary of its results in March 2014. See “Business —
Available Information” in Part I, Item 1 of the 2014
Form 10-K. GS Bank USA submitted its 2015 annual
DFAST results
to the Federal Reserve Board in
January 2015 and expects to publish a summary of its
results in March 2015.

Share Repurchase Program. We use our
share
repurchase program to help maintain the appropriate level
of common equity. The repurchase program is effected
primarily through regular open-market purchases (which
may include repurchase plans designed to comply with
Rule 10b5-1), the amounts and timing of which are
determined primarily by our current and projected capital
position, but which may also be influenced by general
market conditions and the prevailing price and trading
volumes of our common stock.

As of December 2014, under the share repurchase program
approved by the Board of Directors of Group Inc. (Board),
we can repurchase up to 25.4 million additional shares of
common stock; however, prior to any such repurchases, we
must receive confirmation that the Federal Reserve Board
does not object to such capital actions. See “Market for
Registrant’s Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities” in Part II, Item 5
of the 2014 Form 10-K and Note 19 to the consolidated
financial statements for additional information about our
share repurchase program and see above for information
about our capital planning and stress testing process.

Goldman Sachs 2014 Annual Report 57

Management’s Discussion and Analysis

Resolution and Recovery Plans
We are required by the Federal Reserve Board and the FDIC
to submit an annual plan that describes our strategy for a
rapid and orderly resolution in the event of material
financial distress or failure (resolution plan). We are also
required by the Federal Reserve Board to submit, on an
annual basis, a global recovery plan that outlines the steps
that management could take to reduce risk, maintain
in times of
sufficient
prolonged stress. We submitted our 2013 resolution plan in
September 2013 and our 2014 resolution plan in
June 2014. In August 2014, the Federal Reserve Board and
the FDIC indicated that we and other large industry
participants had certain shortcomings
in the 2013
resolution plans that must be addressed in the 2015
resolution plans, which are required to be submitted on or
before July 1, 2015.

liquidity, and conserve capital

In addition, GS Bank USA is required by the FDIC to
submit a resolution plan. GS Bank USA submitted its 2013
resolution plan in September 2013 and its 2014 resolution
plan in June 2014. GS Bank USA’s 2015 resolution plan is
required to be submitted on or before July 1, 2015.

Rating Agency Guidelines
The credit rating agencies assign credit ratings to the
obligations of Group Inc., which directly issues or
guarantees substantially all of the firm’s senior unsecured
obligations. Goldman, Sachs & Co. (GS&Co.), Goldman
Sachs International (GSI) and GSIB have been assigned
long- and short-term issuer ratings by certain credit rating
agencies. GS Bank USA has also been assigned long- and
short-term issuer ratings, as well as ratings on its long-term
and short-term bank deposits. In addition, credit rating
agencies have assigned ratings to debt obligations of certain
other subsidiaries of Group Inc.

The level and composition of our equity capital are among
the many factors considered in determining our credit
ratings. Each agency has its own definition of eligible
capital and methodology for evaluating capital adequacy,
and assessments are generally based on a combination of
factors rather than a single calculation. See “Liquidity Risk
Management — Credit Ratings” for further information
about credit ratings of Group Inc., GS Bank USA, GSIB,
GS&Co. and GSI.

58 Goldman Sachs 2014 Annual Report

Consolidated Regulatory Capital
As of December 2013, we were subject to the risk-based
capital regulations of the Federal Reserve Board that were
based on the Basel I Capital Accord of the Basel Committee
and
on Banking
incorporated the revised market risk regulatory capital
requirements (together, the Prior Capital Rules).

(Basel Committee),

Supervision

subject

As of January 1, 2014, we became subject to the Federal
Reserve Board’s revised risk-based capital and leverage
regulations,
to certain transitional provisions
(Revised Capital Framework). These regulations are largely
based on the Basel Committee’s final capital framework for
strengthening international capital standards (Basel III) and
also implement certain provisions of the Dodd-Frank Act.
Under
the Revised Capital Framework, we are an
“Advanced approach” banking organization.

We were notified in the first quarter of 2014 that we had
completed a “parallel run” to the satisfaction of the Federal
Reserve Board, as required under the Revised Capital
Framework. As such, additional changes in our capital
requirements became effective on April 1, 2014.

Beginning on January 1, 2014, regulatory capital was
calculated based on the Revised Capital Framework.
Beginning on April 1, 2014, there were no changes to the
calculation of regulatory capital, but RWAs were calculated
using (i) the Prior Capital Rules, adjusted for certain items
related to capital deductions under the previous definition
of regulatory capital and for the phase-in of new capital
deductions (Hybrid Capital Rules), and (ii) the Advanced
approach and market risk rules set out in the Revised
Capital Framework (together,
III Advanced
Rules). The lower of the ratios calculated under the Hybrid
Capital Rules and those calculated under the Basel III
Advanced Rules are our binding regulatory capital
requirements.

the Basel

As a result of
the changes in the applicable capital
framework in 2014, our capital ratios as of December 2014
and those as of December 2013 included in Note 20 to the
consolidated financial statements were calculated on a
different basis and, accordingly, are not comparable. See
Note 20 to the consolidated financial statements for our
capital ratios as of December 2013, a description of the
Prior Capital Rules, and for additional information about
the Revised Capital Framework, including the transitional
arrangements related to new deductions from Common
Equity Tier 1 (CET1) and information about RWAs.

Management’s Discussion and Analysis

Effective on January 1, 2015, regulatory capital continues
to be calculated under the Revised Capital Framework, but
RWAs are required to be calculated under the Basel III
Advanced Rules, as well as the Standardized approach and
market risk rules set out in the Revised Capital Framework
(together, the Standardized Capital Rules) as discussed in
Note 20 to the consolidated financial statements. The lower
of the ratios calculated under the Basel III Advanced Rules
and those calculated under the Standardized Capital Rules
are our binding regulatory capital requirements.

Minimum Capital Ratios and Capital Buffers
The table below presents the minimum ratios under the
Revised Capital Framework as of December 2014 and
January 2015, as well as the minimum ratios that we expect
will apply at
the transitional provisions
beginning January 2019.

the end of

December 2014
Minimum Ratio 1

January 2015
Minimum Ratio 1

January 2019
Minimum Ratio

CET1 ratio
Tier 1 capital ratio
Total capital ratio
Tier 1 leverage ratio 2

4.0%
5.5%
8.0% 3
4.0%

4.5%
6.0%
8.0% 3
4.0%

8.5% 4
10.0% 4
12.0% 4
4.0%

1. Does not

reflect

the capital conservation buffer or provisional Global

Systemically Important Banks (G-SIB) buffer discussed below.

2. Tier 1 leverage ratio is defined as Tier 1 capital divided by average adjusted
total assets (which includes adjustments for goodwill and identifiable
intangible assets, and certain investments in nonconsolidated financial
institutions).

3. In order to meet the quantitative requirements for being “well-capitalized”
under the Federal Reserve Board’s capital regulations, the firm must meet a
higher required minimum Total capital ratio of 10.0%.

4. Includes the required increases in minimum ratios on January 1, 2015, the
capital conservation buffer of 2.5% and a provisional G-SIB buffer of 1.5%
under the Basel Committee’s methodology discussed below.

The table below presents the supplementary leverage ratio.
See “Supplementary Leverage Ratio” below for further
information.

Supplementary leverage ratio

January 2018
Minimum Ratio

5.0% 1

1. Includes the minimum requirement of 3.0% and a buffer of 2.0% discussed

below.

In addition,

Under the Revised Capital Framework, on January 1, 2015,
the minimum CET1 ratio increased from 4.0% to 4.5%
and the minimum Tier 1 capital ratio increased from 5.5%
to 6.0%.
these minimum ratios will be
supplemented by a new capital conservation buffer,
consisting entirely of capital that qualifies as CET1, that
phases in, beginning on January 1, 2016, in increments of
0.625% per year until
it reaches 2.5% of RWAs on
January 1, 2019.

The January 2019 minimum ratios in the table above
assume the future implementation of an additional
preliminary buffer for G-SIBs. Under the methodology
published by the Basel Committee, the required amount of
additional CET1 for these institutions will initially range
from 1% to 2.5% and could be higher in the future for a
banking institution that increases its systemic footprint
(e.g., by increasing total assets). In November 2014, the
Financial Stability Board (established at the direction of the
leaders of the Group of 20) indicated that, based on our
2013 financial data, we would be required to hold an
additional 1.5% of CET1 as a G-SIB.

In December 2014, the Federal Reserve Board proposed a
rule which would establish risk-based capital surcharges for
U.S. G-SIBs that are higher than those required by the Basel
Committee. Under the proposed rule, U.S. G-SIBs would be
required to meet these higher capital surcharges on a
phased-in basis, beginning in 2016 through 2019. The
proposed rule treats the Basel Committee’s methodology as
a floor and introduces an alternative calculation to
determine the applicable surcharge, which includes a
significantly higher surcharge for systemic risk and, as part
of the calculation of the applicable surcharge, a new factor
based on a G-SIB’s use of short-term wholesale funding.
Under a preliminary assessment of the proposed rule, our
surcharge has been estimated to be 100 basis points higher
than the 1.5% surcharge under the Basel Committee’s
methodology. The table above does not reflect
this
additional surcharge. This preliminary estimate is subject to
significant interpretive assumptions and may change in the
future, perhaps materially, due to, among other things
(i) any changes in the final rule, the interpretations we have
made, or data used in the calculation; (ii) changes in foreign
exchange rates, which may have the effect of increasing or
decreasing the proportion of the systemic risk measures
applicable to U.S. G-SIBs; (iii) increases or decreases in any
of the indicators used in the assessment of our systemic risk,
including our use of short-term wholesale funding; or
(iv) increases or decreases in indicators at any of the other
banks
that are included in the Basel Committee’s
methodology.

The Revised Capital Framework also provides a new
counter-cyclical capital buffer of up to 2.5% (and also
consisting entirely of CET1), to be imposed in the event that
national
to
counteract excessive credit growth. The table above does
not reflect this buffer.

supervisors deem it necessary in order

Our regulators could change these buffers in the future. As
a result, the minimum ratios we are subject to as of
January 1, 2019 could be higher than the amounts
presented in the table above.

Goldman Sachs 2014 Annual Report 59

Management’s Discussion and Analysis

Fully Phased-in Capital Ratios
The table below presents our estimated ratio of CET1 to
RWAs calculated under the Basel III Advanced Rules and
the Standardized Capital Rules on a fully phased-in basis.

$ in millions

Common shareholders’ equity
Deductions for goodwill and identifiable
intangible assets, net of deferred tax
liabilities

Deductions for investments in

nonconsolidated financial institutions

Other adjustments
CET1

Basel III Advanced RWAs
Basel III Advanced CET1 ratio
Standardized RWAs
Standardized CET1 ratio

As of December

2014

2013

$ 73,597

$ 71,267

(3,196)

(3,468)

(4,928)
(1,213)
$ 64,260

$577,869
11.1%
$627,444
10.2%

(9,091)
(489)
$ 58,219

$594,662
9.8%
$635,092
9.2%

Although the fully phased-in capital
ratios are not
applicable until 2019, we believe that the estimated ratios
in the table above are meaningful because they are measures
that we, our regulators and investors use to assess our
ability to meet future regulatory capital requirements. The
III Advanced and
estimated fully phased-in Basel
Standardized CET1 ratios are non-GAAP measures as of
both December 2014 and December 2013 and may not be
comparable to similar non-GAAP measures used by other
companies (as of those dates). These estimated ratios are
based on our current interpretation, expectations and
understanding of the Revised Capital Framework and may
evolve as we discuss its interpretation and application with
our regulators.

See Note 20 to the consolidated financial statements for
information about our transitional capital ratios, which
represent our binding ratios as of December 2014.

In the table above:
‰ The deduction for goodwill and identifiable intangible
assets, net of deferred tax liabilities, represents goodwill
of $3.65 billion and $3.71 billion as of December 2014
and December 2013,
respectively, and identifiable
intangible assets of $515 million and $671 million as of
December 2014 and December 2013, respectively, net of
associated deferred tax liabilities of $964 million and
$908 million as of December 2014 and December 2013,
respectively.

‰ The deduction for

in nonconsolidated
investments
financial institutions represents the amount by which our
investments in the capital of nonconsolidated financial
institutions exceed certain prescribed thresholds. The
decrease from December 2013 to December 2014
primarily reflects reductions in our fund investments.

60 Goldman Sachs 2014 Annual Report

‰ Other adjustments primarily include the overfunded
portion of our defined benefit pension plan obligation,
net of associated deferred tax liabilities, and disallowed
deferred tax assets, credit valuation adjustments on
derivative liabilities and debt valuation adjustments, as
well as other required credit risk-based deductions.

the U.S.

rule that

implements

Supplementary Leverage Ratio
The Revised Capital Framework introduces a new
supplementary leverage ratio for Advanced approach
banking organizations. Under amendments to the Revised
federal bank regulatory
Capital Framework,
the
agencies approved a final
supplementary leverage ratio aligned with the definition of
leverage
established by the Basel Committee. The
supplementary leverage ratio compares Tier 1 capital to a
measure of leverage exposure, defined as the sum of our
quarterly average assets less certain deductions plus certain
off-balance-sheet
including a measure of
derivatives exposures and commitments. The Revised
Capital Framework requires a minimum supplementary
leverage ratio of 5.0% (comprised of
the minimum
requirement of 3.0% and a 2.0% buffer) for U.S. banks
deemed to be G-SIBs, effective on January 1, 2018. Certain
disclosures regarding the supplementary leverage ratio are
required beginning in the first quarter of 2015.

exposures,

perpetual

As of December 2014, our estimated supplementary
leverage ratio was 5.0%, including Tier 1 capital on a fully
phased-in basis of $73.17 billion (CET1 of $64.26 billion
plus
of
$9.20 billion less other adjustments of $290 million)
divided by total leverage exposure of $1.45 trillion (total
quarterly average assets of $873 billion plus adjustments of
$579 billion, primarily comprised of off-balance-sheet
exposure related to derivatives and commitments).

non-cumulative

preferred

stock

We believe that the estimated supplementary leverage ratio
is meaningful because it is a measure that we, our regulators
and investors use to assess our ability to meet future
regulatory
supplementary
leverage ratio is a non-GAAP measure and may not be
comparable to similar non-GAAP measures used by other
companies.

requirements. The

capital

This estimated supplementary leverage ratio is based on our
current interpretation and understanding of the U.S. federal
bank regulatory agencies’ final rule and may evolve as we
discuss
interpretation and application with our
its
regulators.

Management’s Discussion and Analysis

Subsidiary Capital Requirements
Many of our subsidiaries, including GS Bank USA and our
broker-dealer
to separate
regulation and capital requirements of the jurisdictions in
which they operate.

subsidiaries,

subject

are

ratios

its capital

GS Bank USA. GS Bank USA is subject to minimum
capital requirements that are calculated in a manner similar
to those applicable to bank holding companies and
computes
in accordance with the
regulatory capital requirements applicable to state member
banks, which are based on the Revised Capital Framework.
The capital regulations also include requirements with
respect to leverage. See Note 20 to the consolidated
financial statements for further information about the
Revised Capital Framework as it relates to GS Bank USA,
including GS Bank USA’s capital ratios and required
minimum ratios.

important

The Basel Committee published its final guidelines for
calculating incremental capital requirements for domestic
institutions. These
systemically
guidelines are complementary to the framework outlined
above for G-SIBs. The impact of these guidelines on the
regulatory capital requirements of GS Bank USA will
depend on how they are implemented by the banking
regulators in the United States.

banking

In addition, under Federal Reserve Board rules,
commencing on January 1, 2018, in order to be considered
a “well-capitalized” depository institution, GS Bank USA
must have a supplementary leverage ratio of 6.0% or
greater. As of December 2014, GS Bank USA’s estimated
supplementary leverage ratio under this rule and on a fully
phased-in basis was 6.0%. This estimated supplementary
leverage ratio is based on our current interpretation and
understanding of this rule and may evolve as we discuss its
interpretation and application with our regulators.

leverage

GSI. Our regulated U.K. broker-dealer, GSI, is one of the
firm’s principal non-U.S. regulated subsidiaries and is
regulated by the Prudential Regulation Authority (PRA)
and the Financial Conduct Authority (FCA). Effective on
January 1, 2014, GSI became subject to capital regulations
which are largely based on Basel III as implemented in the
European Union (EU) through the Capital Requirements
Directives and which, similar to the Revised Capital
Framework, also introduce
ratio reporting
requirements in the future. As of December 2014, GSI had
an estimated CET1 ratio of 9.7%, an estimated Tier 1
capital ratio of 9.7% and an estimated Total capital ratio of
12.7% (all including approximately 80 basis points of 2014
unaudited results). These ratios will be finalized upon the
completion of the 2014 GSI audit. Under PRA rules, as of
December 2014, GSI is required to maintain a minimum
CET1 ratio of 4.0%, Tier 1 capital ratio of 5.5%, and Total
capital ratio of 8.0%. In January 2015, the minimum CET1
ratio requirement increased to 4.5%, and the minimum
Tier 1 capital ratio requirement increased to 6.0%. GSI’s
future capital requirements may also be impacted by
developments such as the introduction of capital buffers as
described above in “— Minimum Capital Ratios and
Capital Buffers.”

subject

As of December 2013, GSI was
to capital
regulations, which were based on the Basel Committee’s
June 2006 Framework (Basel II) as modified by the Basel
Committee’s February 2011 Revisions to the Basel II
market risk framework and as implemented in the EU
through the Capital Requirements Directives. As of
December 2013, GSI had a Tier 1 capital ratio of 14.4%
and a Total capital ratio of 18.5%.

Goldman Sachs 2014 Annual Report 61

Regulatory Developments

Our businesses are subject to significant and evolving
regulation. The Dodd-Frank Act, enacted in July 2010,
significantly altered the financial regulatory regime within
which we operate. In addition, other reforms have been
adopted or are being considered by other regulators and
policy makers worldwide. We expect that the principal
areas of impact from regulatory reform for us will be
increased regulatory capital requirements and increased
regulation and restriction on certain activities. However,
given that many of the new and proposed rules are highly
complex, the full impact of regulatory reform will not be
known until
the rules are implemented and market
practices develop under the final regulations.

There has been increased regulation of, and limitations on,
our activities, including the Dodd-Frank Act prohibition on
“proprietary trading” and the limitation on the sponsorship
of, and investment in, covered funds (as defined in the
Volcker Rule). In addition, there is increased regulation of,
and restrictions on, OTC derivatives markets and
transactions, particularly related to swaps and security-
based swaps.

See “Business — Regulation” in Part I, Item 1 of the 2014
Form 10-K for more information about the laws, rules and
regulations and proposed laws, rules and regulations that
apply to us and our operations. In addition, see Note 20 to
the consolidated financial statements for information about
regulatory developments as they relate to our regulatory
capital
and “Liquidity Risk
ratios,
Management — Liquidity Regulatory Framework” below
for information about the U.S. federal bank regulatory
agencies’ final rules implementing the liquidity coverage
ratio.

and leverage

Management’s Discussion and Analysis

the

that

expect

Other Subsidiaries. We
capital
requirements of several of our subsidiaries are likely to
increase in the future due to the various developments
arising from the Basel Committee, the Dodd-Frank Act, and
other governmental entities and regulators. See Note 20 to
the consolidated financial statements for information about
the capital requirements of our other regulated subsidiaries.

Subsidiaries not subject to separate regulatory capital
requirements may hold capital to satisfy local tax and legal
guidelines, rating agency requirements (for entities with
assigned credit ratings) or internal policies,
including
policies concerning the minimum amount of capital a
subsidiary should hold based on its underlying level of risk.
In certain instances, Group Inc. may be limited in its ability
to access capital held at certain subsidiaries as a result of
regulatory, tax or other constraints. As of December 2014
and December 2013, Group Inc.’s equity investment in
subsidiaries was $79.70 billion and $73.39 billion,
respectively, compared with its total shareholders’ equity of
$82.80 billion and $78.47 billion, respectively.

Our capital invested in non-U.S. subsidiaries is generally
exposed to foreign exchange risk, substantially all of which
is managed through a combination of derivatives and non-
U.S. denominated debt.

Guarantees of Subsidiaries. Group Inc. has guaranteed
the payment obligations of GS&Co., GS Bank USA, and
Goldman Sachs Execution & Clearing, L.P. (GSEC), in
each case subject to certain exceptions. In November 2008,
Group Inc. contributed subsidiaries into GS Bank USA, and
Group Inc. agreed to guarantee certain losses, including
credit-related losses,
relating to assets held by the
contributed entities. In connection with this guarantee,
Group Inc. also agreed to pledge to GS Bank USA certain
collateral,
including interests in subsidiaries and other
illiquid assets.

62 Goldman Sachs 2014 Annual Report

investments

Our current investment in funds that are calculated using
NAV is $9.84 billion as disclosed in Note 6 to the
consolidated financial statements. In order to be compliant
with the Volcker Rule, we will be required to reduce most
of our interests in these funds by the prescribed compliance
date. The Federal Reserve Board extended the conformance
period through July 2016 for
in, and
relationships with, covered funds that were in place prior to
December 31, 2013, and indicated that it intends to further
extend the conformance period through July 2017. We
currently expect to be able to exit substantially all such
interests in these funds in orderly transactions prior to
July 2017, subject to market conditions. However, to the
extent that the underlying investments of particular funds
are not sold, we may be required to sell our interests in such
funds. If that occurs, we may receive a value for our
interests that is less than the then carrying value as there
could be a limited secondary market for these investments
and we may be unable to sell them in orderly transactions.

Although our net revenues from our interests in private
equity, credit, real estate and hedge funds may vary from
period to period, our aggregate net revenues from these
investments were approximately 3% and 6% of our
aggregate total net revenues over the last 10 years and 5
years, respectively.

Management’s Discussion and Analysis

Volcker Rule
In December 2013,
the
provisions of the Dodd-Frank Act referred to as the
“Volcker Rule” were adopted.

the final rules to implement

The Volcker Rule prohibits “proprietary trading,” but
permits activities such as underwriting, market making and
risk-mitigation hedging. We are also required to calculate
daily quantitative metrics on covered trading activities (as
defined in the rule) and provide these metrics to regulators
on a monthly basis. We are required to be in compliance
with the prohibition on proprietary trading and to develop
an extensive compliance program by July 2015. Based on
what we know as of the date of this filing, we do not expect
the impact of the prohibition on proprietary trading to be
material to our financial condition, results of operations or
cash flows. However, the rule is highly complex, and its
impact will not be known until market practices are fully
developed.

In addition to the prohibition on proprietary trading, the
Volcker Rule limits the sponsorship of, and investment in,
“covered funds” (as defined in the rule) by banking entities,
including Group Inc. and its subsidiaries. It also limits
certain types of transactions between us and our sponsored
funds, similar to the limitations on transactions between
depository institutions and their affiliates as described in
“Business — Regulation” in Part I, Item 1 of the 2014
Form 10-K. Covered funds include our private equity
funds, certain of our credit and real estate funds, our hedge
funds and certain other
structures. The
limitation on investments in covered funds requires us to
reduce our investment in each such fund to 3% or less of the
fund’s net asset value, and to reduce our aggregate
investment in all such funds to 3% or less of our Tier 1
capital. In anticipation of the final rule, we limited our
initial investment in certain new covered funds to 3% of the
fund’s net asset value.

investment

We continue to manage our existing funds, taking into
account the transition periods under the Volcker Rule. We
plan to continue to conduct our investing and lending
activities in ways that are permissible under the Volcker
Rule.

Goldman Sachs 2014 Annual Report 63

Management’s Discussion and Analysis

Off-Balance-Sheet Arrangements
and Contractual Obligations

Off-Balance-Sheet Arrangements
We have various types of off-balance-sheet arrangements
that we enter into in the ordinary course of business. Our
involvement in these arrangements can take many different
forms, including:
‰ Purchasing or retaining residual and other interests in
special purpose entities such as mortgage-backed and
other asset-backed securitization vehicles;

‰ Holding senior and subordinated debt, interests in limited
and general partnerships, and preferred and common
stock in other nonconsolidated vehicles;

‰ Entering into interest rate, foreign currency, equity,
commodity and credit derivatives, including total return
swaps;

‰ Entering into operating leases; and
‰ Providing

guarantees,

loan
commitments, letters of credit and representations and
warranties.

indemnifications,

We enter into these arrangements for a variety of business
including securitizations. The securitization
purposes,
vehicles that purchase mortgages, corporate bonds, and
other types of financial assets are critical to the functioning
of several significant
including the
securities
other
and
mortgage-backed
markets, since they offer investors access to specific cash
flows and risks created through the securitization process.

investor markets,

asset-backed

Our financial interests in, and derivative transactions with,
such nonconsolidated entities are generally accounted for at
fair value,
in the same manner as our other financial
instruments, except in cases where we apply the equity
method of accounting.

The table below presents where a discussion of our various
off-balance-sheet arrangements may be found in the 2014
Form 10-K. In addition, see Note 3 to the consolidated
financial statements for a discussion of our consolidation
policies.

Type of Off-Balance-Sheet
Arrangement

interests

and
other
Variable
obligations,
including contingent
obligations, arising from variable
interests in nonconsolidated VIEs
letters of credit, and
Leases,
lending and other commitments

Guarantees

Derivatives

Disclosure in Form 10-K

See Note 12 to the consolidated
financial statements.

See “Contractual Obligations”
below and Note 18 to the
consolidated financial statements.
See “Contractual Obligations”
below and Note 18 to the
consolidated financial statements.
See “Credit Risk Management —
Credit
Exposures — OTC
Derivatives” below and Notes 4,
5, 7 and 18 to the consolidated
financial statements.

investments

We also enter into these arrangements to underwrite client
securitization transactions; provide secondary market
liquidity; make
and
nonperforming debt, equity, real estate and other assets;
provide investors with credit-linked and asset-repackaged
notes; and receive or provide letters of credit to satisfy
margin requirements and to facilitate the clearance and
settlement process.

performing

64 Goldman Sachs 2014 Annual Report

Management’s Discussion and Analysis

Contractual Obligations
We have certain contractual obligations which require us to
make future cash payments. These contractual obligations
include our unsecured long-term borrowings, secured long-
interest
term financings, time deposits and contractual
payments, all of which are included in our consolidated
statements of financial condition. Our obligations to make

future cash payments also include certain off-balance-sheet
contractual obligations
such as purchase obligations,
minimum rental payments under noncancelable leases and
commitments and guarantees. The table below presents our
contractual obligations, commitments and guarantees as of
December 2014.

$ in millions

Amounts related to on-balance-sheet obligations
Time deposits
Secured long-term financings
Unsecured long-term borrowings
Contractual interest payments
Subordinated liabilities issued by consolidated VIEs
Amounts related to off-balance-sheet arrangements
Commitments to extend credit
Contingent and forward starting resale and securities borrowing agreements
Forward starting repurchase and secured lending agreements
Letters of credit
Investment commitments 1
Other commitments
Minimum rental payments
Derivative guarantees
Securities lending indemnifications
Other financial guarantees

2015

2016 -
2017

2018 -
2019

2020 -
Thereafter

— $
—
—
6,859
3

7,830
5,104
44,342
12,172
—

$ 5,308
1,403
40,345
4,850
—

15,154
34,343
8,180
280
1,684
6,136
321
351,308
27,567
471

23,235
557
—
14
2,818
87
566
150,989
—
935

50,423
325
—
10
25
42
416
51,927
—
1,390

$ 5,704
742
82,884
37,535
840

7,137
—
—
4
637
56
870
58,511
—
1,690

Total

$ 18,842
7,249
167,571
61,416
843

95,949
35,225
8,180
308
5,164
6,321
2,173
612,735
27,567
4,486

1. $2.83 billion of commitments to covered funds (as defined by the Volcker Rule) are included in the 2015 and 2016-2017 columns. We expect that substantially all of

these commitments will not be called.

In the table above:
‰ Obligations maturing within one year of our financial
statement date or redeemable within one year of our
financial statement date at the option of the holder are
excluded and are treated as short-term obligations.

‰ Obligations that are repayable prior to maturity at our
option are reflected at their contractual maturity dates
and obligations that are redeemable prior to maturity at
the option of the holders are reflected at the dates such
options become exercisable.

‰ Amounts included in the table do not necessarily reflect
future cash flow requirements for these
the actual
arrangements because commitments and guarantees
represent notional amounts and may expire unused or be
reduced or cancelled at the counterparty’s request.

‰ Due to the uncertainty of the timing and amounts that
will ultimately be paid, our liability for unrecognized tax
benefits has been excluded. See Note 24 to the
consolidated financial statements for further information
about our unrecognized tax benefits.

‰ Unsecured long-term borrowings includes $9.54 billion
of adjustments to the carrying value of certain unsecured
long-term borrowings resulting from the application of
hedge accounting.

‰ The aggregate contractual principal amount of secured
long-term financings
long-term
and
borrowings for which the fair value option was elected
exceeded the related fair value by $203 million and
$163 million, respectively.

unsecured

‰ Contractual interest payments represents estimated future
interest payments
related to unsecured long-term
borrowings,
secured long-term financings and time
rates as of
deposits based on applicable interest
December 2014, and includes stated coupons, if any, on
structured notes.

Goldman Sachs 2014 Annual Report 65

Risk Management and Risk Factors

legal,

credit,

regulatory

operational,

Risks are inherent in our business and include liquidity,
market,
and
reputational risks. For a further discussion of our risk
management processes, see “— Overview and Structure of
Risk Management” below. Our risks include the risks
across our risk categories, regions or global businesses, as
well as those which have uncertain outcomes and have the
potential to materially impact our financial results, our
liquidity and our reputation. For a further discussion of our
areas of risk, see “— Liquidity Risk Management,”
“— Market Risk Management,” “— Credit Risk
Management,” “— Operational Risk Management” and
“— Certain Risk Factors That May Affect Our Businesses”
below.

Management’s Discussion and Analysis

See Notes 15 and 18 to the consolidated financial
statements for further information about our short-term
borrowings and commitments and guarantees, respectively.

As of December 2014, our unsecured long-term borrowings
were $167.57 billion, with maturities extending to 2061,
and consisted principally of senior borrowings. See Note 16
to the consolidated financial
further
information about our unsecured long-term borrowings.

statements

for

future minimum rental
As of December 2014, our
payments, net of minimum sublease
rentals under
noncancelable leases, were $2.17 billion. These lease
commitments, principally for office space, expire on
various dates through 2069. Certain agreements are subject
to periodic escalation provisions for increases in real estate
taxes and other charges. See Note 18 to the consolidated
financial statements for further information about our
leases.

Our occupancy expenses include costs associated with
office space held in excess of our current requirements. This
excess space, the cost of which is charged to earnings as
incurred, is being held for potential growth or to replace
currently occupied space that we may exit in the future. We
regularly evaluate our current and future space capacity in
relation to current and projected staffing levels. For 2014,
total occupancy expenses for space held in excess of our
current requirements and exit costs related to our office
space were not material. We may incur exit costs in the
future to the extent we (i) reduce our space capacity or
(ii) commit to, or occupy, new properties in the locations in
which we operate and, consequently, dispose of existing
space that had been held for potential growth. These exit
costs may be material to our results of operations in a given
period.

66 Goldman Sachs 2014 Annual Report

Management’s Discussion and Analysis

Overview and Structure of Risk
Management

Overview
We believe that effective risk management is of primary
importance to the success of the firm. Accordingly, we have
comprehensive risk management processes through which
we monitor, evaluate and manage the risks we assume in
conducting our activities. These include market, credit,
liquidity, operational, legal, regulatory and reputational
risk exposures. Our risk management framework is built
around three core components: governance, processes and
people.

Governance. Risk management governance starts with
our Board, which plays an important role in reviewing and
approving risk management policies and practices, both
including its Risk
directly and through its committees,
Committee. The Board also receives regular briefings on
firmwide risks, including market risk, liquidity risk, credit
risk and operational risk from our independent control and
support functions, including the chief risk officer, and on
matters impacting our reputation from the chair of our
Firmwide Client and Business Standards Committee. The
chief risk officer, as part of the review of the firmwide risk
portfolio, regularly advises the Risk Committee of the
Board of relevant risk metrics and material exposures.
Next, at the most senior levels of the firm, our leaders are
experienced risk managers, with a sophisticated and
detailed understanding of the risks we take. Our senior
managers lead and participate in risk-oriented committees,
as do the leaders of our independent control and support
functions — including those in Compliance, Controllers,
our Credit Risk Management department (Credit Risk
Management), Human Capital Management, Legal, our
Market Risk Management department
(Market Risk
Management), Operations,
our Operational Risk
Management department (Operational Risk Management),
Tax, Technology and Treasury.

Our governance structure provides the protocol and
responsibility for decision-making on risk management
issues and ensures implementation of those decisions. We
make extensive use of risk-related committees that meet
regularly and serve as an important means to facilitate and
foster ongoing discussions to identify, manage and mitigate
risks.

We maintain strong communication about risk and we have
a culture of collaboration in decision-making among the
revenue-producing units, independent control and support
functions, committees and senior management. While we
believe that the first line of defense in managing risk rests
with the managers in our revenue-producing units, we
dedicate extensive resources to independent control and
support functions in order to ensure a strong oversight
structure and an appropriate segregation of duties. We
regularly reinforce our strong culture of escalation and
accountability across all divisions and functions.

Processes. We maintain various processes and procedures
that are critical components of our risk management. First
and foremost
is our daily discipline of marking
substantially all of our inventory to current market levels.
Goldman Sachs carries its inventory at fair value, with
changes in valuation reflected immediately in our risk
management systems and in net revenues. We do so because
we believe this discipline is one of the most effective tools
for assessing and managing risk and that it provides
financial
transparent and realistic
exposures.

into our

insight

We also apply a rigorous framework of limits to control
risk across multiple transactions, products, businesses and
markets. This includes setting credit and market risk limits
at a variety of levels and monitoring these limits on a daily
basis. Limits are typically set at
levels that will be
periodically exceeded, rather than at levels which reflect
our maximum risk appetite. This fosters an ongoing
dialogue on risk among
revenue-producing units,
independent control and support functions, committees and
senior management, as well as rapid escalation of risk-
related matters. See “Market Risk Management” and
“Credit Risk Management” for further information about
our risk limits.

Active management of our positions is another important
process. Proactive mitigation of our market and credit
exposures minimizes the risk that we will be required to
take outsized actions during periods of stress.

Goldman Sachs 2014 Annual Report 67

have

oversight

Structure
Ultimate oversight of risk is the responsibility of our Board.
The Board oversees risk both directly and through its
committees, including its Risk Committee. Within the firm,
a series of committees with specific risk management
mandates
decision-making
responsibilities for risk management activities. Committee
membership generally consists of senior managers from
both our revenue-producing units and our independent
control and support
functions. We have established
procedures for these committees to ensure that appropriate
information barriers are in place. Our primary risk
committees, most of which also have additional sub-
committees or working groups, are described below. In
addition to these committees, we have other risk-oriented
committees which
different
businesses, activities, products, regions and legal entities.
All of our firmwide, regional and divisional committees
have
impact of
transactions and activities which they oversee on our
reputation.

responsibility

considering

oversight

provide

the

for

Membership of our risk committees is reviewed regularly
and updated to reflect changes in the responsibilities of the
committee members. Accordingly, the length of time that
members serve on the respective committees varies as
determined by the committee chairs and based on the
responsibilities of the members within the firm.

In addition, independent control and support functions,
which report to the chief financial officer, the chief risk
officer, the general counsel and the chief administrative
officer, are responsible for day-to-day oversight or
monitoring of risk, as discussed in greater detail in the
following sections. Internal Audit, which reports to the
Audit Committee of the Board and includes professionals
with a broad range of audit and industry experience,
including risk management expertise, is responsible for
independently assessing and validating key controls within
the risk management framework.

Management’s Discussion and Analysis

We also focus on the rigor and effectiveness of our risk
systems. The goal of our risk management technology is to
get the right information to the right people at the right
time, which requires systems that are comprehensive,
time and
reliable and timely. We devote significant
resources to our risk management technology to ensure that
it consistently provides us with complete, accurate and
timely information.

People. Even the best technology serves only as a tool for
helping to make informed decisions in real time about the
risks we are taking. Ultimately, effective risk management
requires our people to interpret our risk data on an ongoing
and timely basis and adjust risk positions accordingly. In
both our revenue-producing units and our independent
control and support
the experience of our
functions,
professionals, and their understanding of the nuances and
limitations of each risk measure, guide us in assessing
exposures and maintaining them within prudent levels.

We reinforce a culture of effective risk management in our
training and development programs as well as the way we
evaluate performance, and recognize and reward our
people. Our training and development programs, including
certain sessions led by our most senior leaders, are focused
on the importance of risk management, client relationships
and reputational excellence. As part of our annual
performance
reputational
review process, we assess
excellence including how an employee exercises good risk
management and reputational judgment, and adheres to
our code of conduct and compliance policies. Our review
and reward processes are designed to communicate and
reinforce to our professionals the link between behavior
and how people are recognized, the need to focus on our
clients and our reputation, and the need to always act in
accordance with the highest standards of the firm.

68 Goldman Sachs 2014 Annual Report

Management’s Discussion and Analysis

The chart below presents an overview of our
structure, highlighting
management

governance

risk
the

oversight of our Board, our key risk-related committees and
the independence of our control and support functions.

Corporate Oversight

Board of Directors

Board Committees

Senior Management Oversight

Chief Executive Officer

President/Chief Operating Officer

Chief Financial Officer

Committee Oversight

Management Committee

Chief Administrative Officer

Chief Risk Officer

Firmwide Client and Business
Standards Committee

Firmwide Risk Committee

Securities Division Risk Committee

Firmwide New Activity Committee

Credit Policy Committee

Firmwide Suitability Committee

Firmwide Operational Risk Committee
Firmwide Finance Committee

Firmwide Technology Risk Committee

Firmwide Investment Policy Committee

Firmwide Model Risk Control Committee
Global Business Resilience Committee

Firmwide Commitments Committee

Firmwide Capital Committee

Revenue-Producing Units

Independent Control and Support Functions

Internal Audit

Business Managers
Business Risk Managers

Operations

Technology

Controllers

Tax

Treasury

Human Capital Management

Compliance

Legal

Credit Risk Management

Operational Risk Management

Market Risk Management

Investment
Management
Division Risk
Committee

Management Committee. The Management Committee
oversees our global activities,
including all of our
independent control and support functions. It provides this
oversight directly and through authority delegated to
committees it has established. This committee is comprised
of our most senior leaders, and is chaired by our chief
executive officer. The Management Committee has
established various committees with delegated authority
the Management Committee
and the chairperson of
appoints the chairpersons of
these committees. Most
members of the Management Committee are also members
of other firmwide, divisional and regional committees. The
following are the committees that are principally involved
in firmwide risk management.

Firmwide Client and Business Standards Committee.
The Firmwide Client and Business Standards Committee
assesses and makes determinations regarding business
standards and practices, reputational risk management,
client relationships and client service, is chaired by our
president and chief operating officer, and reports to the
committee also has
Management Committee. This
responsibility for overseeing recommendations of
the
committee
Business
periodically updates and receives guidance from the Public
Responsibilities
the Corporate
Governance, Nominating and Public Responsibilities
Committee of the Board. This committee has established
the following risk-related committees that report to it:

Subcommittee

Committee.

Standards

This

Goldman Sachs 2014 Annual Report 69

Management’s Discussion and Analysis

‰ Firmwide New Activity Committee. The Firmwide
New Activity Committee is responsible for reviewing new
activities and for establishing a process to identify and
review previously approved activities that are significant
and that have changed in complexity and/or structure or
present different reputational and suitability concerns
over time to consider whether these activities remain
appropriate. This committee is co-chaired by our head of
operations/chief operating officer for Europe, Middle
East and Africa (EMEA) and the chief administrative
officer of our Investment Management Division, who are
appointed by the Firmwide Client and Business Standards
Committee chairperson.

‰ Firmwide Suitability Committee. The Firmwide
Suitability Committee is responsible for setting standards
and policies for product, transaction and client suitability
and providing a forum for consistency across divisions,
regions and products on suitability assessments. This
committee also reviews suitability matters escalated from
other committees. This committee is co-chaired by the
deputy head of our Global Compliance Division and the
co-head of Global Fixed Income, Currency and
Commodities Sales, who are appointed by the Firmwide
Client and Business Standards Committee chairperson.

for

financial

is globally responsible

Firmwide Risk Committee. The Firmwide Risk
the ongoing
Committee
monitoring and management of our
risks.
Through both direct and delegated authority, the Firmwide
Risk Committee approves firmwide, product, divisional
and business-level limits for both market and credit risks,
approves sovereign credit risk limits and reviews results of
stress tests and scenario analyses. This committee is co-
chaired by our chief financial officer and our chief risk
officer, and reports to the Management Committee. The
following are the primary committees that report to the
the
Firmwide Risk Committee. The chairperson of
Securities Division Risk Committee is appointed by the
the Firmwide Risk Committee;
chairpersons of
the
chairpersons of
and Firmwide
the Credit Policy
Operational Risk Committees are appointed by our chief
risk officer; the chairpersons of the Firmwide Finance
Committee, the Firmwide Technology Risk Committee, the
Firmwide Model Risk Control Committee and the Global
Business Resilience Committee are appointed by the
Firmwide Risk Committee; and the chairpersons of the
Firmwide Investment Policy Committee are appointed by
our president and chief operating officer in conjunction
with our chief financial officer.

70 Goldman Sachs 2014 Annual Report

‰ Securities Division Risk Committee. The Securities
Division Risk Committee sets market risk limits, subject
to overall firmwide risk limits, for the Securities Division
based on a number of risk measures, including but not
limited to VaR, stress tests, scenario analyses and balance
sheet levels. This committee is chaired by the chief risk
officer of our Securities Division.

‰ Credit Policy Committee. The Credit Policy Committee
establishes and reviews broad firmwide credit policies
and parameters that are implemented by Credit Risk
Management. This committee is chaired by our chief
credit officer.

ongoing

‰ Firmwide Operational Risk Committee. The
provides
Firmwide Operational Risk Committee
and
oversight
the
risk policies,
implementation of our operational
the
framework and methodologies, and monitors
effectiveness of operational
risk management. This
committee is co-chaired by a managing director in Credit
in
Risk Management
Operational Risk Management.

and a managing director

development

liquidity, balance sheet,

‰ Firmwide Finance Committee. The Firmwide Finance
Committee has oversight responsibility for liquidity risk,
the size and composition of our balance sheet and capital
base, and credit ratings. This committee regularly reviews
our
funding position and
capitalization, approves related policies, and makes
recommendations as to any adjustments to be made in
light of current events, risks, exposures and regulatory
requirements. As a part of such oversight, among other
things, this committee reviews and approves balance
sheet limits and the size of our GCLA. This committee is
co-chaired by our chief financial officer and our global
treasurer.

‰ Firmwide Technology Risk Committee. The Firmwide
Technology Risk Committee reviews matters related to
the design, development, deployment and use of
technology. This committee oversees cyber security
technology risk management
matters, as well as
frameworks and methodologies, and monitors their
effectiveness. This committee is co-chaired by our chief
information officer and the head of Global Investment
Research.

Investment

‰ Firmwide Investment Policy Committee. The
Firmwide
reviews,
approves and sets policies, and provides oversight, for
certain illiquid principal investments. This committee is
co-chaired by the head of our Merchant Banking Division
and a co-head of our Securities Division.

Policy Committee

Management’s Discussion and Analysis

‰ Firmwide Model Risk Control Committee. The
Firmwide Model Risk Control Committee is responsible
for oversight of the development and implementation of
model risk controls, which includes governance, policies
and procedures related to our reliance on financial
models. This committee is chaired by our chief market
risk officer.

‰ Global Business Resilience Committee. The Global
Business Resilience Committee
for
oversight of business resilience initiatives, promoting
increased levels of security and resilience, and reviewing
certain operating risks related to business resilience. This
committee is chaired by our chief administrative officer.

responsible

procedures

The following committees report jointly to the Firmwide
Risk Committee and the Firmwide Client and Business
Standards Committee:
‰ Firmwide Commitments Committee. The Firmwide
Commitments Committee reviews our underwriting and
distribution activities with respect to equity and equity-
related product offerings, and sets and maintains policies
and
legal,
reputational, regulatory and business standards are
maintained on a global basis. In addition to reviewing
specific
periodically
this
conducts general strategic reviews of sectors and products
and establishes policies in connection with transaction
practices. This committee is co-chaired by our senior
strategy officer and the co-head of Global Mergers &
Acquisitions, who are appointed by the Firmwide Client
and Business Standards Committee chairperson.

transactions,

committee

designed

ensure

that

‰ Firmwide Capital Committee. The Firmwide Capital
Committee provides approval and oversight of debt-
related transactions, including principal commitments of
our capital. This committee aims to ensure that business
and reputational standards for underwritings and capital
commitments are maintained on a global basis. This
committee is co-chaired by our global treasurer and the
head of credit finance for EMEA who are appointed by
the Firmwide Risk Committee chairpersons.

Investment Management Division Risk Committee.
The Investment Management Division Risk Committee is
responsible for the ongoing monitoring and control of
global market, counterparty credit and liquidity risks
investment
activities
associated with
management businesses. The head of risk management for
the Investment Management Division is the chair of this
committee. The Investment Management Division Risk
Committee reports to our chief risk officer.

our

the

Conflicts Management
Conflicts of interest and our approach to dealing with them
are fundamental to our client relationships, our reputation
and our long-term success. The term “conflict of interest”
does not have a universally accepted meaning, and conflicts
can arise in many forms within a business or between
businesses. The responsibility for identifying potential
conflicts, as well as complying with our policies and
procedures, is shared by the entire firm.

We have a multilayered approach to resolving conflicts and
addressing reputational risk. Our senior management
oversees policies related to conflicts resolution, and, in
conjunction with the Business Selection and Conflicts
Resolution Group, the Legal Department and Compliance
Division, the Firmwide Client and Business Standards
Committee, and other internal committees, formulates
policies, standards and principles, and assists in making
resolution of
judgments
conflicts
particular
necessarily depends on the facts and circumstances of a
particular situation and the application of experienced and
informed judgment.

regarding
conflicts. Resolving

appropriate

potential

the

As a general matter, the Business Selection and Conflicts
Resolution Group reviews all
financing and advisory
assignments in Investment Banking and certain investing,
lending and other activities of the firm. In addition, we have
various transaction oversight committees, such as the
Firmwide Capital, Commitments
Suitability
Committees and other committees across the firm that also
review new underwritings,
and
structured products. These groups and committees work
with internal and external counsel and the Compliance
Division to evaluate and address any actual or potential
conflicts.

investments

loans,

and

We regularly assess our policies and procedures that
address conflicts of interest in an effort to conduct our
business in accordance with the highest ethical standards
and in compliance with all applicable laws, rules, and
regulations.

Goldman Sachs 2014 Annual Report 71

As of December 2014 and December 2013, the fair value of
the securities and certain overnight cash deposits included
in our GCLA, totaled $182.95 billion and $184.07 billion,
respectively. Based on the results of our internal liquidity
risk models, discussed below, as well as our consideration
of other factors including, but not limited to, an assessment
of our potential intraday liquidity needs and a qualitative
assessment of the condition of the financial markets and the
firm, we believe our
liquidity position as of both
December 2014 and December 2013 was appropriate.

The table below presents the fair value of the securities and
certain overnight cash deposits that are included in our
GCLA.

$ in millions

U.S. dollar-denominated
Non-U.S. dollar-denominated
Total

Average for the
Year Ended December

2014

2013

$134,223
45,410
$179,633

$136,824
45,826
$182,650

The U.S. dollar-denominated GCLA is composed of
(i) unencumbered U.S. government and federal agency
obligations (including highly liquid U.S. federal agency
mortgage-backed obligations), all of which are eligible as
collateral in Federal Reserve open market operations and
(ii) certain overnight U.S. dollar cash deposits. The non-
U.S. dollar-denominated GCLA is composed of only
unencumbered German, French, Japanese and United
Kingdom government obligations and certain overnight
cash deposits in highly liquid currencies. We strictly limit
our GCLA to this narrowly defined list of securities and
cash because they are highly liquid, even in a difficult
funding environment. We do not include other potential
sources of excess liquidity in our GCLA, such as less liquid
unencumbered securities or committed credit facilities.

Management’s Discussion and Analysis

Liquidity Risk Management

Liquidity is of critical importance to financial institutions.
Most of the failures of financial institutions have occurred
in large part due to insufficient liquidity. Accordingly, we
have in place a comprehensive and conservative set of
liquidity and funding policies to address both firm-specific
and broader industry or market liquidity events. Our
principal objective is to be able to fund the firm and to
enable our core businesses to continue to serve clients and
generate revenues, even under adverse circumstances.

We manage liquidity risk according to the following
principles:

Global Core Liquid Assets. We maintain substantial
liquidity (GCLA, previously GCE) to meet a broad range of
potential cash outflows and collateral needs in a stressed
environment.

Asset-Liability Management. We assess anticipated
holding periods for our assets and their expected liquidity in
a stressed environment. We manage the maturities and
diversity of our funding across markets, products and
counterparties, and seek to maintain liabilities of
appropriate tenor relative to our asset base.

Contingency Funding Plan. We maintain a contingency
funding plan to provide a framework for analyzing and
responding to a liquidity crisis situation or periods of
market stress. This framework sets forth the plan of action
to fund normal business activity in emergency and stress
situations. These principles are discussed in more detail
below.

Global Core Liquid Assets
Our most important liquidity policy is to pre-fund our
estimated potential cash and collateral needs during a
liquidity crisis and hold this liquidity in the form of
unencumbered, highly liquid securities and cash. We believe
that the securities held in our GCLA would be readily
convertible to cash in a matter of days, through liquidation,
by entering into repurchase agreements or from maturities
of resale agreements, and that this cash would allow us to
meet immediate obligations without needing to sell other
assets or depend on additional funding from credit-sensitive
markets.

72 Goldman Sachs 2014 Annual Report

Management’s Discussion and Analysis

The table below presents the fair value of our GCLA by
asset class.

$ in millions

Overnight cash deposits
U.S. government obligations
U.S. federal agency obligations,
including highly liquid U.S.
federal agency mortgage-
backed obligations

German, French, Japanese

and United Kingdom
government obligations

Total

Average for the
Year Ended December

2014

2013

$ 57,177
62,838

$ 61,265
76,019

16,722

2,551

42,896
$179,633

42,815
$182,650

The table below presents the GCLA of Group Inc. and our
major broker-dealer and bank subsidiaries.

$ in millions

Group Inc.
Major broker-dealer subsidiaries
Major bank subsidiaries
Total

Average for the
Year Ended December

2014

2013

$ 37,699
89,549
52,385
$179,633

$ 29,752
93,103
59,795
$182,650

Our GCLA reflects the following principles:
‰ The first days or weeks of a liquidity crisis are the most

critical to a company’s survival;

collateral

requirements

‰ Focus must be maintained on all potential cash and
collateral outflows, not just disruptions to financing
flows. Our businesses are diverse, and our liquidity needs
including market
are determined by many factors,
movements,
client
commitments, all of which can change dramatically in a
difficult funding environment;
‰ During a liquidity crisis,

funding,
including unsecured debt and some types of secured
financing agreements, may be unavailable, and the terms
(e.g., interest rates, collateral provisions and tenor) or
availability of other types of secured financing may
change; and

credit-sensitive

and

‰ As a result of our policy to pre-fund liquidity that we
estimate may be needed in a crisis, we hold more
unencumbered securities and have larger debt balances
than our businesses would otherwise require. We believe
that our liquidity is stronger with greater balances of
highly liquid unencumbered securities, even though it
increases our total assets and our funding costs.

We believe that our GCLA provides us with a resilient
source of funds that would be available in advance of
potential cash and collateral outflows and gives us
significant
flexibility in managing through a difficult
funding environment.

In order to determine the appropriate size of our GCLA, we
use an internal liquidity model, referred to as the Modeled
Liquidity Outflow, which captures and quantifies our
liquidity risks. We also consider other factors including, but
not limited to, an assessment of our potential intraday
liquidity needs through an additional
liquidity
model, referred to as the Intraday Liquidity Model, and a
qualitative assessment of the condition of the financial
markets and the firm.

internal

We distribute our GCLA across entities, asset types, and
clearing agents to provide us with sufficient operating
liquidity to ensure timely settlement in all major markets,
even in a difficult funding environment.

We maintain our GCLA to enable us to meet current and
potential liquidity requirements of our parent company,
Group Inc., and its subsidiaries. Our Modeled Liquidity
Outflow and Intraday Liquidity Model
incorporate a
consolidated requirement for Group Inc. as well as a
standalone requirement for each of our major broker-dealer
and bank subsidiaries. Liquidity held directly in each of
these major subsidiaries is intended for use only by that
subsidiary to meet its liquidity requirements and is assumed
not to be available to Group Inc. unless (i) legally provided
for and (ii) there are no additional regulatory, tax or other
restrictions. In addition, the Modeled Liquidity Outflow
and Intraday Liquidity Model also incorporate a broader
assessment of standalone liquidity requirements for other
subsidiaries and we hold a portion of our GCLA directly at
Group Inc. to support such requirements. In addition to the
GCLA, we maintain cash balances in several of our other
entities, primarily for use in specific currencies, entities, or
jurisdictions where we do not have immediate access to
parent company liquidity.

In addition to our GCLA, we have a significant amount of
other unencumbered cash and “Financial
instruments
owned, at
fair value,” including other government
obligations, high-grade money market securities, corporate
obligations, marginable equities, loans and cash deposits
not included in our GCLA. The fair value of these assets
averaged $94.52 billion for 2014 and $90.77 billion for
2013. We do not consider these assets liquid enough to be
eligible for our GCLA.

Goldman Sachs 2014 Annual Report 73

Management’s Discussion and Analysis

Modeled Liquidity Outflow. Our Modeled Liquidity
Outflow is based on conducting multiple scenarios that
include combinations of market-wide and firm-specific
stress. These scenarios are characterized by the following
qualitative elements:
‰ Severely challenged market environments, including low
consumer and corporate confidence,
financial and
political instability, adverse changes in market values,
including potential declines
in equity markets and
widening of credit spreads; and

‰ A firm-specific crisis potentially triggered by material
executive
damage,

losses,
departure, and/or a ratings downgrade.

reputational

litigation,

The following are the critical modeling parameters of the
Modeled Liquidity Outflow:
‰ Liquidity needs over a 30-day scenario;
‰ A two-notch downgrade of our

long-term senior

unsecured credit ratings;

‰ A combination of

contractual outflows,

such as
upcoming maturities of unsecured debt, and contingent
outflows (e.g., actions though not contractually required,
we may deem necessary in a crisis). We assume that most
contingent outflows will occur within the initial days and
weeks of a crisis;

‰ No issuance of equity or unsecured debt;
‰ No support from government funding facilities. Although
we have access to various central bank funding programs,
we do not assume reliance on them as a source of funding
in a liquidity crisis; and

‰ No asset liquidation, other than the GCLA.

The Modeled Liquidity Outflow is calculated and reported
to senior management on a daily basis. We regularly refine
our model to reflect changes in market or economic
conditions and our business mix.

The potential contractual and contingent cash and
collateral outflows covered in our Modeled Liquidity
Outflow include:

74 Goldman Sachs 2014 Annual Report

Unsecured Funding
‰ Contractual: All upcoming maturities of unsecured long-
term debt, commercial paper, promissory notes and other
unsecured funding products. We assume that we will be
unable to issue new unsecured debt or rollover any
maturing debt.

‰ Contingent: Repurchases of our outstanding long-term
debt, commercial paper and hybrid financial instruments
in the ordinary course of business as a market maker.

Deposits
‰ Contractual: All upcoming maturities of term deposits.
We assume that we will be unable to raise new term
deposits or rollover any maturing term deposits.

‰ Contingent: Withdrawals of bank deposits that have no
contractual maturity. The withdrawal assumptions
reflect, among other factors, the type of deposit, whether
the deposit is insured or uninsured, and our relationship
with the depositor.

Secured Funding
‰ Contractual: A portion of upcoming contractual
maturities of secured funding due to either the inability to
refinance or the ability to refinance only at wider haircuts
(i.e., on terms which require us to post additional
collateral). Our assumptions reflect, among other factors,
the quality of the underlying collateral, counterparty roll
probabilities
the counterparty’s
likelihood of continuing to provide funding on a secured
basis at the maturity of the trade) and counterparty
concentration.

(our assessment of

‰ Contingent: Adverse changes in value of financial assets
pledged as collateral for financing transactions, which
would necessitate additional collateral postings under
those transactions.

OTC Derivatives
‰ Contingent: Collateral postings to counterparties due to
adverse changes in the value of our OTC derivatives,
excluding those that are cleared and settled through
central counterparties (OTC-cleared).

‰ Contingent: Other outflows of cash or collateral related
to OTC derivatives, excluding OTC-cleared, including
the impact of trade terminations, collateral substitutions,
rehypothecation rights,
collateral disputes,
collateral calls or termination payments required by a
two-notch downgrade in our credit ratings, and collateral
that has not been called by counterparties, but is available
to them.

loss of

Management’s Discussion and Analysis

Exchange-Traded and OTC-cleared Derivatives
‰ Contingent: Variation margin postings required due to
in the value of our outstanding

adverse changes
exchange-traded and OTC-cleared derivatives.

‰ Contingent: An increase in initial margin and guaranty

fund requirements by derivative clearing houses.

Customer Cash and Securities
‰ Contingent: Liquidity outflows associated with our prime
brokerage business, including withdrawals of customer
credit balances, and a reduction in customer short
positions, which may serve as a funding source for long
positions.

Firm Securities
‰ Contingent: Liquidity outflows associated with a
reduction or composition change in firm short positions,
which may serve as a funding source for long positions.

Unfunded Commitments
‰ Contingent: Draws on our unfunded commitments. Draw
assumptions reflect, among other things, the type of
commitment and counterparty.

Other
‰ Other upcoming large cash outflows, such as tax

payments.

Intraday Liquidity Model. Our Intraday Liquidity Model
measures our intraday liquidity needs using a scenario
analysis characterized by the same qualitative elements as
our Modeled Liquidity Outflow. The model assesses the
risk of increased intraday liquidity requirements during a
scenario where access to sources of intraday liquidity may
become constrained.

The following are key modeling elements of the Intraday
Liquidity Model:
‰ Liquidity needs over a one-day settlement period;
‰ Delays in receipt of counterparty cash payments;
‰ A reduction in the availability of intraday credit lines at

our third-party clearing agents; and

‰ Higher settlement volumes due to an increase in activity.

We regularly refine our model to reflect changes in market
conditions, business mix and operational processes.

Asset-Liability Management
Our liquidity risk management policies are designed to
ensure we have a sufficient amount of financing, even when
funding markets experience persistent stress. We seek to
maintain a long-dated and diversified funding profile,
taking into consideration the characteristics and liquidity
profile of our assets.

Our approach to asset-liability management includes:
‰ Conservatively managing the overall characteristics of
our funding book, with a focus on maintaining long-term,
diversified sources of funding in excess of our current
requirements. See “Balance Sheet and Funding Sources —
Funding Sources” for additional details;

‰ Actively managing and monitoring our asset base, with
particular focus on the liquidity, holding period and our
ability to fund assets on a secured basis. This enables us to
determine the most appropriate funding products and
tenors. See “Balance Sheet and Funding Sources —
Balance Sheet Management” for more detail on our
balance sheet management process and “— Funding
Sources — Secured Funding” for more detail on asset
classes that may be harder to fund on a secured basis; and
‰ Raising secured and unsecured financing that has a long
tenor relative to the liquidity profile of our assets. This
reduces the risk that our liabilities will come due in
advance of our ability to generate liquidity from the sale
of our assets. Because we maintain a highly liquid balance
sheet, the holding period of certain of our assets may be
materially shorter than their contractual maturity dates.

Our goal is to ensure that we maintain sufficient liquidity to
fund our assets and meet our contractual and contingent
obligations in normal times as well as during periods of
market
stress. Through our dynamic balance sheet
management process, we use actual and projected asset
balances to determine secured and unsecured funding
requirements. Funding plans are reviewed and approved by
the Firmwide Finance Committee on a quarterly basis. In
addition, senior managers in our independent control and
support functions regularly analyze, and the Firmwide
Finance Committee reviews, our consolidated total capital
position (unsecured long-term borrowings plus
total
shareholders’ equity) so that we maintain a level of long-
term funding that is sufficient to meet our long-term
financing requirements. In a liquidity crisis, we would first
use our GCLA in order to avoid reliance on asset sales
(other than our GCLA). However, we recognize that
orderly asset sales may be prudent or necessary in a severe
or persistent liquidity crisis.

Goldman Sachs 2014 Annual Report 75

situations and periods of market

Contingency Funding Plan
The Goldman Sachs Contingency Funding Plan sets out the
plan of action we would use to fund business activity in
crisis
stress. The
contingency funding plan outlines a list of potential risk
factors, key reports and metrics that are reviewed on an
ongoing basis to assist in assessing the severity of, and
managing through, a liquidity crisis and/or market
dislocation. The contingency funding plan also describes in
detail our potential responses if our assessments indicate
that we have entered a liquidity crisis, which include pre-
funding for what we estimate will be our potential cash and
collateral needs as well as utilizing secondary sources of
liquidity. Mitigants and action items to address specific
risks which may arise are also described and assigned to
individuals responsible for execution.

The contingency funding plan identifies key groups of
individuals to foster effective coordination, control and
distribution of information, all of which are critical in the
management of a crisis or period of market stress. The
contingency funding plan also details the responsibilities of
these groups and individuals, which include making and
disseminating key decisions, coordinating all contingency
activities throughout the duration of the crisis or period of
liquidity maintenance
market
activities
external
communication.

and managing

implementing

internal

stress,

and

international

Liquidity Regulatory Framework
The Basel Committee’s
framework for
liquidity risk measurement, standards and monitoring calls
for a liquidity coverage ratio (LCR), designed to ensure that
banks and bank holding companies maintain an adequate
level of unencumbered high-quality liquid assets based on
expected net cash outflows under an acute short-term
liquidity stress scenario.

Management’s Discussion and Analysis

Subsidiary Funding Policies. The majority of our
unsecured funding is raised by Group Inc. which lends the
necessary funds to its subsidiaries, some of which are
regulated, to meet their asset financing, liquidity and capital
requirements. In addition, Group Inc. provides its regulated
subsidiaries with the necessary capital
their
regulatory requirements. The benefits of this approach to
subsidiary funding are enhanced control and greater
the funding requirements of our
flexibility to meet
subsidiaries. Funding is also raised at the subsidiary level
through a variety of products, including secured funding,
unsecured borrowings and deposits.

to meet

Our intercompany funding policies assume that, unless
legally provided for, a subsidiary’s funds or securities are
not
freely available to its parent company or other
subsidiaries. In particular, many of our subsidiaries are
subject to laws that authorize regulatory bodies to block or
reduce the flow of funds from those subsidiaries to Group
Inc. Regulatory action of that kind could impede access to
funds that Group Inc. needs to make payments on its
obligations. Accordingly, we assume that
the capital
provided to our regulated subsidiaries is not available to
Group Inc. or other subsidiaries and any other financing
provided to our regulated subsidiaries is not available until
the maturity of such financing.

invested in GS&Co.,

Group Inc. has provided substantial amounts of equity and
subordinated indebtedness, directly or indirectly, to its
regulated subsidiaries. For example, as of December 2014,
Group Inc. had $29.90 billion of equity and subordinated
indebtedness
its principal U.S.
registered broker-dealer; $27.68 billion invested in GSI, a
regulated U.K. broker-dealer; $2.28 billion invested in
GSEC, a U.S. registered broker-dealer; $2.68 billion
invested in Goldman Sachs Japan Co., Ltd. (GSJCL), a
regulated Japanese broker-dealer; $23.50 billion invested in
GS Bank USA, a regulated New York State-chartered bank;
and $3.53 billion invested in GSIB, a regulated U.K. bank.
Group Inc.
indirectly,
$80.23 billion of unsubordinated loans and $8.61 billion of
collateral to these entities, substantially all of which was to
GS&Co., GSI, GSJCL and GS Bank USA, as of
December 2014. In addition, as of December 2014, Group
Inc. had significant amounts of capital invested in and loans
to its other regulated subsidiaries.

also provided, directly or

76 Goldman Sachs 2014 Annual Report

Management’s Discussion and Analysis

the Office of

the Comptroller of

the
During 2014,
Currency,
the Federal Reserve Board and the FDIC
approved the final rules on minimum liquidity standards
that are generally consistent with the Basel Committee’s
framework as described above, but include accelerated
transition provisions, and more stringent requirements
related to both the range of assets that qualify as high-
quality liquid assets and cash outflow assumptions for
certain types of funding and other liquidity risks. Under the
accelerated transition timeline, the LCR became effective in
the United States on January 1, 2015, with a phase-in
period whereby firms have an 80% minimum in 2015,
which will increase by 10% per year until 2017. As of
December 2014, our calculation of the LCR exceeds the
fully phased-in minimum requirement, however this is
based on our interpretation and understanding of the
finalized framework and may evolve as we review our
interpretation and application with our regulators.

The table below presents the unsecured credit ratings by
DBRS, Inc. (DBRS), Fitch, Inc. (Fitch), Moody’s Investors
Service (Moody’s), Standard & Poor’s Ratings Services
(S&P), and Rating and Investment Information, Inc. (R&I)
and outlook of Group Inc.

As of December 2014

DBRS

Fitch Moody’s

S&P

A-

P-2

Baa1

A-2

A-

Baa2

BBB+

R-1 (middle)

A (high)

Short-term

Debt
Long-term
Debt 1

Subordinated

Debt

Trust

Preferred 2

Preferred
Stock 3
Ratings

Outlook

BBB-

Baa3

BBB (high)

BB+

Ba2

Stable Stable

Stable Negative Negative

R&I

a-1

A+

N/A

international

The Basel Committee’s
framework for
liquidity risk measurement, standards and monitoring also
calls for a net stable funding ratio (NSFR), designed to
promote more medium- and long-term stable funding of the
assets and off-balance-sheet activities of banks and bank
holding companies over a one-year time horizon. In 2014,
the Basel Committee issued the final rules on the calculation
of the NSFR which requires banks and bank holding
companies to maintain a stable funding profile in relation
to the composition of their assets and off-balance-sheet
activities. Under the Basel Committee framework, the
NSFR will be effective on January 1, 2018. The U.S. federal
bank regulatory agencies have not yet proposed rules
implementing the NSFR for U.S. banking organizations.
the Basel
We are currently evaluating the impact of
Committee’s NSFR framework.

The implementation of these rules, and any amendments
adopted by the U.S. federal bank regulatory agencies, could
impact our
liquidity and funding requirements and
practices in the future.

Credit Ratings
We rely on the short-term and long-term debt capital
markets to fund a significant portion of our day-to-day
operations and the cost and availability of debt financing is
influenced by our credit ratings. Credit ratings are also
important when we are competing in certain markets, such
as OTC derivatives, and when we seek to engage in longer-
term transactions. See “Certain Risk Factors That
May Affect Our Businesses” below and “Risk Factors” in
Part I, Item 1A of the 2014 Form 10-K for a discussion of
the risks associated with a reduction in our credit ratings.

1. Fitch, Moody’s and S&P include the senior guaranteed trust securities issued
by Murray Street Investment Trust I and Vesey Street Investment Trust I.

2. Trust preferred securities issued by Goldman Sachs Capital I.

3. DBRS, Fitch, Moody’s and S&P include Group Inc.’s non-cumulative
II and

preferred stock and the APEX issued by Goldman Sachs Capital
Goldman Sachs Capital III.

The table below presents the unsecured credit ratings of GS
Bank USA, GSIB, GS&Co. and GSI. During the fourth
quarter of 2014, S&P raised its outlook of GS Bank USA,
GSIB, GS&Co. and GSI from negative to stable as a result
of its review of these subsidiaries’ operating trends in the
current regulatory environment.

GS Bank USA
Short-term Debt
Long-term Debt
Short-term Bank Deposits
Long-term Bank Deposits
Ratings Outlook
GSIB
Short-term Debt
Long-term Debt
Short-term Bank Deposits
Long-term Bank Deposits
Ratings Outlook
GS&Co.
Short-term Debt
Long-term Debt
Ratings Outlook
GSI
Short-term Debt
Long-term Debt
Ratings Outlook

As of December 2014

Fitch Moody’s

S&P

F1
A
F1
A+
Stable

F1
A
F1
A
Stable

F1
A
Stable

P-1
A2
P-1
A2

A-1
A
N/A
N/A
Stable Stable

P-1
A2
P-1
A2

A-1
A
N/A
N/A
Stable Stable

A-1
N/A
N/A
A
N/A Stable

P-1
A2

A-1
A
Stable Stable

Goldman Sachs 2014 Annual Report 77

Cash Flows
As a global financial institution, our cash flows are complex
and bear little relation to our net earnings and net assets.
Consequently, we believe that traditional cash flow analysis
is less meaningful in evaluating our liquidity position than
the liquidity and asset-liability management policies
described above. Cash flow analysis may, however, be
helpful in highlighting certain macro trends and strategic
initiatives in our businesses.

Year Ended December 2014. Our cash and cash
equivalents decreased by $3.53 billion to $57.60 billion at
the end of 2014. We used $22.53 billion in net cash for
operating and investing activities, which reflects an
initiative to reduce our balance sheet, and the funding of
loans receivable. We generated $19.00 billion in net cash
from financing activities from an increase in bank deposits
and net proceeds from issuances of unsecured long-term
borrowings, partially offset by repurchases of common
stock.

Year Ended December 2013. Our cash and cash
equivalents decreased by $11.54 billion to $61.13 billion at
the end of 2013. We generated $4.54 billion in net cash
from operating
cash of
investing and financing activities,
$16.08 billion for
primarily to fund loans receivable and repurchases of
common stock.

activities. We used net

Year Ended December 2012. Our cash and cash
equivalents increased by $16.66 billion to $72.67 billion at
the end of 2012. We generated $9.14 billion in net cash
from operating and investing activities. We generated
$7.52 billion in net cash from financing activities from an
increase in bank deposits, partially offset by net repayments
of unsecured and secured long-term borrowings.

Management’s Discussion and Analysis

We believe our credit ratings are primarily based on the
credit rating agencies’ assessment of:
‰ Our

liquidity, market, credit and operational

risk

management practices;

‰ The level and variability of our earnings;
‰ Our capital base;
‰ Our franchise, reputation and management;
‰ Our corporate governance; and
‰ The external operating environment, including, in some
cases, the assumed level of government or other systemic
support.

Certain of our derivatives have been transacted under
bilateral agreements with counterparties who may require
us to post collateral or terminate the transactions based on
changes in our credit ratings. We assess the impact of these
bilateral agreements by determining the collateral or
that would occur assuming a
termination payments
downgrade by all rating agencies. A downgrade by any one
rating agency, depending on the agency’s relative ratings of
us at the time of the downgrade, may have an impact which
is comparable to the impact of a downgrade by all rating
agencies. We allocate a portion of our GCLA to ensure we
would be able to make the additional collateral or
termination payments that may be required in the event of a
two-notch reduction in our long-term credit ratings, as well
as collateral that has not been called by counterparties, but
is available to them. The table below presents the additional
collateral or termination payments related to our net
derivative liabilities under bilateral agreements that could
have been called at the reporting date by counterparties in
the event of a one-notch and two-notch downgrade in our
credit ratings.

$ in millions

Additional collateral or termination

As of December

2014

2013

payments for a one-notch downgrade

$1,072

$ 911

Additional collateral or termination

payments for a two-notch downgrade

2,815

2,989

78 Goldman Sachs 2014 Annual Report

Management’s Discussion and Analysis

Market Risk Management

Overview
Market risk is the risk of loss in the value of our inventory,
as well as certain other financial assets and financial
liabilities, due to changes in market conditions. We employ
a variety of risk measures, each described in the respective
sections below, to monitor market risk. We hold inventory
primarily for market making for our clients and for our
investing and lending activities. Our inventory therefore
changes based on client demands and our investment
opportunities. Our inventory is accounted for at fair value
and therefore fluctuates on a daily basis, with the related
gains and losses included in “Market making,” and “Other
principal transactions.” Categories of market risk include
the following:
‰ Interest rate risk: results from exposures to changes in the
level, slope and curvature of yield curves, the volatilities
of interest rates, mortgage prepayment speeds and credit
spreads;

‰ Equity price risk: results from exposures to changes in
prices and volatilities of individual equities, baskets of
equities and equity indices;

‰ Currency rate risk: results from exposures to changes in
spot prices, forward prices and volatilities of currency
rates; and

‰ Commodity price risk: results from exposures to changes
forward prices and volatilities of
in spot prices,
commodities, such as crude oil, petroleum products,
natural gas, electricity, and precious and base metals.

Market Risk Management Process
We manage our market risk by diversifying exposures,
controlling position sizes and establishing economic hedges
in related securities or derivatives. This includes:
‰ Accurate and timely exposure information incorporating

multiple risk metrics;

‰ A dynamic limit setting framework; and
‰ Constant

communication among revenue-producing

units, risk managers and senior management.

Market Risk Management, which is independent of the
revenue-producing units and reports to our chief risk
officer, has primary responsibility for assessing, monitoring
and managing market risk at the firm. We monitor and
control risks through strong firmwide oversight and
independent control and support functions across our
global businesses.

Managers in revenue-producing units are accountable for
managing risk within prescribed limits. These managers
have in-depth knowledge of their positions, markets and
the instruments available to hedge their exposures.

Managers in revenue-producing units and Market Risk
Management discuss market information, positions and
estimated risk and loss scenarios on an ongoing basis.

Risk Measures
Market Risk Management produces risk measures and
monitors them against market risk limits set by our risk
committees. These measures reflect an extensive range of
scenarios and the results are aggregated at trading desk,
business and firmwide levels.

We use a variety of risk measures to estimate the size of
potential
losses for both moderate and more extreme
market moves over both short-term and long-term time
horizons. Our primary risk measures are VaR, which is
used for shorter-term periods, and stress tests. Our risk
reports detail key risks, drivers and changes for each desk
and business, and are distributed daily to senior
management of both our revenue-producing units and our
independent control and support functions.

Value-at-Risk
VaR is the potential loss in value due to adverse market
movements over a defined time horizon with a specified
confidence level. For positions included in VaR, see
“— Financial Statement Linkages
to Market Risk
Measures.” We typically employ a one-day time horizon
with a 95% confidence level. We use a single VaR model
which captures risks including interest rates, equity prices,
currency rates and commodity prices. As such, VaR
facilitates comparison across portfolios of different risk
characteristics. VaR also captures the diversification of
aggregated risk at the firmwide level.

Goldman Sachs 2014 Annual Report 79

Stress Testing
Stress testing is a method of determining the effect of
various hypothetical stress scenarios. We use stress testing
to examine risks of specific portfolios as well as the
potential impact of significant risk exposures across the
firm. We use a variety of stress testing techniques to
calculate the potential loss from a wide range of market
moves on our portfolios,
including sensitivity analysis,
scenario analysis and firmwide stress tests. The results of
our various stress tests are analyzed together for risk
management purposes.

Sensitivity analysis is used to quantify the impact of a
market move in a single risk factor across all positions (e.g.,
equity prices or credit spreads) using a variety of defined
market shocks, ranging from those that could be expected
over a one-day time horizon up to those that could take
many months to occur. We also use sensitivity analysis to
quantify the impact of the default of a single corporate
entity, which captures the risk of large or concentrated
exposures.

Scenario analysis is used to quantify the impact of a
specified event, including how the event impacts multiple
risk factors simultaneously. For example, for sovereign
testing we calculate potential direct exposure
stress
associated with our sovereign inventory as well as the
corresponding debt,
equity and currency exposures
associated with our non-sovereign inventory that may be
impacted by the sovereign distress. When conducting
scenario analysis, we typically consider a number of
possible outcomes
ranging from
moderate to severely adverse market impacts. In addition,
these stress tests are constructed using both historical events
and forward-looking hypothetical scenarios.

for each scenario,

stress

testing

combines market,

Firmwide
credit,
operational and liquidity risks into a single combined
scenario. Firmwide stress tests are primarily used to assess
capital adequacy as part of our capital planning and stress
testing process; however, we also ensure that firmwide
stress testing is integrated into our risk governance
framework. This includes selecting appropriate scenarios to
use for our capital planning and stress testing process. See
“Equity Capital Management and Regulatory Capital —
Equity Capital Management”
further
information.

above

for

Management’s Discussion and Analysis

We are aware of the inherent limitations to VaR and
therefore use a variety of risk measures in our market risk
management process. Inherent limitations to VaR include:
‰ VaR does not estimate potential losses over longer time

horizons where moves may be extreme;

‰ VaR does not take account of the relative liquidity of

different risk positions; and

‰ Previous moves in market risk factors may not produce

accurate predictions of all future market moves.

When calculating VaR, we use historical simulations with
full valuation of approximately 70,000 market factors.
VaR is
calculated at a position level based on
simultaneously shocking the relevant market risk factors
for that position. We sample from five years of historical
data to generate the scenarios for our VaR calculation. The
historical data is weighted so that the relative importance of
the data reduces over time. This gives greater importance to
more recent observations and reflects current asset
volatilities, which improves the accuracy of our estimates of
potential loss. As a result, even if our positions included in
VaR were unchanged, our VaR would increase with
increasing market volatility and vice versa.

Given its reliance on historical data, VaR is most effective in
estimating risk exposures in markets in which there are no
sudden fundamental changes or shifts in market conditions.

Our VaR measure does not include:
‰ Positions that are best measured and monitored using

sensitivity measures; and

‰ The impact of changes in counterparty and our own
credit spreads on derivatives, as well as changes in our
own credit spreads on unsecured borrowings for which
the fair value option was elected.

80 Goldman Sachs 2014 Annual Report

Management’s Discussion and Analysis

Unlike VaR measures, which have an implied probability
because they are calculated at a specified confidence level,
there is generally no implied probability that our stress test
scenarios will occur. Instead, stress tests are used to model
both moderate and more extreme moves in underlying
market
loss, we
factors. When estimating potential
generally assume that our positions cannot be reduced or
hedged (although experience demonstrates that we are
generally able to do so).

Stress test scenarios are conducted on a regular basis as part
of our routine risk management process and on an ad hoc
basis in response to market events or concerns. Stress
testing is an important part of our risk management process
because it allows us to quantify our exposure to tail risks,
highlight potential
loss concentrations, undertake risk/
reward analysis, and assess and mitigate our risk positions.

Limits
We use risk limits at various levels in the firm (including
firmwide, product and business) to govern risk appetite by
controlling the size of our exposures to market risk. Limits
are set based on VaR and on a range of stress tests relevant
to our exposures. Limits are reviewed frequently and
amended on a permanent or temporary basis to reflect
conditions or
changing market
tolerance for risk.

conditions, business

to assist

senior management

The Firmwide Risk Committee sets market risk limits at
firmwide and product levels and our Securities Division
Risk Committee sets sub-limits for market-making and
investing activities at a business level. The purpose of the
firmwide limits
in
controlling our overall risk profile. Sub-limits set the
desired maximum amount of exposure that may be
managed by any particular business on a day-to-day basis
without additional levels of senior management approval,
effectively
to
individual desk managers and traders. Accordingly, sub-
limits are a management
tool designed to ensure
appropriate escalation rather than to establish maximum
risk tolerance. Sub-limits also distribute risk among various
businesses in a manner that is consistent with their level of
activity and client demand, taking into account the relative
performance of each area.

leaving day-to-day

trading decisions

Our market risk limits are monitored daily by Market Risk
Management, which is responsible for identifying and
escalating, on a timely basis, instances where limits have
been exceeded. The business-level limits that are set by the
Securities Division Risk Committee are subject to the same
scrutiny and limit escalation policy as the firmwide limits.

When a risk limit has been exceeded (e.g., due to changes in
market conditions, such as increased volatilities or changes
in correlations),
it is reported to the appropriate risk
committee and a discussion takes place with the relevant
desk managers, after which either the risk position is
reduced or the risk limit is temporarily or permanently
increased.

Model Review and Validation
Our VaR and stress testing models are subject to review and
validation by our independent model validation group. This
review includes:
‰ A critical evaluation of

the model,
soundness and adequacy for intended use;

theoretical

its

‰ Verification of the testing strategy utilized by the model
developers to ensure that the model functions as intended;
and

‰ Verification of the suitability of the calculation techniques

incorporated in the model.

Our VaR and stress testing models are regularly reviewed
and enhanced in order to incorporate changes in the
composition of positions included in our market risk
measures, as well as variations in market conditions. Prior
to implementing significant changes to our assumptions
and/or models, we perform model validation and test runs.
Significant changes to our VaR and stress testing models are
reviewed with our chief risk officer and chief financial
officer, and approved by the Firmwide Risk Committee.

We evaluate the accuracy of our VaR model through daily
backtesting (i.e., by comparing daily trading net revenues to
the VaR measure calculated as of the prior business day) at
the firmwide level and for each of our businesses and major
regulated subsidiaries.

Goldman Sachs 2014 Annual Report 81

Management’s Discussion and Analysis

Systems
We have made a significant investment in technology to
monitor market risk including:
‰ An independent calculation of VaR and stress measures;
‰ Risk measures calculated at individual position levels;
‰ Attribution of risk measures to individual risk factors of

each position;

‰ The ability to report many different views of the risk
measures (e.g., by desk, business, product type or legal
entity); and

‰ The ability to produce ad hoc analyses in a timely

manner.

Metrics
We analyze VaR at the firmwide level and a variety of more
detailed levels, including by risk category, business, and
region. The tables below present, by risk category, average
daily VaR and period-end VaR, as well as the high and low
VaR for the period. Diversification effect in the tables
below represents the difference between total VaR and the
sum of the VaRs for the four risk categories. This effect
arises because the four market risk categories are not
perfectly correlated.

The following table presents average daily VaR.

$ in millions

Risk Categories

Interest rates
Equity prices
Currency rates
Commodity prices
Diversification effect
Total

Year Ended December

2014

2013

2012

$ 51
26
19
21
(45)
$ 72

$ 63
32
17
19
(51)
$ 80

$ 78
26
14
22
(54)
$ 86

Our average daily VaR decreased to $72 million in 2014
from $80 million in 2013, primarily reflecting a decrease in
the interest rates category due to decreased exposures and
lower levels of volatility, and a decrease in the equity prices
category principally due to lower levels of volatility. These
decreases were partially offset by a decrease in the
diversification benefit across risk categories.

Our average daily VaR decreased to $80 million in 2013
from $86 million in 2012, primarily reflecting a decrease in
the interest rates category principally due to lower levels of
volatility and decreased exposures. This decrease was
partially offset by an increase in the equity prices category
principally due to increased exposures.

The following table presents year-end VaR, and high and
low VaR.

$ in millions

Risk Categories

Interest rates
Equity prices
Currency rates
Commodity prices
Diversification effect
Total

As of December

2014

2013

$ 53
19
24
23
(42)
$ 77

$ 59
35
16
20
(45)
$ 85

Year Ended
December 2014

High

$ 71
80
36
30

Low

$37
16
10
15

$116

$51

Our daily VaR decreased to $77 million as of
December 2014 from $85 million as of December 2013,
primarily reflecting a decrease in the equity prices category
principally due to decreased exposures. This decrease was
partially offset by an increase in the currency rates category
principally due to increased exposures.

During 2014,
exceeded, raised or reduced.

the firmwide VaR risk limit was not

During 2013, the firmwide VaR risk limit was not exceeded
and was reduced on one occasion due to lower levels of
volatility.

82 Goldman Sachs 2014 Annual Report

Management’s Discussion and Analysis

The chart below reflects our daily VaR over the last four quarters.

Daily VaR
$ in millions

)
$
(

R
a
V
y

l
i

a
D

160

140

120

100

First Quarter
2014

Second Quarter
2014

Third Quarter
2014

Fourth Quarter
2014

Daily trading net revenues are compared with VaR
calculated as of the end of the prior business day. Trading
losses incurred on a single day exceeded our 95% one-day
VaR on one occasion during 2014 (i.e., a VaR exception).
Trading losses incurred on a single day did not exceed our
95% one-day VaR during 2013.

During periods in which we have significantly more positive
net revenue days than net revenue loss days, we expect to
have fewer VaR exceptions because, under normal
conditions, our business model generally produces positive

net revenues. In periods in which our franchise revenues are
adversely affected, we generally have more loss days,
resulting in more VaR exceptions. The daily market-
making revenues used to determine VaR exceptions reflect
the impact of any intraday activity, including bid/offer net
revenues, which are more likely than not to be positive by
their nature.

The chart below presents the frequency distribution of our
daily trading net revenues for substantially all positions
included in VaR for 2014.

Daily Trading Net Revenues
$ in millions

s
y
a
D

f
o

r
e
b
m
u
N

100

<(100)

(100)-(75)

(75)-(50)

(50)-(25)

(25)-0

0-25

25-50

50-75

75-100

>100

Daily Trading Net Revenues ($)

Goldman Sachs 2014 Annual Report 83

Management’s Discussion and Analysis

Sensitivity Measures
Certain portfolios and individual positions are not included
in VaR because VaR is not the most appropriate risk
measure. Other sensitivity measures we use to analyze
market risk are described below.

invest

10% Sensitivity Measures. The table below presents
market risk for inventory positions that are not included in
VaR. The market risk of these positions is determined by
estimating the potential reduction in net revenues of a 10%
decline in the underlying asset value. Equity positions
below relate to private and restricted public equity
in
including interests in funds that
securities,
corporate equities and real estate and interests in hedge
funds, which are included in “Financial instruments owned,
at fair value.” Debt positions include interests in funds that
invest in corporate mezzanine and senior debt instruments,
loans backed by commercial and residential real estate,
corporate bank loans and other corporate debt, including
acquired portfolios of distressed loans. These debt positions
instruments owned, at fair
are included in “Financial
value.” See Note 6 to the consolidated financial statements
for further information about cash instruments. These
measures do not reflect diversification benefits across asset
categories or across other market risk measures.

$ in millions
Asset Categories

Equity
Debt
Total

As of December

2014

2013

$2,132
1,686
$3,818

$2,256
1,522
$3,778

84 Goldman Sachs 2014 Annual Report

Credit Spread Sensitivity on Derivatives and
Borrowings. VaR excludes the impact of changes in
counterparty and our own credit spreads on derivatives as
well as changes in our own credit spreads on unsecured
borrowings for which the fair value option was elected. The
estimated sensitivity to a one basis point increase in credit
spreads (counterparty and our own) on derivatives was a
gain of $3 million and $4 million (including hedges) as of
In
December 2014 and December 2013, respectively.
addition, the estimated sensitivity to a one basis point
increase
spreads on unsecured
borrowings for which the fair value option was elected was
a gain of $10 million and $8 million (including hedges) as of
December 2014 and December 2013,
respectively.
However, the actual net impact of a change in our own
credit spreads is also affected by the liquidity, duration and
convexity (as the sensitivity is not linear to changes in
yields) of those unsecured borrowings for which the fair
value option was
relative
performance of any hedges undertaken.

elected, as well as

in our own credit

the

increase in interest

Interest Rate Sensitivity. “Loans receivable” as of
December 2014 and December 2013 were $28.94 billion
and $14.90 billion, respectively, substantially all of which
had floating interest rates. As of December 2014 and
December 2013, the estimated sensitivity to a 100 basis
point
rates on such loans was
$254 million and $136 million, respectively, of additional
interest income over a 12-month period, which does not
take into account the potential impact of an increase in
costs to fund such loans. See Note 9 to the consolidated
financial statements for further information about loans
receivable.

Other Market Risk Considerations
In addition, as of December 2014 and December 2013, we
had commitments and held loans for which we have
obtained credit loss protection from Sumitomo Mitsui
Financial Group, Inc. See Note 18 to the consolidated
financial statements for further information about such
lending commitments.

Additionally, we make investments accounted for under the
equity method and we also make direct investments in real
estate, both of which are included in “Other assets.” Direct
investments in real estate are accounted for at cost less
accumulated depreciation. See Note 13 to the consolidated
financial statements for information about “Other assets.”

Management’s Discussion and Analysis

financial

Financial Statement Linkages to Market Risk
Measures
We employ a variety of risk measures, each described in the
respective sections above, to monitor market risk across the
condition and
consolidated statements of
consolidated statements of earnings. The related gains and
losses on these positions are included in “Market making,”
“Other principal transactions,” “Interest income” and
“Interest expense.” The table below presents certain
categories in our consolidated statements of
financial
condition and the market risk measures used to assess those
assets and liabilities. Certain categories on the consolidated
statements of financial condition are incorporated in more
than one risk measure.

Categories on the
Consolidated Statements of
Financial Condition Included
in Market Risk Measures

Securities segregated for
regulatory and other purposes,
at fair value

Collateralized agreements
‰ Securities purchased under
agreements to resell, at
fair value

‰ Securities borrowed, at

fair value

Market Risk Measures

‰ VaR

Receivables from customers and
counterparties
‰ Certain secured loans, at

‰ VaR

‰

Interest Rate Sensitivity

‰ VaR
‰ 10% Sensitivity Measures
‰ Credit Spread

Sensitivity — Derivatives

‰ VaR

fair value

‰ Loans receivable

Financial instruments owned,
at fair value

Collateralized financings
‰ Securities sold under

agreements to repurchase,
at fair value

‰ Securities loaned, at

fair value

‰ Other secured financings,

at fair value

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

‰ VaR
‰ Credit Spread

Unsecured short-term
borrowings and unsecured
long-term borrowings,
at fair value

Sensitivity — Derivatives

‰ VaR
‰ Credit Spread

Sensitivity — Borrowings

Credit Risk Management

Overview
Credit risk represents the potential for loss due to the
default or deterioration in credit quality of a counterparty
(e.g., an OTC derivatives counterparty or a borrower) or an
issuer of securities or other instruments we hold. Our
exposure
risk comes mostly from client
transactions in OTC derivatives and loans and lending
commitments. Credit risk also comes from cash placed with
banks, securities financing transactions (i.e., resale and
repurchase agreements and securities borrowing and
lending activities) and receivables from brokers, dealers,
clearing organizations, customers and counterparties.

to credit

Credit Risk Management, which is independent of the
revenue-producing units and reports to our chief risk
officer, has primary responsibility for assessing, monitoring
and managing credit risk at the firm. The Credit Policy
Committee and the Firmwide Risk Committee establish and
review credit policies and parameters. In addition, we hold
other positions that give rise to credit risk (e.g., bonds held
in our inventory and secondary bank loans). These credit
risks are captured as a component of market risk measures,
which are monitored and managed by Market Risk
Management, consistent with other inventory positions.
We also enter into derivatives to manage market risk
exposures. Such derivatives also give rise to credit risk
which is monitored and managed by Credit Risk
Management.

Policies authorized by the Firmwide Risk Committee and
the Credit Policy Committee prescribe the level of formal
approval required for us to assume credit exposure to a
counterparty across all product areas, taking into account
any applicable netting provisions, collateral or other credit
risk mitigants.

Goldman Sachs 2014 Annual Report 85

Management’s Discussion and Analysis

Credit Risk Management Process
Effective management of credit risk requires accurate and
timely information, a high level of communication and
knowledge of
and
products. Our process for managing credit risk includes:
‰ Approving transactions and setting and communicating

customers,

countries,

industries

credit exposure limits;

‰ Monitoring compliance with established credit exposure

limits;

‰ Assessing the likelihood that a counterparty will default

on its payment obligations;

‰ Measuring our current and potential credit exposure and

losses resulting from counterparty default;

‰ Reporting of credit exposures to senior management, the

Board and regulators;

‰ Use of credit risk mitigants,

including collateral and

hedging; and
‰ Communication

and

independent control and support
operations, legal and compliance.

collaboration with

other
functions such as

analyses of our

the risk assessment process, Credit Risk
As part of
Management performs credit reviews which include initial
and ongoing
counterparties. For
substantially all of our credit exposures, the core of our
process is an annual counterparty credit review. A credit
review is an independent analysis of the capacity and
willingness of a counterparty to meet
financial
obligations, resulting in an internal credit rating. The
determination of internal credit ratings also incorporates
assumptions with respect to the nature of and outlook for
the
economic
industry,
and
environment.
Senior personnel within Credit Risk
Management, with expertise in specific industries, inspect
and approve credit reviews and internal credit ratings.

counterparty’s

the

its

Our global credit risk management systems capture credit
exposure to individual counterparties and on an aggregate
basis to counterparties and their subsidiaries (economic
groups). These systems also provide management with
comprehensive information on our aggregate credit risk by
product,
industry, country and
region.

internal credit rating,

86 Goldman Sachs 2014 Annual Report

Risk Measures and Limits
We measure our credit risk based on the potential loss in an
event of non-payment by a counterparty. For derivatives
and securities financing transactions, the primary measure
is potential exposure, which is our estimate of the future
exposure that could arise over the life of a transaction based
on market movements within a specified confidence level.
Potential exposure takes into account netting and collateral
arrangements. For loans and lending commitments, the
primary measure is a function of the notional amount of the
position. We also monitor credit risk in terms of current
exposure, which is the amount presently owed to us after
taking into account applicable netting and collateral.

We use credit
limits at various levels (counterparty,
economic group, industry, country) to control the size of
for counterparties and
our credit exposures. Limits
economic groups are reviewed regularly and revised to
reflect changing risk appetites for a given counterparty or
group of counterparties. Limits for industries and countries
are based on our risk tolerance and are designed to allow
for regular monitoring, review, escalation and management
of credit risk concentrations.

Stress Tests/Scenario Analysis
We use regular stress tests to calculate the credit exposures,
including potential concentrations that would result from
applying shocks to counterparty credit ratings or credit risk
factors (e.g., currency rates, interest rates, equity prices).
These shocks include a wide range of moderate and more
extreme market movements. Some of our stress tests
include shocks to multiple risk factors, consistent with the
occurrence of a severe market or economic event. In the
case of sovereign default, we estimate the direct impact of
the default on our sovereign credit exposures, changes to
our credit exposures arising from potential market moves in
response to the default, and the impact of credit market
deterioration on corporate borrowers and counterparties
that may result from the sovereign default. Unlike potential
exposure, which is calculated within a specified confidence
level, with a stress test there is generally no assumed
probability of these events occurring.

We run stress tests on a regular basis as part of our routine
risk management processes and conduct tailored stress tests
on an ad hoc basis in response to market developments.
Stress tests are regularly conducted jointly with our market
and liquidity risk functions.

Management’s Discussion and Analysis

Risk Mitigants
To reduce our credit exposures on derivatives and securities
financing transactions, we may enter
into netting
agreements with counterparties that permit us to offset
receivables and payables with such counterparties. We may
also reduce credit risk with counterparties by entering into
agreements that enable us to obtain collateral from them on
an upfront or contingent basis and/or
to terminate
transactions if the counterparty’s credit rating falls below a
specified level. We monitor the fair value of the collateral
on a daily basis to ensure that our credit exposures are
appropriately
seek to minimize
exposures where there is a significant positive correlation
between the creditworthiness of our counterparties and the
market value of collateral we receive.

collateralized. We

For loans and lending commitments, depending on the
credit quality of the borrower and other characteristics of
the transaction, we employ a variety of potential risk
mitigants. Risk mitigants include: collateral provisions,
guarantees, covenants, structural seniority of the bank loan
claims and, for certain lending commitments, provisions in
the legal documentation that allow us to adjust loan
amounts, pricing, structure and other terms as market
conditions change. The type and structure of risk mitigants
employed can significantly influence the degree of credit
risk involved in a loan or lending commitment.

When we do not have sufficient visibility into a
counterparty’s financial strength or when we believe a
counterparty requires support from its parent company, we
may obtain third-party guarantees of the counterparty’s
obligations. We may also mitigate our credit risk using
credit derivatives or participation agreements.

Credit Exposures
As of December 2014, our credit exposures increased as
compared with December 2013, primarily reflecting
increases
in loans and lending commitments. The
percentage of our credit exposure arising from non-
investment-grade counterparties (based on our internally
determined public rating agency equivalents) increased
from December 2013, primarily reflecting an increase in
loans and lending commitments. During 2014, the number
of counterparty defaults was essentially unchanged as
compared with 2013, and such defaults primarily occurred
within loans and lending commitments. The total number
of counterparty defaults remained low, representing less
than 0.5% of all counterparties. Estimated losses associated
with counterparty defaults were higher compared with the
prior year. However, such estimated losses were not
material to the firm. Our credit exposures are described
further below.

Cash and Cash Equivalents. Cash and cash equivalents
include both interest-bearing and non-interest-bearing
deposits. To mitigate the risk of credit loss, we place
substantially all of our deposits with highly-rated banks
and central banks.

OTC Derivatives. Our credit exposure on OTC derivatives
arises primarily from our market-making activities. As a
market maker, we enter into derivative transactions to
provide liquidity to clients and to facilitate the transfer and
hedging of their risks. We also enter into derivatives to
manage market risk exposures. We manage our credit
exposure on OTC derivatives using the credit risk process,
measures, limits and risk mitigants described above.

transactions

under

As credit risk is an essential component of fair value, we
include a credit valuation adjustment (CVA) in the fair
value of derivatives to reflect counterparty credit risk, as
described in Note 7 to the consolidated financial
statements. CVA is a function of the present value of
expected exposure, the probability of counterparty default
and the assumed recovery upon default.

Goldman Sachs 2014 Annual Report 87

Management’s Discussion and Analysis

The tables below present the distribution of our exposure to
OTC derivatives by tenor, based on expected duration for
mortgage-related credit derivatives and generally on
remaining contractual maturity for other derivatives, both
before and after the effect of collateral and netting
agreements. Receivable and payable balances for the same
counterparty across tenor categories are netted under
enforceable netting agreements, and cash collateral received
is netted under enforceable credit support agreements.
Receivable
same
counterparty in the same tenor category are netted within

and payable balances with the

such tenor category. Net credit exposure in the tables below
represents OTC derivative assets, all of which are included
in “Financial instruments owned, at fair value,” less cash
collateral and the fair value of securities collateral,
primarily U.S. government and federal agency obligations
and non-U.S. government and agency obligations, received
under credit support agreements, which management
considers when determining credit risk, but such collateral
is not eligible for netting under U.S. GAAP. The categories
shown reflect our internally determined public rating
agency equivalents.

$ in millions
Credit Rating Equivalent

AAA/Aaa
AA/Aa2
A/A2
BBB/Baa2
BB/Ba2 or lower
Unrated
Total

$ in millions
Credit Rating Equivalent

AAA/Aaa
AA/Aa2
A/A2
BBB/Baa2
BB/Ba2 or lower
Unrated
Total

As of December 2014

1 - 5
Years

5 Years
or Greater

Total

Netting

898
12,182
18,949
8,758
6,226
363
$47,376

3,500
40,443
26,649
26,087
5,660
160
$102,499

5,517
60,885
59,317
41,894
16,845
602
$185,060

(2,163)
(42,513)
(44,147)
(28,321)
(7,062)
(117)
$(124,323)

As of December 2013

1 - 5
Years

$ 1,470
7,642
25,666
10,112
6,188
45
$51,123

5 Years
or Greater

2,450
29,926
29,701
24,013
4,271
238
$ 90,599

Total

Netting

4,393
41,031
68,060
38,502
13,431
1,572
$166,989

(2,087)
(27,918)
(48,803)
(29,213)
(5,357)
(9)
$(113,387)

OTC
Derivative
Assets

$ 3,354
18,372
15,170
13,573
9,783
485
$60,737

OTC
Derivative
Assets

$ 2,306
13,113
19,257
9,289
8,074
1,563
$53,602

Net
Credit
Exposure

$ 3,135
12,453
9,493
9,577
8,506
188
$43,352

Net
Credit
Exposure

$ 2,159
8,596
11,188
5,952
6,381
1,144
$35,420

0 - 12
Months

$ 1,119
8,260
13,719
7,049
4,959
79
$35,185

0 - 12
Months

473
3,463
12,693
4,377
2,972
1,289
$25,267

88 Goldman Sachs 2014 Annual Report

Management’s Discussion and Analysis

Lending and Financing Activities. We manage our
lending and financing activities using the credit risk process,
measures, limits and risk mitigants described above. Other
lending positions, including secondary trading positions,
are risk-managed as a component of market risk.
‰ Lending Activities. Our

include
lending to investment-grade and non-investment-grade
corporate borrowers. Loans and lending commitments
associated with these activities are principally used for
operating liquidity and general corporate purposes or in
connection with contingent acquisitions. Our lending
activities also include extending loans to borrowers that
are secured by commercial and other real estate. See the
tables below for further information about our credit
exposures associated with these lending activities.

lending activities

facilitate client activities,

‰ Securities Financing Transactions. We enter into
securities financing transactions in order to, among other
things,
invest excess cash,
acquire securities to cover short positions and finance
certain firm activities. We bear credit risk related to resale
agreements and securities borrowed only to the extent
that cash advanced or the value of securities pledged or
delivered to the counterparty exceeds the value of the
collateral received. We also have credit exposure on
repurchase agreements and securities loaned to the extent
that the value of securities pledged or delivered to the
counterparty for these transactions exceeds the amount of
cash or collateral received. Securities collateral obtained
for securities financing transactions primarily includes
U.S. government and federal agency obligations and non-
U.S. government and agency obligations. We had
approximately $36 billion and $29 billion as of
December 2014 and December 2013, respectively, of
credit exposure related to securities financing transactions
reflecting both netting agreements and collateral that
management considers when determining credit risk. As
of both December 2014 and December 2013,
substantially all of our credit exposure related to
securities financing transactions was with investment-
funds and governments,
institutions,
grade financial
primarily located in the Americas and EMEA.

and

and
dealers

from brokers,

‰ Other Credit Exposures. We are exposed to credit risk
from our receivables from brokers, dealers and clearing
counterparties.
organizations
customers
Receivables
clearing
and
organizations are primarily comprised of initial cash
margin placed with clearing organizations and receivables
related to sales of securities which have traded, but not
yet settled. These receivables generally have minimal
credit risk due to the low probability of clearing
organization default and the short-term nature of
receivables related to securities settlements. Receivables
from customers
generally
related to
comprised of
customer securities transactions and generally have
minimal credit risk due to both the value of the collateral
received and the short-term nature of these receivables.
Our net credit exposure related to these activities was
approximately $26 billion and $18 billion as of
December 2014 and December 2013, respectively, and
was primarily comprised of initial margin (both cash and
clearing
securities)
organizations. The regional breakdown of our net credit
exposure related to these activities was approximately
48% and 55% in the Americas, approximately 13% and
10% in Asia, and approximately 39% and 35% in EMEA
as of December 2014 and December 2013, respectively.

and counterparties
collateralized receivables

investment-grade

placed with

are

In addition, we extend other
loans and lending
commitments to our private wealth management clients
that are primarily secured by residential real estate,
securities or other assets. The gross exposure related to
such loans and lending commitments was approximately
$17 billion and $11 billion as of December 2014 and
December 2013, respectively, and was substantially all
concentrated in the Americas region. The fair value of the
collateral
such loans and lending
commitments exceeded the gross exposure as of both
December 2014 and December 2013.

received against

Goldman Sachs 2014 Annual Report 89

Management’s Discussion and Analysis

Credit Exposure by Industry, Region and Credit
Quality
The tables below present our credit exposures related to
cash, OTC derivatives, and loans and lending commitments
(excluding credit exposures described above in “Securities
Financing Transactions” and “Other Credit Exposures”)
broken down by industry, region and credit quality. In the
to be
“Credit Exposure by Industry” table below,

in the manner

consistent with changes
in which
management views credit exposure, we introduced new
industries, aggregated certain industries and realigned
exposures
classifications.
Reclassifications have been made for December 2013 to
conform to the current presentation.

between

industry

$ in millions
Credit Exposure by Industry

Funds
Financial Institutions
Consumer, Retail & Healthcare
Sovereign
Municipalities & Nonprofit
Natural Resources & Utilities
Real Estate
Technology, Media & Telecommunications
Diversified Industrials
Other
Total

Cash
as of December

OTC Derivatives
as of December

Loans and Lending
Commitments
as of December

2014

2013

2014

2013

2014

2013

96
12,469
—
45,029
—
—
6
—
—
—
$57,600

109
9,994
—
51,024
—
—
6
—
—
—
$61,133

$13,114
15,051
3,325
10,004
4,303
5,741 1
407
2,995
4,321
1,476
$60,737

$10,063
16,374
5,041
8,603
2,902
5,295
388
2,123
1,733
1,080
$53,602

1,706
11,316
30,216
450
541
24,275 1
12,366
20,633
16,392
11,998
$129,893

727
9,910
27,891
276
458
21,478
8,550
14,962
16,085
4,988
$105,325

1. See “— Selected Country and Industry Exposures — Industry Exposures” below for information about our credit and market exposure to the oil and gas industry.

$ in millions
Credit Exposure by Region

Americas
EMEA
Asia
Total

$ in millions
Credit Exposure by Credit Quality (Credit Rating Equivalent)

AAA/Aaa
AA/Aa2
A/A2
BBB/Baa2
BB/Ba2 or lower
Unrated
Total

Cash
as of December

OTC Derivatives
as of December

Loans and Lending
Commitments
as of December

2014

2013

2014

2013

2014

2013

$45,599
1,666
10,335
$57,600

$54,470
2,143
4,520
$61,133

$22,032
31,295
7,410
$60,737

$21,423
25,983
6,196
$53,602

$ 91,378
34,397
4,118
$129,893

$ 77,710
25,222
2,393
$105,325

Cash
as of December

OTC Derivatives
as of December

Loans and Lending
Commitments
as of December

2014

2013

2014

2013

2014

2013

$38,778
4,598
13,346
730
148
—
$57,600

$50,519
2,748
6,821
527
518
—
$61,133

$ 3,354
18,372
15,170
13,573
9,783
485
$60,737

$ 2,306
13,113
19,257
9,289
8,074
1,563
$53,602

3,969
8,097
22,623
35,706
58,670
828
$129,893

3,079
7,001
23,250
30,496
41,114
385
$105,325

90 Goldman Sachs 2014 Annual Report

Management’s Discussion and Analysis

Selected Country and Industry Exposures
The section below provides information about our credit
and market exposure to certain countries and industries
that have had heightened focus due to recent events and
broad market concerns. Credit exposure represents the
potential for loss due to the default or deterioration in
credit quality of a counterparty or borrower. Market
exposure represents the potential for loss in value of our
long and short inventory due to changes in market prices.
There is no overlap between the credit and market
exposures in the amounts below. We determine the country
of risk by the location of the counterparty,
issuer or
underlier’s assets, where they generate revenue, the country
in which they are headquartered, and/or the government
whose policies affect their ability to repay their obligations.

Country Exposures. During 2014, the political situations
in Iraq, Russia and Ukraine have negatively affected market
sentiment toward those countries. In addition, the U.S. and
the EU have imposed sanctions against certain Russian
individuals and institutions, and Argentina has defaulted on
its sovereign debt. The decline in oil prices has also raised
substantial concerns about Venezuela and its sovereign
debt. In addition, recent events in Greece have led to
its economic and financial
renewed concerns about
stability.

financing

and other

As of December 2014, our total credit exposure to Russia
was $416 million and was substantially all with non-
sovereign counterparties or borrowers. Such exposure was
comprised of $257 million (including the benefit of
$14 million of cash and securities collateral) related to
securities
secured
transactions
receivables, $104 million related to loans and lending
commitments and $55 million (including the benefit of
$190 million of cash collateral) related to OTC derivatives.
In addition, our total market exposure to Russia as of
December 2014 was $447 million, which was primarily
with non-sovereign issuers or underliers. Such exposure
was comprised of $309 million related to credit derivatives,
$117 million related to debt and $21 million related to
equities. Subsequent to December 2014, Russia’s sovereign
debt was downgraded by S&P and Fitch. These
downgrades did not have a material effect on our financial
condition,
liquidity or capital
resources.

results of operations,

As of December 2014, our total credit exposure to Greece
was $1.0 billion and was primarily with non-sovereign
counterparties or borrowers. Such exposure was comprised
of $694 million (including the benefit of $1.2 billion of cash
and securities collateral) related to securities financing
transactions and other secured receivables and $317 million
(including the benefit of $590 million of cash collateral)
related to OTC derivatives. In addition, our total market
exposure to Greece as of December 2014 was $54 million,
which was primarily with non-sovereign issuers or
underliers.

Our total credit and market exposure to Argentina, Iraq,
Ukraine and Venezuela as of December 2014 was not
material.

We economically hedge our exposure to written credit
derivatives by entering into offsetting purchased credit
derivatives with identical underliers. Where possible, we
endeavor to match the tenor and credit default terms of
such hedges to that of our written credit derivatives.
Substantially all purchased credit derivatives related to
Russia and Greece are both bought from investment-grade
counterparties domiciled outside of these countries and are
collateralized with cash. As of December 2014, the gross
purchased and written credit derivative notionals for single-
name and index credit default swaps (included in credit
derivatives above) were $21.1 billion and $21.7 billion,
respectively, related to Russia and $2.2 billion and
$2.1 billion, respectively, related to Greece. Including
netting under legally enforceable netting agreements, the
purchased and written credit derivative notionals for single-
name and index credit default swaps were $3.6 billion and
$4.3
and
$908 million and $812 million, respectively, related to
Greece as of December 2014. These notionals are not
representative of our exposure because they exclude
available netting under
enforceable netting
agreements on other derivatives outside of these countries
and collateral received or posted under credit support
agreements. For information about the nature of or payout
under trigger events related to written and purchased credit
protection contracts see Note 7 to the consolidated
financial statements.

related to Russia

respectively,

billion,

legally

Goldman Sachs 2014 Annual Report 91

Management’s Discussion and Analysis

During 2012, and continuing into early 2013, there were
concerns about European sovereign debt risk and its impact
on the European banking system, as a number of European
member states, including Ireland, Italy, Portugal and Spain,
experienced significant credit deterioration. Although many
of the immediate concerns have subsided, some of the
countries in the region face long-term economic and
financial challenges. As of December 2014, our aggregate
credit and market exposure to these four European
countries was $10.1 billion ($8.8 billion of credit exposure
and $1.3 billion of market exposure), including $4.0 billion
to Ireland, $3.1 billion to Italy, $439 million to Portugal
and $2.6 billion to Spain. We continue to closely monitor
our risk exposure to these four countries as part of our risk
management process.

To supplement our regular stress tests, we conduct tailored
stress tests on an ad hoc basis in response to specific market
events that we deem significant. For example, in response to
the Euro area debt crisis, we conducted stress tests intended
to estimate the direct and indirect impact that might result
from a variety of possible events involving certain European
member states, including sovereign defaults and the exit of
one or more countries from the Euro area. In the stress tests,
described in “Market Risk Management — Stress Testing”
and “Credit Risk Management — Stress Tests/Scenario
Analysis,” we estimated the direct impact of the event on
our credit and market exposures resulting from shocks to
risk factors including, but not limited to, currency rates,
interest rates, and equity prices. The parameters of these
shocks varied based on the scenario reflected in each stress
test. We also estimated the indirect
impact on our
exposures arising from potential market moves in response
to the event, such as the impact of credit market
deterioration on corporate borrowers and counterparties
along with the shocks to the risk factors described above.
We reviewed estimated losses produced by the stress tests in
order to understand their magnitude, highlight potential
loss concentrations, and assess and mitigate our exposures
where necessary.

that might

The Euro area exit scenarios included analysis of the
impacts on exposure
from the
result
redenomination of assets
in the exiting country or
countries. We also tested our operational and risk
management readiness and capability to respond to a
redenomination event. Constructing stress tests for these
scenarios requires many assumptions about how exposures
might be directly impacted and how resulting secondary
market moves would indirectly impact such exposures.
Given the multiple parameters involved in such scenarios,
losses from such events are inherently difficult to quantify
and may materially differ from our estimates.

See “Liquidity Risk Management — Global Core Liquid
Assets — Modeled Liquidity Outflow,” “Market Risk
Management — Stress Testing” and “Credit Risk
Management — Stress Tests/Scenario Analysis” for further
discussion.

exposure

Industry Exposures. Significant declines in the price of oil
have led to market concerns regarding the creditworthiness
of certain companies in the oil and gas industry. As of
December 2014, our credit exposure to oil and gas
companies related to loans and lending commitments was
$10.9 billion ($2.1 billion of loans and $8.8 billion of
lending commitments). Such exposure included $5.1 billion
of
counterparties
to non-investment-grade
($1.9 billion related to loans and $3.2 billion related to
lending commitments). Our clients in the oil and gas
industry also use derivatives to hedge their exposure to oil
prices. As of December 2014, our credit exposure related to
derivatives and receivables with oil and gas companies was
$1.7 billion,
substantially all of which were with
investment-grade counterparties. As of December 2014,
our market exposure related to oil and gas companies was
$805 million, substantially all of which was to non-
investment-grade issuers or underliers.

92 Goldman Sachs 2014 Annual Report

Management’s Discussion and Analysis

Operational Risk Management

loss

risk is

Overview
Operational
resulting from
the risk of
inadequate or failed internal processes, people and systems
or from external events. Our exposure to operational risk
arises
from routine processing errors as well as
extraordinary incidents, such as major systems failures.
Potential types of loss events related to internal and external
operational risk include:
‰ Clients, products and business practices;
‰ Execution, delivery and process management;
‰ Business disruption and system failures;
‰ Employment practices and workplace safety;
‰ Damage to physical assets;
‰ Internal fraud; and
‰ External fraud.

We maintain a comprehensive control framework designed
to provide a well-controlled environment to minimize
operational
risks. The Firmwide Operational Risk
Committee, along with the support of regional or entity-
specific working groups or committees, provides oversight
of the ongoing development and implementation of our
operational risk policies and framework. Operational Risk
Management is a risk management function independent of
our revenue-producing units, reports to our chief risk
officer, and is responsible for developing and implementing
policies, methodologies and a formalized framework for
operational risk management with the goal of minimizing
our exposure to operational risk.

Operational Risk Management Process
Managing operational risk requires timely and accurate
information as well as a strong control culture. We seek to
manage our operational risk through:
‰ The training, supervision and development of our people;
‰ The active participation of

in
identifying and mitigating key operational risks across the
firm;

senior management

‰ Independent control and support functions that monitor
operational risk on a daily basis, and implementation of
extensive policies and procedures, and controls designed
to prevent the occurrence of operational risk events;

‰ Proactive

communication

revenue-
producing units and our independent control and support
functions; and

between

our

‰ A network of systems throughout the firm to facilitate the
collection of data used to analyze and assess our
operational risk exposure.

We combine top-down and bottom-up approaches to
manage and measure operational risk. From a top-down
perspective, our senior management assesses firmwide and
business level operational risk profiles. From a bottom-up
perspective,
revenue-producing units and independent
control and support functions are responsible for risk
management on a day-to-day basis, including identifying,
mitigating, and escalating operational risks to senior
management.

Our operational risk framework is in part designed to
comply with the operational risk measurement rules under
Basel III and has evolved based on the changing needs of
our businesses and regulatory guidance. Our framework
comprises the following practices:
‰ Risk identification and reporting;
‰ Risk measurement; and
‰ Risk monitoring.

Internal Audit performs an independent review of our
operational risk framework, including our key controls,
processes and applications, on an annual basis to assess the
effectiveness of our framework.

Goldman Sachs 2014 Annual Report 93

Management’s Discussion and Analysis

Risk Identification and Reporting
The core of our operational risk management framework is
risk identification and reporting. We have a comprehensive
data collection process, including firmwide policies and
procedures, for operational risk events.

We have established policies that require managers in our
revenue-producing units and our independent control and
support functions to escalate operational risk events. When
operational risk events are identified, our policies require
that the events be documented and analyzed to determine
whether changes are required in our systems and/or
processes to further mitigate the risk of future events.

In addition, our
firmwide systems capture internal
operational risk event data, key metrics such as transaction
volumes, and statistical information such as performance
trends. We use an internally-developed operational risk
management application to aggregate and organize this
information. Managers from both revenue-producing units
and independent control and support functions analyze the
information to evaluate operational risk exposures and
identify businesses, activities or products with heightened
levels of operational risk. We also provide periodic
operational
risk
risk reports
committees and the Board.

to senior management,

Risk Measurement
We measure our operational risk exposure over a twelve-
month time horizon using both statistical modeling and
scenario analyses, which involve qualitative assessments of
the potential frequency and extent of potential operational
risk losses, for each of our businesses. Operational risk
measurement
incorporates qualitative and quantitative
assessments of factors including:
‰ Internal and external operational risk event data;
‰ Assessments of our internal controls;
‰ Evaluations of the complexity of our business activities;
‰ The degree of and potential for automation in our

processes;

‰ New product information;
‰ The legal and regulatory environment;
‰ Changes in the markets for our products and services,
including the diversity and sophistication of our
customers and counterparties; and

‰ The liquidity of the capital markets and the reliability of

the infrastructure that supports the capital markets.

94 Goldman Sachs 2014 Annual Report

The results from these scenario analyses are used to
monitor changes in operational risk and to determine
business lines that may have heightened exposure to
operational risk. These analyses ultimately are used in the
determination of the appropriate level of operational risk
capital to hold.

Risk Monitoring
We evaluate changes in the operational risk profile of the
firm and its businesses, including changes in business mix
or jurisdictions in which we operate, by monitoring the
factors noted above at a firmwide level. We have both
detective and preventive internal controls, which are
designed to reduce
frequency and severity of
operational risk losses and the probability of operational
risk events. We monitor the results of assessments and
independent internal audits of these internal controls.

the

Certain Risk Factors That May Affect Our
Businesses

risks,

including market,

We face a variety of risks that are substantial and inherent
in our businesses,
liquidity, credit,
operational, legal, regulatory and reputational risks. For a
discussion of how management seeks to manage some of
these
see “Overview and Structure of Risk
Management.” A summary of the more important factors
that could affect our businesses follows. For a further
discussion of these and other important factors that could
affect our businesses,
results of
operations, cash flows and liquidity, see “Risk Factors” in
Part I, Item 1A of the 2014 Form 10-K.
‰ Our businesses have been and may continue to be
adversely affected by conditions in the global financial
markets and economic conditions generally.

financial condition,

‰ Our businesses and those of our clients are subject to

extensive and pervasive regulation around the world.

‰ Our businesses have been and may be adversely affected
by declining asset values. This is particularly true for
those businesses in which we have net “long” positions,
receive fees based on the value of assets managed, or
receive or post collateral.

‰ Our businesses have been and may be adversely affected
by disruptions in the credit markets, including reduced
access to credit and higher costs of obtaining credit.

‰ Our market-making activities have been and may be

affected by changes in the levels of market volatility.

Management’s Discussion and Analysis

‰ Our investment banking, client execution and investment
management businesses have been adversely affected and
may continue to be adversely affected by market
uncertainty or lack of confidence among investors and
CEOs due to general declines in economic activity and
other unfavorable economic, geopolitical or market
conditions.

‰ Our investment management business may be affected by
the poor investment performance of our investment
products.

‰ We may incur losses as a result of ineffective risk

management processes and strategies.

‰ Our

liquidity, profitability and businesses may be
adversely affected by an inability to access the debt capital
markets or to sell assets or by a reduction in our credit
ratings or by an increase in our credit spreads.

‰ A failure to appropriately identify and address potential
conflicts of interest could adversely affect our businesses.
‰ Group Inc. is a holding company and is dependent for
liquidity on payments from its subsidiaries, many of
which are subject to restrictions.

‰ The application of regulatory strategies and requirements
in the United States and non-U.S. jurisdictions to facilitate
the orderly resolution of large financial institutions could
create greater risk of loss for Group Inc.’s security
holders.

‰ Our businesses, profitability and liquidity may be
adversely affected by deterioration in the credit quality of,
or defaults by, third parties who owe us money, securities
or other assets or whose securities or obligations we hold.

‰ Concentration of

for
risk increases
significant losses in our market-making, underwriting,
investing and lending activities.

the potential

‰ The financial services industry is both highly competitive

and interrelated.

‰ We face enhanced risks as new business initiatives lead us
to transact with a broader array of clients and
counterparties and expose us to new asset classes and new
markets.

‰ Derivative transactions and delayed settlements may

expose us to unexpected risk and potential losses.

‰ Our businesses may be adversely affected if we are unable

to hire and retain qualified employees.

‰ We may be adversely affected by increased governmental

and regulatory scrutiny or negative publicity.

‰ A failure in our operational systems or infrastructure, or
those of third parties, as well as cyber attacks and human
error, could impair our liquidity, disrupt our businesses,
information,
result
damage our reputation and cause losses.

in the disclosure of confidential

‰ Substantial legal liability or significant regulatory action
against us could have material adverse financial effects or
cause us significant reputational harm, which in turn
could seriously harm our business prospects.

‰ The growth of electronic trading and the introduction of
new trading technology may adversely affect our business
and may increase competition.

‰ Our commodities activities, particularly our physical
commodities activities, subject us to extensive regulation,
and
including
environmental, reputational and other risks that may
expose us to significant liabilities and costs.

potential

involve

certain

risks,

‰ In conducting our businesses around the world, we are
legal, operational and
in operating in many

subject to political, economic,
other risks that are inherent
countries.

‰ We may incur losses as a result of unforeseen or
catastrophic events,
including the emergence of a
pandemic, terrorist attacks, extreme weather events or
other natural disasters.

Goldman Sachs 2014 Annual Report 95

Management’s Report on Internal Control over Financial Reporting

Our internal control over financial reporting includes
policies and procedures that pertain to the maintenance of
records that, in reasonable detail, accurately and fairly
reflect transactions and dispositions of assets; provide
reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in
accordance with U.S. generally accepted accounting
principles, and that receipts and expenditures are being
in accordance with authorizations of
made only
management and the directors of the firm; and provide
reasonable assurance regarding prevention or
timely
detection of unauthorized acquisition, use or disposition of
the firm’s assets that could have a material effect on our
financial statements.

31,

has

2014

The firm’s internal control over financial reporting as of
by
December
PricewaterhouseCoopers LLP, an independent registered
public accounting firm, as stated in their report appearing
on page 97, which expresses an unqualified opinion on the
effectiveness of the firm’s internal control over financial
reporting as of December 31, 2014.

audited

been

reporting is a process designed under

Management of The Goldman Sachs Group, Inc., together
with its consolidated subsidiaries (the firm), is responsible
for establishing and maintaining adequate internal control
over financial reporting. The firm’s internal control over
the
financial
supervision of the firm’s principal executive and principal
financial officers to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of
the firm’s financial statements for external reporting
purposes in accordance with U.S. generally accepted
accounting principles.

As of December 31, 2014, management conducted an
assessment of the firm’s internal control over financial
reporting based on the framework established in Internal
Control — Integrated Framework (2013) issued by the
Committee of Sponsoring Organizations of the Treadway
Commission
assessment,
management has determined that the firm’s internal control
over financial reporting as of December 31, 2014 was
effective.

(COSO). Based

this

96 Goldman Sachs 2014 Annual Report

Report of Independent Registered Public Accounting Firm

To the Board of Directors and the Shareholders of
The Goldman Sachs Group, Inc.:

In our opinion, the accompanying consolidated statements
financial condition and the related consolidated
of
statements of earnings, comprehensive income, changes in
shareholders’ equity and cash flows present fairly, in all
material respects, the financial position of The Goldman
Sachs Group, Inc. and its subsidiaries (the Company) at
December 31, 2014 and 2013, and the results of its
operations and its cash flows for each of the three years in
the period ended December 31, 2014, in conformity with
accounting principles generally accepted in the United
States of America. Also in our opinion, the Company
maintained,
in all material respects, effective internal
control over financial reporting as of December 31, 2014,
based on criteria established in Internal Control —
Integrated Framework (2013) issued by the Committee of
Sponsoring Organizations of the Treadway Commission
(COSO). The Company’s management is responsible for
these financial statements, for maintaining effective internal
control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting,
included in Management’s Report on Internal Control over
Financial Reporting
appearing on page 96. Our
responsibility is to express opinions on these financial
statements and on the Company’s internal control over
financial reporting based on our audits. We conducted our
audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the
audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement and
whether effective internal control over financial reporting
was maintained in all material respects. Our audits of the
financial statements included examining, on a test basis,
evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles
used and significant estimates made by management, and
evaluating the overall financial statement presentation. Our
audit of internal control over financial reporting included
internal control over
obtaining an understanding of
financial reporting, assessing the risk that a material
weakness exists, and testing and evaluating the design and
operating effectiveness of internal control based on the
assessed risk. Our audits also included performing such
other procedures as we considered necessary in the
circumstances. We believe that our audits provide a
reasonable basis for our opinions.

A company’s internal control over financial reporting is a
process designed to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance
with generally accepted accounting principles. A company’s
internal control over financial reporting includes those
policies and procedures that (i) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
that
company;
transactions
to permit
preparation of financial statements in accordance with
generally accepted accounting principles, and that receipts
and expenditures of the company are being made only in
accordance with authorizations of management and
directors of the company; and (iii) provide reasonable
assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of
the
company’s assets that could have a material effect on the
financial statements.

recorded as necessary

reasonable

assurance

provide

are

(ii)

not

reporting may

Because of its inherent limitations, internal control over
detect
financial
misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in
conditions, or that the degree of compliance with the
policies or procedures may deteriorate.

prevent

PricewaterhouseCoopers LLP
New York, New York
February 20, 2015

Goldman Sachs 2014 Annual Report 97

Consolidated Statements of Earnings

in millions, except per share amounts

Revenues
Investment banking
Investment management
Commissions and fees
Market making
Other principal transactions
Total non-interest revenues

Interest income
Interest expense
Net interest income
Net revenues, including net interest income

Operating expenses
Compensation and benefits

Brokerage, clearing, exchange and distribution fees
Market development
Communications and technology
Depreciation and amortization
Occupancy
Professional fees
Insurance reserves
Other expenses
Total non-compensation expenses
Total operating expenses

Pre-tax earnings
Provision for taxes
Net earnings
Preferred stock dividends
Net earnings applicable to common shareholders

Earnings per common share
Basic
Diluted

Average common shares outstanding
Basic
Diluted

Year Ended December

2014

2013

2012

$ 6,464
5,748
3,316
8,365
6,588
30,481

9,604
5,557
4,047
34,528

$ 6,004
5,194
3,255
9,368
6,993
30,814

10,060
6,668
3,392
34,206

$ 4,941
4,968
3,161
11,348
5,865
30,283

11,381
7,501
3,880
34,163

12,691

12,613

12,944

2,501
549
779
1,337
827
902
—
2,585
9,480
22,171

12,357
3,880
8,477
400
$ 8,077

2,341
541
776
1,322
839
930
176
2,931
9,856
22,469

11,737
3,697
8,040
314
$ 7,726

2,208
509
782
1,738
875
867
598
2,435
10,012
22,956

11,207
3,732
7,475
183
$ 7,292

$ 17.55
17.07

$ 16.34
15.46

$ 14.63
14.13

458.9
473.2

471.3
499.6

496.2
516.1

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

98 Goldman Sachs 2014 Annual Report

Consolidated Statements of Comprehensive Income

$ in millions

Net earnings
Other comprehensive income/(loss) adjustments, net of tax:

Currency translation
Pension and postretirement liabilities
Available-for-sale securities
Cash flow hedges

Other comprehensive income/(loss)
Comprehensive income

Year Ended December

2014

2013

2012

$8,477

$8,040

$7,475

(109)
(102)
—
(8)
(219)
$8,258

(50)
38
(327)
8
(331)
$7,709

(89)
168
244
—
323
$7,798

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

Goldman Sachs 2014 Annual Report 99

Consolidated Statements of Financial Condition

$ in millions, except per share amounts

Assets
Cash and cash equivalents
Cash and securities segregated for regulatory and other purposes (includes $34,291 and $31,937 at fair value as of

December 2014 and December 2013, respectively)

Collateralized agreements:

Securities purchased under agreements to resell and federal funds sold (includes $126,036 and $161,297 at fair value as

of December 2014 and December 2013, respectively)

Securities borrowed (includes $66,769 and $60,384 at fair value as of December 2014 and December 2013, respectively)

Receivables:

Brokers, dealers and clearing organizations
Customers and counterparties (includes $6,944 and $7,416 at fair value as of December 2014 and December 2013,

respectively)
Loans receivable

Financial instruments owned, at fair value (includes $64,473 and $62,348 pledged as collateral as of December 2014 and

December 2013, respectively)

Other assets (includes $18 at fair value as of December 2013)
Total assets

Liabilities and shareholders’ equity
Deposits (includes $13,523 and $7,255 at fair value as of December 2014 and December 2013, respectively)
Collateralized financings:

Securities sold under agreements to repurchase, at fair value
Securities loaned (includes $765 and $973 at fair value as of December 2014 and December 2013, respectively)
Other secured financings (includes $21,450 and $23,591 at fair value as of December 2014 and December 2013,

respectively)

Payables:

Brokers, dealers and clearing organizations
Customers and counterparties

Financial instruments sold, but not yet purchased, at fair value
Unsecured short-term borrowings, including the current portion of unsecured long-term borrowings (includes $18,826 and

$19,067 at fair value as of December 2014 and December 2013, respectively)

Unsecured long-term borrowings (includes $16,005 and $11,691 at fair value as of December 2014 and December 2013,

respectively)

Other liabilities and accrued expenses (includes $831 and $388 at fair value as of December 2014 and December 2013,

respectively)
Total liabilities

Commitments, contingencies and guarantees

Shareholders’ equity
Preferred stock, par value $0.01 per share; aggregate liquidation preference of $9,200 and $7,200 as of December 2014 and

December 2013, respectively

Common stock, par value $0.01 per share; 4,000,000,000 shares authorized, 852,784,764 and 837,219,068 shares issued
as of December 2014 and December 2013, respectively, and 430,259,102 and 446,359,012 shares outstanding as of
December 2014 and December 2013, respectively

Share-based awards
Nonvoting common stock, par value $0.01 per share; 200,000,000 shares authorized, no shares issued and outstanding
Additional paid-in capital
Retained earnings
Accumulated other comprehensive loss
Stock held in treasury, at cost, par value $0.01 per share; 422,525,664 and 390,860,058 shares as of December 2014 and

December 2013, respectively

Total shareholders’ equity
Total liabilities and shareholders’ equity

As of December

2014

2013

$ 57,600

$ 61,133

51,716

49,671

127,938
160,722

161,732
164,566

30,671

23,840

63,808
28,938

74,040
14,895

312,248
22,599
$856,240

339,121
22,509
$911,507

$ 83,008

$ 70,807

88,215
5,570

164,782
18,745

22,809

24,814

6,636
206,936
132,083

5,349
199,416
127,426

44,540

44,692

167,571

160,965

16,075
773,443

16,044
833,040

9,200

7,200

9
3,766
—
50,049
78,984
(743)

8
3,839
—
48,998
71,961
(524)

(58,468)
82,797
$856,240

(53,015)
78,467
$911,507

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

100 Goldman Sachs 2014 Annual Report

Consolidated Statements of Changes in Shareholders’ Equity

$ in millions

Preferred stock
Balance, beginning of year
Issued
Balance, end of year
Common stock
Balance, beginning of year
Issued
Balance, end of year
Share-based awards
Balance, beginning of year
Issuance and amortization of share-based awards
Delivery of common stock underlying share-based awards
Forfeiture of share-based awards
Exercise of share-based awards
Balance, end of year
Additional paid-in capital
Balance, beginning of year
Delivery of common stock underlying share-based awards
Cancellation of share-based awards in satisfaction of withholding tax requirements
Preferred stock issuance costs
Excess net tax benefit/(provision) related to share-based awards
Cash settlement of share-based awards
Balance, end of year
Retained earnings
Balance, beginning of year
Net earnings
Dividends and dividend equivalents declared on common stock and share-based awards
Dividends declared on preferred stock
Balance, end of year
Accumulated other comprehensive loss
Balance, beginning of year
Other comprehensive income/(loss)
Balance, end of year
Stock held in treasury, at cost
Balance, beginning of year
Repurchased
Reissued
Other
Balance, end of year
Total shareholders’ equity

Year Ended December

2014

2013

2012

$ 7,200
2,000
9,200

$ 6,200
1,000
7,200

$ 3,100
3,100
6,200

8
1
9

3,839
2,079
(1,725)
(92)
(335)
3,766

48,998
2,206
(1,922)
(20)
788
(1)
50,049

71,961
8,477
(1,054)
(400)
78,984

(524)
(219)
(743)

8
—
8

3,298
2,017
(1,378)
(79)
(19)
3,839

48,030
1,483
(599)
(9)
94
(1)
48,998

65,223
8,040
(988)
(314)
71,961

(193)
(331)
(524)

8
—
8

5,681
1,368
(3,659)
(90)
(2)
3,298

45,553
3,939
(1,437)
(13)
(11)
(1)
48,030

58,834
7,475
(903)
(183)
65,223

(516)
323
(193)

(53,015)
(5,469)
49
(33)
(58,468)
$ 82,797

(46,850)
(6,175)
40
(30)
(53,015)
$ 78,467

(42,281)
(4,637)
77
(9)
(46,850)
$ 75,716

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

Goldman Sachs 2014 Annual Report 101

Consolidated Statements of Cash Flows

$ in millions

Cash flows from operating activities
Net earnings
Adjustments to reconcile net earnings to net cash provided by/(used for) operating activities

Depreciation and amortization
Deferred income taxes
Share-based compensation
Gain on sale of hedge fund administration business
Gain on sale of European insurance business
Gain on extinguishment of junior subordinated debt

Changes in operating assets and liabilities

Cash and securities segregated for regulatory and other purposes
Receivables and payables (excluding loans receivable), net
Collateralized transactions (excluding other secured financings), net
Financial instruments owned, at fair value
Financial instruments sold, but not yet purchased, at fair value
Other, net

Net cash provided by/(used for) operating activities
Cash flows from investing activities
Purchase of property, leasehold improvements and equipment
Proceeds from sales of property, leasehold improvements and equipment
Business acquisitions, net of cash acquired
Proceeds from sales of investments
Purchase of available-for-sale securities
Proceeds from sales of available-for-sale securities
Loans receivable, net
Net cash used for investing activities
Cash flows from financing activities
Unsecured short-term borrowings, net
Other secured financings (short-term), net
Proceeds from issuance of other secured financings (long-term)
Repayment of other secured financings (long-term), including the current portion
Proceeds from issuance of unsecured long-term borrowings
Repayment of unsecured long-term borrowings, including the current portion
Purchase of trust preferred securities
Derivative contracts with a financing element, net
Deposits, net
Common stock repurchased
Dividends and dividend equivalents paid on common stock, preferred stock and share-based awards
Proceeds from issuance of preferred stock, net of issuance costs
Proceeds from issuance of common stock, including exercise of share-based awards
Excess tax benefit related to share-based awards
Cash settlement of share-based awards
Net cash provided by/(used for) financing activities
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year

Year Ended December

2014

2013

2012

$ 8,477

$ 8,040

$ 7,475

1,337
495
2,085
—
—
(289)

(2,046)
12,328
(52,104)
27,547
4,642
(10,095)
(7,623)

(678)
30
(1,732)
1,514
—
—
(14,043)
(14,909)

1,659
(837)
6,900
(7,636)
39,857
(28,138)
(1,611)
643
12,201
(5,469)
(1,454)
1,980
123
782
(1)
18,999
(3,533)
61,133
$ 57,600

1,322
29
2,015
—
(211)
—

(143)
(3,682)
(51,669)
51,079
933
(3,170)
4,543

(706)
62
(2,274)
2,503
(738)
817
(8,392)
(8,728)

1,336
(7,272)
6,604
(3,630)
30,851
(30,473)
—
874
683
(6,175)
(1,302)
991
65
98
(1)
(7,351)
(11,536)
72,669
$ 61,133

1,738
(356)
1,319
(494)
—
—

10,817
(20,499)
76,558
(48,783)
(18,867)
3,971
12,879

(961)
49
(593)
1,195
(5,220)
4,537
(2,741)
(3,734)

(1,952)
1,540
4,687
(11,576)
27,734
(36,435)
—
1,696
24,015
(4,640)
(1,086)
3,087
317
130
(1)
7,516
16,661
56,008
$ 72,669

SUPPLEMENTAL DISCLOSURES:

Cash payments for interest, net of capitalized interest, were $6.43 billion, $5.69 billion and $9.25 billion for 2014, 2013 and 2012, respectively.

Cash payments for income taxes, net of refunds, were $3.05 billion, $4.07 billion and $1.88 billion for 2014, 2013 and 2012, respectively.

Non-cash activities:

During 2014, the firm exchanged $1.58 billion of Trust Preferred Securities, common beneficial interests and senior guaranteed trust securities held by the firm for
$1.87 billion of the firm’s junior subordinated debt held by the issuing trusts. Following the exchange, this junior subordinated debt was extinguished.

During 2014, the firm sold certain consolidated investments and provided seller financing, which resulted in a non-cash increase to loans receivable of $115 million.

During 2012, the firm assumed $77 million of debt in connection with business acquisitions.

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

102 Goldman Sachs 2014 Annual Report

Notes to Consolidated Financial Statements

Note 1.
Description of Business

is a leading global

The Goldman Sachs Group, Inc. (Group Inc.), a Delaware
corporation, together with its consolidated subsidiaries
(collectively, the firm),
investment
banking, securities and investment management firm that
provides a wide range of financial services to a substantial
includes corporations,
and diversified client base that
financial
institutions, governments and high-net-worth
individuals. Founded in 1869, the firm is headquartered in
New York and maintains offices in all major financial
centers around the world.

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
including local and cross-border
private placements,
transactions, 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.
in and clears client
The firm also makes markets
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
firm makes
investments, some of which are consolidated, directly and
indirectly through funds that the firm manages, in debt
securities and loans, public and private equity securities,
and real estate entities.

longer-term in nature. The

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
including portfolio management and financial
services,
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.

31,

All references to 2014, 2013 and 2012 refer to the firm’s
the dates, as the context requires,
years ended, or
December
and
2014, December
December 31, 2012, respectively. 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.

2013

31,

Goldman Sachs 2014 Annual Report 103

Notes to Consolidated Financial Statements

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 discussed below or included in the following
footnotes:

Financial Instruments Owned, at Fair Value and
Financial Instruments Sold, But Not Yet Purchased,
at Fair Value

Fair Value Measurements

Cash Instruments

Derivatives and Hedging Activities

Fair Value Option

Loans Receivable

Collateralized Agreements and Financings

Securitization Activities

Variable Interest Entities

Other Assets, including Goodwill and
Identifiable Intangible Assets

Deposits

Short-Term Borrowings

Long-Term Borrowings

Other Liabilities and Accrued Expenses

Commitments, Contingencies and Guarantees

Shareholders’ Equity

Regulation and Capital Adequacy

Earnings Per Common Share

Transactions with Affiliated Funds

Interest Income and Interest Expense

Income Taxes

Business Segments

Credit Concentrations

Legal Proceedings

Employee Benefit Plans

Employee Incentive Plans

Parent Company

104 Goldman Sachs 2014 Annual Report

Note 4

Note 5

Note 6

Note 7

Note 8

Note 9

Note 10

Note 11

Note 12

Note 13

Note 14

Note 15

Note 16

Note 17

Note 18

Note 19

Note 20

Note 21

Note 22

Note 23

Note 24

Note 25

Note 26

Note 27

Note 28

Note 29

Note 30

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 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.

Notes to Consolidated Financial Statements

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
included in “Financial instruments owned, at fair value.”
See Notes 6, 18 and 22 for further information about
investments in funds.

Use of Estimates
these consolidated financial statements
Preparation of
to make certain estimates and
requires management
assumptions, the most important of which relate to fair
value measurements,
and
accounting
identifiable intangible assets, and the provisions for losses
that may arise from litigation, regulatory proceedings and
tax audits. These estimates and assumptions are based on
the best available information but actual results could be
materially different.

goodwill

for

Revenue Recognition
Financial Assets and Financial Liabilities at Fair Value.
Financial instruments owned, at fair value and Financial
instruments sold, but not yet purchased, at fair value 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.

Investment Banking. Fees
from financial advisory
assignments and underwriting revenues are recognized in
earnings when the services related to the underlying
transaction are completed under
the
assignment. Expenses associated with such transactions are
deferred until the related revenue is recognized or the
assignment is otherwise concluded. Expenses associated
with financial advisory assignments are recorded as non-
compensation expenses, net of client reimbursements.
Underwriting revenues are presented net of
related
expenses.

the terms of

Investment Management. The firm earns management
fees and incentive fees for investment management services.
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 commitments
and are received quarterly, semi-annually or annually,
depending on the fund. All management fees are recognized
over the period that
the related service is provided.
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
generally based on investment
performance over a 12-month period or over the life of a
fund. Fees that are based on performance over a 12-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 are
recognized only when all material contingencies have been
resolved. Management and incentive fee revenues are
included in “Investment management” revenues.

fees

are

The firm makes payments to brokers and advisors related
to the placement of the firm’s investment funds. These
payments are computed based on either a percentage of the
management fee or the investment fund’s net asset value.
Where the firm is principal to the arrangement, such costs
are recorded on a gross basis and included in “Brokerage,
clearing, exchange and distribution fees,” and where the
firm is agent to the arrangement, such costs are recorded on
a net basis in “Investment management” revenues.

Goldman Sachs 2014 Annual Report 105

Receivables
from customers and counterparties not
accounted for at fair value are accounted for at amortized
cost net of estimated uncollectible amounts, which
generally approximates fair value. While these items are
carried at amounts that approximate fair value, they are not
accounted for at fair value under the fair value option or at
fair value in accordance with other U.S. GAAP and
therefore are not included in the firm’s fair value hierarchy
in Notes 6 through 8. Had these items been included in the
firm’s fair value hierarchy, substantially all would have
been classified in level 2 as of December 2014 and
December 2013. Interest on receivables from customers and
counterparties is recognized over the life of the transaction
and included in “Interest income.”

Receivables from and Payables to Brokers, Dealers
and Clearing Organizations
Receivables from and payables to brokers, dealers and
clearing organizations are accounted for at cost plus
accrued interest, which generally approximates fair value.
While these receivables and payables are carried at amounts
that approximate fair value, they are not accounted for at
fair value under the fair value option or at fair value in
accordance with other U.S. GAAP and therefore are not
included in the firm’s fair value hierarchy in Notes 6
through 8. Had these receivables and payables been
included in the firm’s fair value hierarchy, substantially all
would have been classified in level 2 as of December 2014
and December 2013.

activities.

customers

Payables to Customers and Counterparties
Payables to customers and counterparties primarily consist
of customer credit balances related to the firm’s prime
and
Payables
brokerage
counterparties are accounted for at cost plus accrued
interest, which generally approximates fair value. While
these payables are carried at amounts that approximate fair
value, they are not accounted for at fair value under the fair
value option or at fair value in accordance with other U.S.
GAAP and therefore are not included in the firm’s fair value
hierarchy in Notes 6 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 December 2014
and December 2013. Interest on payables to customers and
counterparties is recognized over the life of the transaction
and included in “Interest expense.”

Notes to Consolidated Financial Statements

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.

Transfers of Assets
Transfers of assets are accounted for as sales when the firm
has relinquished control over the assets transferred. For
transfers of assets accounted for as sales, any related gains
or losses are recognized in net revenues. Assets or liabilities
that arise from the firm’s continuing involvement with
transferred assets are measured at fair value. For transfers
of assets that are not accounted for as sales, the assets
remain in “Financial instruments owned, at fair value” and
the transfer is accounted for as a collateralized financing,
with the related interest expense recognized over the life of
the transaction. See Note 10 for further information about
transfers of assets accounted for as collateralized financings
and Note 11 for further information about transfers of
assets accounted for as sales.

Cash and Cash Equivalents
The firm defines cash equivalents as highly liquid overnight
deposits held in the ordinary course of business. As of
December 2014 and December 2013, “Cash and cash
equivalents” included $5.79 billion and $4.14 billion,
respectively, of
and
$51.81 billion and $56.99 billion, respectively, of interest-
bearing deposits with banks.

cash and due

from banks,

Receivables from Customers and Counterparties
Receivables from customers and counterparties generally
relate to collateralized transactions. Such receivables are
primarily comprised of customer margin loans, certain
transfers of assets accounted for as secured loans rather
than purchases at fair value and collateral posted in
connection with certain derivative transactions. Certain of
the firm’s receivables from customers and counterparties
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
from customers and counterparties
about
accounted for at fair value under the fair value option.

receivables

106 Goldman Sachs 2014 Annual Report

Notes to Consolidated Financial Statements

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.

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. Resale and
repurchase agreements and securities borrowed and loaned
transactions with the same term and currency are presented
in the consolidated
on a net-by-counterparty basis
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.

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
Investment Companies (ASC 946). In June 2013, the
FASB issued ASU No. 2013-08, “Financial Services —
Investment Companies (Topic 946) — Amendments to the
Scope, Measurement, and Disclosure Requirements.” ASU
No. 2013-08 clarifies the approach to be used for
determining whether an entity is an investment company
disclosure
new measurement
and
requirements. ASU No. 2013-08 was effective for interim
and annual reporting periods in fiscal years that began after
December 15, 2013. Adoption of ASU No. 2013-08 on
the firm’s financial
January 1, 2014 did not affect
condition, results of operations, or cash flows.

provides

and

Inclusion of the Fed Funds Effective Swap Rate (or
Overnight Index Swap Rate) as a Benchmark Interest
Rate for Hedge Accounting Purposes (ASC 815). In
July 2013, the FASB issued ASU No. 2013-10, “Derivatives
and Hedging (Topic 815) — Inclusion of the Fed Funds
Effective Swap Rate (or Overnight Index Swap Rate) as a
Benchmark Interest Rate for Hedge Accounting Purposes.”
ASU No. 2013-10 permits the use of the Fed Funds
Effective Swap Rate (OIS) as a U.S. benchmark interest rate
for hedge accounting purposes. The ASU also removes the
restriction on using different benchmark rates for similar
hedges. ASU No. 2013-10 was effective for qualifying new
or redesignated hedging relationships entered into on or
after July 17, 2013 and adoption did not materially affect
the firm’s financial condition, results of operations, or cash
flows.

Goldman Sachs 2014 Annual Report 107

(Topic

Repurchase-to-Maturity Transactions, Repurchase
Financings, and Disclosures (ASC 860). In June 2014,
the FASB issued ASU No. 2014-11, “Transfers and
Servicing
860) — Repurchase-to-Maturity
Transactions, Repurchase Financings, and Disclosures.”
ASU No. 2014-11 changes the accounting for repurchase-
and resale-to-maturity agreements by requiring that such
agreements be recognized as financing arrangements, and
requires that a transfer of a financial asset and a repurchase
agreement entered into contemporaneously be accounted
for separately. ASU No. 2014-11 also requires additional
disclosures about certain transferred financial assets
accounted for as sales and certain securities financing
transactions. The accounting changes and additional
disclosures about certain transferred financial assets
accounted for as sales are effective for the first interim and
after
periods
annual
December 15, 2014. The additional disclosures
for
securities financing transactions are required for annual
reporting periods beginning after December 15, 2014 and
after
for
March 15, 2015. Adoption of the accounting changes in
ASU No. 2014-11 on January 1, 2015 did not materially
affect the firm’s financial condition, results of operations,
or cash flows.

interim reporting

beginning

reporting

periods

Amendments to the Consolidation Analysis (ASC 810).
In February 2015, the FASB issued ASU No. 2015-02,
“Consolidation (Topic 810) — Amendments
to the
Consolidation Analysis.” ASU No. 2015-02 eliminates the
deferral of
the requirements of ASU No. 2009-17,
“Consolidations (Topic 810) — Improvements to Financial
Reporting by Enterprises Involved with Variable Interest
Entities” for certain interests in investment funds and
provides a scope exception from Topic 810 for certain
investments in money market funds. The ASU also makes
several modifications to the consolidation guidance for VIEs
and general partners’ investments in limited partnerships, as
well as modifications to the evaluation of whether limited
partnerships are VIEs or voting interest entities. ASU
No. 2015-02 is effective for interim and annual reporting
periods beginning after December 15, 2015. Early adoption
is permitted. Adoption of ASU No. 2015-02 is not expected
to materially affect the firm’s financial condition, results of
operations, or cash flows.

Notes to Consolidated Financial Statements

Reporting Discontinued Operations and Disclosures
of Disposals of Components of an Entity. In April 2014,
the FASB issued ASU No. 2014-08, “Presentation of
Financial Statements (Topic 205) and Property, Plant, and
(Topic 360) — Reporting Discontinued
Equipment
Operations and Disclosures of Disposals of Components of
an Entity.” ASU No. 2014-08 limits discontinued
operations reporting to disposals of components of an
entity that represent strategic shifts that have (or will have)
a major effect on an entity’s operations and financial
results. The ASU requires expanded disclosures
for
discontinued operations and disposals of
individually
significant components of an entity that do not qualify for
discontinued operations reporting. The ASU is effective for
disposals and components classified as held for sale that
occur within annual periods beginning on or after
December 15, 2014, and interim periods within those years.
Early adoption is permitted. The firm early adopted ASU
No. 2014-08 in 2014 and adoption did not materially affect
the firm’s financial condition, results of operations, or cash
flows.

Revenue from Contracts with Customers (ASC 606).
In May 2014,
the FASB issued ASU No. 2014-09,
“Revenue from Contracts with Customers (Topic 606).”
ASU No. 2014-09 provides comprehensive guidance on the
recognition of revenue from customers arising from the
transfer of goods and services. The ASU also provides
guidance on accounting for certain contract costs, and
requires new disclosures. ASU No. 2014-09 is effective for
annual
after
periods
December 15, 2016, including interim periods within that
reporting period. Early adoption is not permitted. The firm
is still evaluating the effect of the ASU on its financial
condition, results of operations, and cash flows.

beginning

reporting

Measuring the Financial Assets and the Financial
Liabilities of a Consolidated Collateralized Financing
Entity (ASC 810). In August 2014, the FASB issued ASU
No. 2014-13, “Consolidation (Topic 810) — Measuring
the Financial Assets and the Financial Liabilities of a
Consolidated Collateralized Financing Entity (CFE).” ASU
No. 2014-13 provides an alternative to reflect changes in
the fair value of the financial assets and the financial
liabilities of the CFE by measuring either the fair value of
the assets or liabilities, whichever is more observable. ASU
No. 2014-13 provides new disclosure requirements for
those electing this approach, and is effective for interim and
annual periods beginning after December 15, 2015. Early
adoption is permitted. Adoption of ASU No. 2014-13 will
not materially affect the firm’s financial condition, results
of operations, or cash flows.

108 Goldman Sachs 2014 Annual Report

Notes to Consolidated Financial Statements

Note 4.
Financial Instruments Owned, at Fair Value
and Financial
Instruments Sold, But Not
Yet Purchased, at Fair Value

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

financial liabilities accounted for at fair value primarily
under the fair value option. The table below presents the
firm’s financial instruments owned, at fair value, including
those pledged as collateral, and financial instruments sold,
but not yet purchased, at fair value.

$ in millions

Commercial paper, certificates of deposit, time deposits and other

money market instruments

U.S. government and federal agency obligations
Non-U.S. government and agency obligations
Mortgage and other asset-backed loans and securities:

Loans and securities backed by commercial real estate
Loans and securities backed by residential real estate

Bank loans and bridge loans
Corporate debt securities
State and municipal obligations
Other debt obligations
Equities and convertible debentures
Commodities
Subtotal
Derivatives
Total

As of December 2014

As of December 2013

Financial
Instruments
Owned

Financial
Instruments
Sold, But
Not Yet
Purchased

Financial
Instruments
Owned

Financial
Instruments
Sold, But
Not Yet
Purchased

$ 3,654
48,002
37,059

—
12,762
20,500

$ 8,608
71,072
40,944

—
20,920
26,999

6,582 1
11,717 2
15,613
21,603
1,203
3,257 3

96,442
3,846
248,978
63,270
$312,248

1
—
464 4

5,800
—
2
28,314
1,224
69,067
63,016
$132,083

6,596 1
9,025 2

17,400
17,412
1,476
3,129 3

101,024
4,556
281,242
57,879
$339,121

1
2
925 4

5,253
51
4
22,583
966
77,704
49,722
$127,426

1. Includes $4.41 billion and $3.75 billion of loans backed by commercial real estate as of December 2014 and December 2013, respectively.

2. Includes $6.43 billion and $4.17 billion of loans backed by residential real estate as of December 2014 and December 2013, respectively.

3. Includes $618 million and $681 million of loans backed by consumer loans and other assets as of December 2014 and December 2013, respectively.

4. Primarily relates to the fair value of unfunded lending commitments for which the fair value option was elected.

Goldman Sachs 2014 Annual Report 109

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).

internally developed models

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
that
primarily use market-based or independently sourced
parameters as 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 fair value hierarchy for
disclosure of fair value measurements. The fair value
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 the fair value hierarchy is based on the
lowest level of input that is significant to its fair value
measurement.

Notes to Consolidated Financial Statements

Gains and Losses from Market Making and Other
Principal Transactions
The table below presents “Market making” revenues by
major product
type, as well as “Other principal
transactions” revenues. These gains/(losses) are primarily
related to the firm’s financial instruments owned, at fair
value and financial instruments sold, but not yet purchased,
at fair value, including both derivative and non-derivative
financial instruments. These gains/(losses) exclude related
interest income and interest expense. See Note 23 for
further information about interest income and interest
expense.

The gains/(losses) in the table below are not representative
of the manner in which the firm manages its business
activities because many of the firm’s market-making and
instruments
client facilitation strategies utilize financial
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.

$ in millions

Product Type

Interest rates
Credit
Currencies
Equities
Commodities
Other
Market making
Other principal transactions 1
Total

Year Ended December

2014

2013

2012

$ (5,316) 2 $
2,982
6,566
2,683
1,450
—
8,365
6,588
$14,953

930
1,845
2,446
2,655
902
590 3

9,368
6,993
$16,361

$ 4,445
4,263
(1,001)
2,482
492
667 4

11,348
5,865
$17,213

1. 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. The “Other” category in Note 25
relates to the firm’s consolidated investments, and primarily includes
commodities and real estate-related net revenues.

2. Includes a gain of $289 million ($270 million of which was recorded at
extinguishment in the third quarter) related to the extinguishment of certain
of the firm’s junior subordinated debt. See Note 16 for further information.

3. Includes a gain of $211 million on the sale of a majority stake in the firm’s

European insurance business.

4. Includes a gain of $494 million on the sale of the firm’s hedge fund

administration business.

110 Goldman Sachs 2014 Annual Report

Notes to Consolidated Financial Statements

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 accounted for
at fair value primarily under the fair value option (including
information about unrealized gains and losses related to
level 3 financial assets and financial liabilities, and transfers
in and out of level 3), respectively.

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. In the table
below, counterparty and cash collateral netting represents
the impact on derivatives of netting across levels of the fair
value hierarchy. Netting among positions classified in the
same level is included in that level.

$ in millions

As of December

2014

2013

Total level 1 financial assets
Total level 2 financial assets
Total level 3 financial assets
Counterparty and cash collateral netting
Total financial assets at fair value
Total assets 1
Total level 3 financial assets as a percentage of

$ 140,221
468,678
42,005
(104,616)
$ 546,288
$ 856,240

$156,030
499,480
40,013
(95,350)
$600,173
$911,507

Total assets

4.9%

4.4%

Total level 3 financial assets as a percentage of

Total financial assets at fair value

Total level 1 financial liabilities
Total level 2 financial liabilities
Total level 3 financial liabilities
Counterparty and cash collateral netting
Total financial liabilities at fair value
Total level 3 financial liabilities as a percentage

7.7%
$ 59,697
253,364
15,904
(37,267)
$ 291,698

6.7%
$ 68,412
300,583
12,046
(25,868)
$355,173

of Total financial liabilities at fair value

5.5%

3.4%

1. Includes approximately $834 billion and $890 billion as of December 2014
and December 2013, respectively, that is carried at fair value or at amounts
that generally approximate fair value.

The table below presents a summary of Total
level 3
financial assets. See Notes 6 through 8 for further
information about level 3 financial assets.

$ in millions

Cash instruments
Derivatives
Other financial assets
Total

Level 3 Financial Assets
as of December

2014

2013

$34,875
7,074
56
$42,005

$32,639
7,076
298
$40,013

Level 3 financial assets as of December 2014 increased
compared with December 2013, reflecting an increase in
cash instruments. See Note 6 for further information about
changes in level 3 cash instruments.

Goldman Sachs 2014 Annual Report 111

Notes to Consolidated Financial Statements

Note 6.
Cash Instruments

Cash instruments include U.S. government and federal
agency obligations, non-U.S. government and agency
obligations, bank loans and bridge loans, corporate debt
securities, equities and convertible debentures, 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
include U.S. government
Level 1 cash instruments
obligations and most non-U.S. government obligations,
actively traded listed equities, certain government agency
obligations
instruments. These
instruments are valued using quoted prices for identical
unrestricted instruments in active markets.

and money market

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.

obligations,

Level 2 Cash Instruments
Level 2 cash instruments include commercial paper,
certificates of deposit, time deposits, most government
agency
government
certain
obligations, most corporate debt securities, commodities,
certain mortgage-backed loans and securities, certain bank
loans and bridge loans, restricted or less liquid listed
equities, most state and municipal obligations and certain
lending commitments.

non-U.S.

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 of financial
assets.

112 Goldman Sachs 2014 Annual Report

Notes to Consolidated Financial Statements

Valuation Techniques and Significant Inputs
The table below presents the valuation techniques and the
nature of significant inputs. These valuation techniques and

significant inputs are generally used to determine the fair
values of each type of level 3 cash instrument.

Level 3 Cash Instruments

Valuation Techniques and Significant Inputs

Loans and securities backed by commercial
real estate
‰ Collateralized by a single commercial real
estate property or a portfolio of properties
‰ May include tranches of varying levels of

subordination

and the basis, or price difference, to such prices

‰ 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)

‰ 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

‰ Timing of expected future cash flows (duration) which, in certain cases, may incorporate the impact of other

unobservable inputs (e.g., prepayment speeds)

Loans and securities backed by residential
real estate
‰ Collateralized by portfolios of residential

real estate

‰ May include tranches of varying levels of

subordination

Valuation techniques vary by instrument, but are generally based on discounted cash flow techniques.
Significant inputs are generally determined based on relative value analyses, which incorporate comparisons to
instruments with similar collateral and risk profiles. Significant inputs include:
‰ Transaction prices in both the underlying collateral and instruments with the same or similar underlying collateral
‰ Market yields implied by transactions of similar or related assets
‰ Cumulative loss expectations, driven by default rates, home price projections, residential property liquidation

timelines and related costs

‰ Duration, driven by underlying loan prepayment speeds and residential property liquidation timelines

Bank loans and bridge loans

Non-U.S. government and agency obligations

Corporate debt securities

State and municipal obligations

Other debt obligations

Equities and convertible debentures (including
private equity investments and investments in
real estate entities)

Valuation techniques vary by instrument, but are generally based on discounted cash flow techniques.
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 such as CDX and LCDX (indices that track the performance of corporate credit and loans, respectively)
‰ 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

‰ Duration

Valuation techniques vary by instrument, but are generally based on discounted cash flow techniques.
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 such as CDX, LCDX and MCDX (an index that tracks the performance of municipal obligations)

‰ 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

‰ Duration

Industry multiples (primarily EBITDA multiples) and public comparables

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:
‰
‰ Transactions in similar instruments
‰ Discounted cash flow techniques
‰ Third-party appraisals
‰ Net asset value per share (NAV)
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, long-term growth rates, earnings compound annual growth rates and capitalization rates
‰ For equity instruments with debt-like features: market yields implied by transactions of similar or related assets,

current performance and recovery assumptions, and duration

Goldman Sachs 2014 Annual Report 113

Notes to Consolidated Financial Statements

ranges

the ranges of

Significant Unobservable Inputs
The tables below present
significant
unobservable inputs used to value the firm’s level 3 cash
instruments. These
significant
unobservable inputs that were used in the valuation of each
type of cash instrument. Weighted averages in the tables
below are calculated by weighting each input by the relative
fair value of the respective financial
instruments. The
ranges and weighted averages of these inputs are not
the appropriate inputs to use when
representative of

represent

the

calculating the fair value of any one cash instrument. For
example, the highest multiple presented in the tables below
for private equity investments is appropriate for valuing a
specific private equity investment but may not be
appropriate
equity
investment. Accordingly, the ranges of inputs presented
below do not represent uncertainty in, or possible ranges of,
the firm’s level 3 cash
fair value measurements of
instruments.

any other private

valuing

for

Level 3 Cash Instruments

Loans and securities backed by commercial real
estate
‰ Collateralized by a single commercial real estate

property or a portfolio of properties

‰ May include tranches of varying levels of

subordination

Loans and securities backed by residential real estate
‰ Collateralized by portfolios of residential real estate
‰ May include tranches of varying levels of

subordination

Level 3 Assets
as of December 2014
($ in millions)

Valuation Techniques and
Significant Unobservable Inputs

Range of Significant Unobservable
Inputs (Weighted Average)
as of December 2014

$3,394

Discounted cash flows:

‰ Yield
‰ Recovery rate
‰ Duration (years)
‰ Basis

3.2% to 20.0% (10.5%)

24.9% to 100.0% (68.3%)

0.3 to 4.7 (2.0)

(8) points to 13 points (2 points)

$2,545

Discounted cash flows:

‰ Yield
‰ Cumulative loss rate
‰ Duration (years)

1.9% to 17.5% (7.6%)

0.0% to 95.1% (24.4%)

0.5 to 13.0 (4.3)

Bank loans and bridge loans

$7,346

Discounted cash flows:

‰ Yield
‰ Recovery rate
‰ Duration (years)

1.4% to 29.5% (8.7%)

26.6% to 92.5% (60.6%)

0.3 to 7.8 (2.5)

Non-U.S. government and agency obligations

$4,931

Discounted cash flows:

Corporate debt securities

State and municipal obligations

Other debt obligations

Equities and convertible debentures (including
private equity investments and investments in real
estate entities)

‰ Yield
‰ Recovery rate
‰ Duration (years)

$16,659 1

Comparable multiples:

‰ Multiples
Discounted cash flows:

‰ Discount rate/yield
‰ Long-term growth rate/

compound annual growth rate

‰ Capitalization rate

0.9% to 24.4% (9.2%)

0.0% to 71.9% (59.2%)

0.5 to 19.6 (3.7)

0.8x to 16.6x (6.5x)

3.7% to 30.0% (14.4%)

1.0% to 10.0% (6.0%)

3.8% to 13.0% (7.6%)

1. 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.

114 Goldman Sachs 2014 Annual Report

Notes to Consolidated Financial Statements

Level 3 Cash Instruments

Loans and securities backed by commercial real
estate
‰ Collateralized by a single commercial real estate

property or a portfolio of properties

‰ May include tranches of varying levels of

subordination

Loans and securities backed by residential real estate
‰ Collateralized by portfolios of residential real estate
‰ May include tranches of varying levels of

subordination

Level 3 Assets
as of December 2013
($ in millions)

Valuation Techniques and
Significant Unobservable Inputs

Range of Significant Unobservable
Inputs (Weighted Average)
as of December 2013

$2,692

Discounted cash flows:

‰ Yield
‰ Recovery rate
‰ Duration (years)
‰ Basis

2.7% to 29.1% (10.1%)

26.2% to 88.1% (74.4%)

0.6 to 5.7 (2.0)

(9) points to 20 points (5 points)

$1,961

Discounted cash flows:

‰ Yield
‰ Cumulative loss rate
‰ Duration (years)

2.6% to 25.8% (10.1%)

9.8% to 56.6% (24.9%)

1.4 to 16.7 (3.6)

Bank loans and bridge loans

$9,324

Discounted cash flows:

‰ Yield
‰ Recovery rate
‰ Duration (years)

1.0% to 39.6% (9.3%)

40.0% to 85.0% (54.9%)

0.5 to 5.3 (2.1)

Non-U.S. government and agency obligations

$3,977

Discounted cash flows:

Corporate debt securities

State and municipal obligations

Other debt obligations

Equities and convertible debentures (including
private equity investments and investments in real
estate entities)

‰ Yield
‰ Recovery rate
‰ Duration (years)

$14,685 1

Comparable multiples:

‰ Multiples
Discounted cash flows:

‰ Discount rate/yield
‰ Long-term growth rate/

compound annual growth rate

1.5% to 40.2% (8.9%)

0.0% to 70.0% (61.9%)

0.6 to 16.1 (4.2)

0.6x to 18.8x (6.9x)

6.0% to 29.1% (14.6%)

1.0% to 19.0% (8.1%)

‰ Capitalization rate

4.6% to 11.3% (7.1%)

1. 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.

in yield, discount

Increases
rate, capitalization rate,
duration or cumulative loss rate used in the valuation of the
firm’s level 3 cash instruments would result in a lower fair
value measurement, while increases in recovery rate, basis,
long-term growth rate or compound annual
multiples,

growth rate would result
fair value
measurement. Due to the distinctive nature of each of the
firm’s level 3 cash instruments, the interrelationship of
inputs is not necessarily uniform within each product type.

in a higher

Goldman Sachs 2014 Annual Report 115

Notes to Consolidated Financial Statements

Fair Value of Cash Instruments by Level
The tables below present, by level within the fair value
hierarchy, cash instrument assets and liabilities, at fair
value. Cash instrument assets and liabilities are included in

instruments owned, at

“Financial
fair value” and
“Financial instruments sold, but not yet purchased, at fair
value,” respectively.

$ in millions

Commercial paper, certificates of deposit, time deposits and

other money market instruments

U.S. government and federal agency obligations
Non-U.S. government and agency obligations
Mortgage and other asset-backed loans and securities:

Loans and securities backed by commercial real estate
Loans and securities backed by residential real estate

Bank loans and bridge loans
Corporate debt securities
State and municipal obligations
Other debt obligations
Equities and convertible debentures
Commodities
Total 1

$ in millions

U.S. government and federal agency obligations
Non-U.S. government and agency obligations
Mortgage and other asset-backed loans and securities:

Loans and securities backed by commercial real estate

Bank loans and bridge loans
Corporate debt securities
Other debt obligations
Equities and convertible debentures
Commodities
Total

Cash Instrument Assets at Fair Value as of December 2014

Level 1

Level 2

Level 3

Total

—
18,540
30,255

—
—
—
249
—
—
69,711
—
$118,755

$ 3,654
29,462
6,668

3,188
9,172
8,267
17,539
1,093
2,387
10,072
3,846
$95,348

$ —
—
136

3,394
2,545
7,346
3,815
110
870
16,659 2

—
$34,875

3,654
48,002
37,059

6,582
11,717
15,613
21,603
1,203
3,257
96,442
3,846
$248,978

Cash Instrument Liabilities at Fair Value as of December 2014

Level 1

$ 12,746
19,256

—
—
—
—
27,587
—
$ 59,589

Level 2

16
1,244

1
286
5,741
—
722
1,224
$ 9,234

Level 3

$ —
—

—
178
59
2
5
—
244

Total

$ 12,762
20,500

1
464
5,800
2
28,314
1,224
$ 69,067

1. Includes collateralized debt obligations (CDOs) and collateralized loan obligations (CLOs) backed by real estate and corporate obligations of $234 million in level 2 and

$1.34 billion in level 3.

2. Includes $14.93 billion of private equity investments, $1.17 billion of investments in real estate entities and $562 million of convertible debentures.

116 Goldman Sachs 2014 Annual Report

Notes to Consolidated Financial Statements

$ in millions

Commercial paper, certificates of deposit, time deposits and

other money market instruments

U.S. government and federal agency obligations
Non-U.S. government and agency obligations
Mortgage and other asset-backed loans and securities:

Loans and securities backed by commercial real estate
Loans and securities backed by residential real estate

Bank loans and bridge loans
Corporate debt securities
State and municipal obligations
Other debt obligations
Equities and convertible debentures
Commodities
Total 1

$ in millions

U.S. government and federal agency obligations
Non-U.S. government and agency obligations
Mortgage and other asset-backed loans and securities:

Loans and securities backed by commercial real estate
Loans and securities backed by residential real estate

Bank loans and bridge loans
Corporate debt securities
State and municipal obligations
Other debt obligations
Equities and convertible debentures
Commodities
Total

Cash Instrument Assets at Fair Value as of December 2013

Level 1

Level 2

Level 3

Total

216
29,582
29,451

—
—
—
240
—
—
76,945
—
$136,434

8,392
41,490
11,453

3,904
7,064
8,076
14,299
1,219
2,322
9,394
4,556
$112,169

—
—
40

2,692
1,961
9,324
2,873
257
807
14,685 2

—
$32,639

8,608
71,072
40,944

6,596
9,025
17,400
17,412
1,476
3,129
101,024
4,556
$281,242

Cash Instrument Liabilities at Fair Value as of December 2013

Level 1

$ 20,871
25,325

—
—
—
10
—
—
22,107
—
$ 68,313

Level 2

49
1,674

—
2
641
5,241
50
3
468
966
9,094

Level 3

—
—

1
—
284
2
1
1
8
—
297

Total

$ 20,920
26,999

1
2
925
5,253
51
4
22,583
966
$ 77,704

1. Includes CDOs and CLOs backed by real estate and corporate obligations of $746 million in level 2 and $2.03 billion in level 3.

2. Includes $12.82 billion of private equity investments, $1.37 billion of investments in real estate entities and $491 million of convertible debentures.

Transfers Between Levels of the Fair Value Hierarchy
Transfers between levels of the fair value hierarchy are
reported at the beginning of the reporting period in which
they occur. During 2014, transfers into level 2 from level 1
of cash instruments were $60 million, including $47 million
of public equity securities and $13 million of U.S.
government and federal agency obligations due
to
decreased market activity in these instruments. Transfers
into level 1 from level 2 of cash instruments were
$92 million, reflecting transfers of public equity securities
due to increased market activity in these instruments.

During 2013, transfers into level 2 from level 1 of cash
instruments were $1 million, reflecting transfers of public
equity securities due to decreased market activity in these
instruments. Transfers into level 1 from level 2 of cash
instruments were $79 million, reflecting transfers of public
equity securities, primarily due to increased market activity
in these instruments.

See level 3 rollforward below for information about
transfers between level 2 and level 3.

Goldman Sachs 2014 Annual Report 117

Notes to Consolidated Financial Statements

Level 3 Rollforward
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 included in level 3.

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 reported 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.

The tables below present changes in fair value for all cash
instrument assets and liabilities categorized as level 3 as of
the end of the year. Purchases in the tables below include
both originations and secondary market purchases.

Level 3 Cash Instrument Assets at Fair Value for the Year Ended December 2014

Balance,
beginning
of year

Net
realized
gains/
(losses)

Net unrealized
gains/(losses)
relating to
instruments
still held at
year-end

Purchases

Sales

Settlements

Transfers
into
level 3

Transfers
out of
level 3

Balance,
end of
year

$ in millions

Non-U.S. government and

agency obligations

(20)

$ — $

136

Mortgage and other asset-

backed loans and securities:
Loans and securities backed
by commercial real estate
Loans and securities backed
by residential real estate
Bank loans and bridge loans
Corporate debt securities
State and municipal obligations
Other debt obligations
Equities and convertible

2,692

1,961
9,324
2,873
257
807

173

123
696
252
4
24

1,891

(436)

(977)

224
(194)
(9)
3
41

1,008
3,863
2,645
12
448

(363)
(1,367)
(1,031)
(112)
(212)

(497)
(4,673)
(926)
(2)
(164)

176

235
294
427
25
21

(189)

3,394

(146)
(597)
(416)
(77)
(95)

2,545
7,346
3,815
110
870

debentures

Total

14,685
$32,639

131
$1,410 1

2,557
$2,689 1

3,596
$13,558

(1,902)
$(5,443)

(1,443)
$(8,679)

1,300
$2,486

(2,265)
$(3,785)

16,659
$34,875

Level 3 Cash Instrument Liabilities at Fair Value for the Year Ended December 2014

Balance,
beginning
of year

Net
realized
(gains)/
losses

Net unrealized
(gains)/losses
relating to
instruments
still held at
year-end

Purchases

Sales

Settlements

Transfers
into
level 3

Transfers
out of
level 3

Balance,
end of
year

297

$ (12)

$ (223)

121

(12)

244

$ in millions

Total

1. The aggregate amounts include gains of approximately $247 million, $2.98 billion and $875 million reported in “Market making,” “Other principal transactions” and

“Interest income,” respectively.

The net unrealized gain on level 3 cash instruments of
$2.69 billion (reflecting a $2.69 billion gain on cash
instrument assets and a $1 million loss on cash instrument
liabilities) for 2014 primarily reflected gains on private
equity investments principally driven by company-specific
events and strong corporate performance.

Transfers out of level 3 during 2014 primarily reflected
transfers of certain private equity investments, bank loan
and bridge loans and corporate debt securities to level 2
principally due to increased price transparency as a result of
market evidence, including market transactions in these
instruments.

certain private

Transfers into level 3 during 2014 primarily reflected
transfers of
equity investments and
corporate debt securities 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.

118 Goldman Sachs 2014 Annual Report

Notes to Consolidated Financial Statements

Level 3 Cash Instrument Assets at Fair Value for the Year Ended December 2013

Balance,
beginning
of year

Net
realized
gains/
(losses)

Net unrealized
gains/(losses)
relating to
instruments
still held at
year-end

$ in millions

Non-U.S. government and

Purchases

Sales

Settlements

Transfers
into
level 3

Transfers
out of
level 3

Balance,
end of
year

agency obligations

(20)

$ —

$ — $

Mortgage and other asset-

backed loans and securities:
Loans and securities backed by

commercial real estate

3,389

Loans and securities backed by

residential real estate
Bank loans and bridge loans
Corporate debt securities
State and municipal obligations
Other debt obligations
Equities and convertible

1,619
11,235
2,821
619
1,185

206

143
529
407
6
47

224

150
444
398
(2)
38

733

(894)

(1,055)

660
3,725
1,140
134
648

(467)
(2,390)
(1,584)
(492)
(445)

(269)
(4,778)
(576)
(2)
(161)

262

209
942
404
6
14

(173)

2,692

(84)
(383)
(137)
(12)
(519)

1,961
9,324
2,873
257
807

debentures

Total

14,855
$35,749

189
$1,534 1

1,709
$2,966 1

1,866
$8,918

(862)
$(7,154)

(1,610)
$(8,451)

882
$2,729

(2,344)
$(3,652)

14,685
$32,639

Level 3 Cash Instrument Liabilities at Fair Value for the Year Ended December 2013

Balance,
beginning
of year

Net
realized
(gains)/
losses

Net unrealized
(gains)/losses
relating to
instruments
still held at
year-end

Purchases

Sales

Settlements

Transfers
into
level 3

Transfers
out of
level 3

Balance,
end of
year

642

(1)

(64)

$ (432)

$ 269

$ (160)

297

$ in millions

Total

1. The aggregate amounts include gains of approximately $1.09 billion, $2.69 billion and $723 million reported in “Market making,” “Other principal transactions” and

“Interest income,” respectively.

The net unrealized gain on level 3 cash instruments of
$3.03 billion (reflecting $2.97 billion on cash instrument
assets and $64 million on cash instrument liabilities) for
2013 primarily consisted of gains on private equity
investments, principally driven by strong corporate
performance, bank loans and bridge loans, primarily due to
tighter credit spreads and favorable company-specific
events, and corporate debt securities, primarily due to
tighter credit spreads.

Transfers into level 3 during 2013 primarily reflected
transfers of certain bank loans and bridge loans and private
equity investments from level 2, principally due to a lack of
market transactions in these instruments.

Transfers out of level 3 during 2013 primarily reflected
transfers of certain private equity investments to level 2,
principally due to increased transparency of market prices
as a result of market transactions in these instruments.

Goldman Sachs 2014 Annual Report 119

Notes to Consolidated Financial Statements

Investments in Funds That Are Calculated Using
Net Asset Value Per Share
Cash instruments at fair value include investments in funds
that are calculated based on the net asset value per share
(NAV) of the investment fund. The firm uses NAV as its
measure of fair value for 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 underlying investments at fair value.

The firm’s investments in funds that are calculated using
NAV primarily 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 in a variety of situations, 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 mid- to large-
sized 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. The private equity,
credit and real estate funds are primarily 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.

strategies

including

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
credit,
convertibles, risk arbitrage, special situations and capital
structure arbitrage. As of December 2014, 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.

long/short

equity,

Many of the funds described above are “covered funds” as
defined by 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 (Federal Reserve Board) extended the conformance
period through July 2016 for
in, and
relationships with, covered funds that were in place prior to
December 31, 2013, and indicated that it intends to further
extend the conformance period through July 2017.

investments

The firm continues to manage its existing funds, taking into
account the extension outlined above. Since March 2012,
the firm has redeemed $2.97 billion of its interests in hedge
funds,
including $762 million during 2014 and
$1.15 billion during 2013. In order to be compliant with
the Volcker Rule, the firm will be required to reduce most
of its interests in the funds in the table below by the
prescribed compliance date.

The tables below present the fair value of the firm’s
investments in, and unfunded commitments to, funds that
are calculated using NAV.

$ in millions

Private equity funds
Credit funds 1
Hedge funds
Real estate funds
Total

$ in millions

Private equity funds
Credit funds 1
Hedge funds
Real estate funds
Total

As of December 2014

Fair Value of
Investments

Unfunded
Commitments

$ 6,356
1,021
863
1,604
$ 9,844

$2,181
390
—
344
$2,915

As of December 2013

Fair Value of
Investments

Unfunded
Commitments

$ 7,446
3,624
1,394
1,908
$14,372

$2,575
2,515
—
471
$5,561

1. The decreases from December 2013 to December 2014 primarily reflect
both cash and in-kind distributions received and the related cancellations of
the firm’s commitments to certain credit funds.

120 Goldman Sachs 2014 Annual Report

Notes to Consolidated Financial Statements

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
clearing
counterparties (OTC-cleared), while others are bilateral
contracts between two counterparties (bilateral OTC).

and settled through central

cleared

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
the firm typically acts as principal and is
capacity,
consequently required to commit capital
to provide
execution. As a market maker, it is essential to maintain an
inventory of
to meet
expected client and market demands.

instruments sufficient

financial

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, to manage foreign currency exposure on the net
investment in certain non-U.S. operations, and to manage
the exposure to the variability in cash flows associated with
the forecasted sales of certain energy commodities by one of
the firm’s consolidated investments.

The firm enters into various types of derivatives, including:
‰ Futures and Forwards. Contracts

commit
counterparties to purchase or sell financial instruments,
commodities or currencies in the future.

that

‰ 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 and liabilities are included in
“Financial
fair value” and
“Financial instruments sold, but not yet purchased, at fair
value,” respectively. Substantially all gains and losses on
derivatives not designated as hedges under ASC 815 are
included in “Market making” and “Other principal
transactions.”

instruments owned, at

The tables below present the fair value of derivatives on a
net-by-counterparty basis.

$ in millions

Exchange-traded
OTC
Total

$ in millions

Exchange-traded
OTC
Total

As of December 2014

Derivative
Assets

Derivative
Liabilities

$ 2,533
60,737
$63,270

$ 2,070
60,946
$63,016

As of December 2013

Derivative
Assets

Derivative
Liabilities

$ 4,277
53,602
$57,879

$ 6,366
43,356
$49,722

Goldman Sachs 2014 Annual Report 121

Notes to Consolidated Financial Statements

The table below presents the fair value and the notional
amount of derivative contracts by major product type on a
gross basis. Gross fair values exclude the effects of both
counterparty netting and collateral, and therefore are not
representative of the firm’s exposure. The table below also
presents the amounts of counterparty and cash collateral
netting in the
financial
condition, as well as cash and securities collateral posted
and received under enforceable credit support agreements

consolidated statements of

that do not meet the criteria for netting under U.S. GAAP.
Where the firm has received or posted collateral under
credit support agreements, but has not yet determined such
agreements are enforceable, the related collateral has not
been netted in the table below. 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.

$ in millions

Derivatives not accounted for as hedges
Interest rates

Exchange-traded
OTC-cleared
Bilateral OTC

Credit

OTC-cleared
Bilateral OTC

Currencies

Exchange-traded
OTC-cleared
Bilateral OTC

Commodities

Exchange-traded
OTC-cleared
Bilateral OTC

Equities

Exchange-traded
Bilateral OTC

Subtotal
Derivatives accounted for as hedges
Interest rates
OTC-cleared
Bilateral OTC

Currencies

OTC-cleared
Bilateral OTC

Commodities

Exchange-traded
Bilateral OTC

Subtotal
Gross fair value/notional amount of derivatives
Amounts that have been offset in the consolidated

statements of financial condition

Counterparty netting
Exchange-traded
OTC-cleared
Bilateral OTC

Cash collateral netting

OTC-cleared
Bilateral OTC

As of December 2014

As of December 2013

Derivative
Assets

Derivative
Liabilities

Notional
Amount

Derivative
Assets

Derivative
Liabilities

Notional
Amount

$ 786,362
228
351,801
434,333
54,848
5,812
49,036
109,916
69
100
109,747
28,990
7,683
313
20,994
58,931
9,592
49,339
1,039,047

14,272
2,713
11,559
125
12
113
—
—
—
14,397

$739,607
238
330,298
409,071
50,154
5,663
44,491
108,607
69
96
108,442
28,546
7,166
315
21,065
58,649
9,636
49,013
985,563

262
228
34
16
3
13
—
—
—
278

$1,053,444 1

$985,841 1

(886,670)
(15,039)
(335,792)
(535,839)
(103,504)
(24,801)
(78,703)

(886,670)
(15,039)
(335,792)
(535,839)
(36,155)
(738)
(35,417)

$47,112,518
3,151,865
30,408,636
13,552,017
2,500,958
378,099
2,122,859
5,566,203
17,214
13,304
5,535,685
669,479
321,378
3,036
345,065
1,525,495
541,711
983,784
57,374,653

126,498
31,109
95,389
9,636
1,205
8,431
—
—
—
136,134
$57,510,787

$ 641,186
157
266,230
374,799
60,751
3,943
56,808
70,757
98
88
70,571
18,007
4,323
11
13,673
56,719
10,544
46,175
847,420

11,403
1,327
10,076
74
1
73
36
—
36
11,513
$858,933 1

$587,110
271
252,596
334,243
56,340
4,482
51,858
63,659
122
97
63,440
18,228
3,661
12
14,555
55,472
13,157
42,315
780,809

429
27
402
56
10
46
—
—
—
485

$781,294 1

$44,110,483
2,366,448
24,888,301
16,855,734
2,946,376
348,848
2,597,528
4,311,971
23,908
11,319
4,276,744
701,101
346,057
135
354,909
1,406,499
534,840
871,659
53,476,430

132,879
10,637
122,242
9,296
869
8,427
335
23
312
142,510
$53,618,940

(707,411)
(10,845)
(254,756)
(441,810)
(93,643)
(16,353)
(77,290)

(707,411)
(10,845)
(254,756)
(441,810)
(24,161)
(2,515)
(21,646)

Fair value included in financial instruments owned/
financial instruments sold, but not yet purchased

Amounts that have not been offset in the consolidated

statements of financial condition

Cash collateral received/posted
Securities collateral received/posted
Total

63,270

$ 63,016

$ 57,879

$ 49,722

(980)
(14,742)
47,548

(2,940)
(18,159)
$ 41,917

(636)
(13,225)
$ 44,018

(2,806)
(10,521)
$ 36,395

1. Includes derivative assets and derivative liabilities of $25.93 billion and $26.19 billion, respectively, as of December 2014, and derivative assets and derivative
liabilities of $23.18 billion and $23.46 billion, respectively, as of December 2013, 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.

122 Goldman Sachs 2014 Annual Report

Notes to Consolidated Financial Statements

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
such as Monte Carlo
option pricing methodologies,
simulations). Price transparency of derivatives can generally
be characterized by product type.
‰ 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.

swaps

reference indices,

‰ 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
large
that
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
those sensitive to the
credit derivatives,
correlation between two or more underlying reference
obligations, generally have less price transparency.

such as

‰ Currency. Prices for currency derivatives based on the
industrialized nations,
leading
rates of
exchange
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.

derivatives

Commodity

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. In
evaluating the significance of a valuation input, the firm
considers, among other factors, a portfolio’s net risk
exposure to that input.

Goldman Sachs 2014 Annual Report 123

Notes to Consolidated Financial Statements

The selection of a particular model to value a derivative
depends on the contractual terms of and specific risks
inherent in the instrument, as well as the availability of
pricing information in the market. For derivatives that
trade in liquid markets, model selection does not involve
significant management
judgment because outputs of
models can be calibrated to market-clearing levels.

Valuation models require a variety of inputs, such as
contractual terms, market prices, yield curves, discount
rates (including those derived from interest rates on
collateral received and posted as specified in credit support
agreements for collateralized derivatives), credit curves,
measures of volatility, prepayment rates, loss severity rates
and correlations of such inputs. Significant inputs to the
valuations of level 2 derivatives can be verified to market
transactions, broker or dealer quotations or other
alternative pricing sources with reasonable levels of price
transparency. Consideration is given to the nature of the
quotations (e.g., indicative or firm) and the relationship of
recent market activity to the prices provided from
alternative pricing sources.

Level 3 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.
‰ For the majority of the firm’s interest rate and currency
derivatives
significant
include correlations of certain
unobservable inputs
currencies and interest rates (e.g., the correlation between
Euro inflation and Euro interest rates) and specific
interest rate volatilities.

classified within

level

‰ For level 3 credit derivatives, significant unobservable
inputs include illiquid credit spreads and upfront credit
points, which are unique to specific reference obligations
recovery rates and certain
and reference
correlations required to value credit and mortgage
derivatives
the
underlying reference obligation relative to one another).

the likelihood of default of

entities,

(e.g.,

124 Goldman Sachs 2014 Annual Report

‰ For level 3 equity derivatives, significant unobservable
inputs generally include equity volatility inputs for
options that are very long-dated and/or have strike prices
that differ significantly from current market prices. In
the valuation of certain structured trades
addition,
requires the use of level 3 correlation inputs, such as the
correlation of the price performance of two or more
individual
the price
performance for a basket of stocks to another asset class
such as commodities.

the correlation of

stocks or

‰ For

level

derivatives,

commodity

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.

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 recorded 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
credit valuation adjustments and funding
liquidity,
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.

for derivatives

In addition,
include significant
unobservable inputs, the firm makes model or exit price
for the valuation uncertainty
adjustments to account
present in the transaction.

that

Notes to Consolidated Financial Statements

the ranges of

Significant Unobservable Inputs
The tables below present
significant
unobservable inputs used to value the firm’s level 3
derivatives as well as averages and medians of these inputs.
The 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. 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 presented in the tables
below 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 presented below do not represent
value
ranges of,
in, or possible
uncertainty
measurements of the firm’s level 3 derivatives.

fair

Level 3 Derivative
Product Type

Interest rates

Net Level 3 Assets/(Liabilities)
as of December 2014
($ in millions)

Valuation Techniques and
Significant Unobservable Inputs

Range of Significant Unobservable Inputs
(Average / Median) as of December 2014

$(40)

Option pricing models:

Correlation 1

Volatility

(16)% to 84% (37% / 40%)

36 basis points per annum (bpa) to 156 bpa
(100 bpa / 115 bpa)

Credit

$3,530

Option pricing models, correlation models and
discounted cash flows models 2:

Correlation 1

Credit spreads

5% to 99% (71% / 72%)

1 basis points (bps) to 700 bps
(116 bps / 79 bps) 3

Upfront credit points

0 points to 99 points (40 points / 30 points)

Recovery rates

14% to 87% (44% / 40%)

Currencies

$(267)

Option pricing models:

Commodities

$(1,142)

Option pricing models and discounted cash
flows models 2:

Correlation 1

55% to 80% (69% / 73%)

Volatility

16% to 68% (33% / 32%)

Spread per million British Thermal units
(MMBTU) of natural gas

$(1.66) to $4.45 ($(0.13) / $(0.03)) 3

Spread per Metric Tonne (MT) of coal

$(10.50) to $3.00 ($(4.04) / $(6.74))

Spread per barrel of oil and refined products

$(15.35) to $80.55 ($22.32 / $13.50) 3

Equities

$(1,375)

Option pricing models:

Correlation 1

Volatility

30% to 99% (62% / 55%)

5% to 90% (23% / 21%)

1. The range of unobservable inputs for correlation across derivative product types (i.e., cross-asset correlation) was (34)% to 80% (Average: 33% / Median: 35%) as of

December 2014.

2. 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.

3. The difference between the average and the median for these spread inputs indicates that the majority of the inputs fall in the lower end of the range.

Goldman Sachs 2014 Annual Report 125

Notes to Consolidated Financial Statements

Level 3 Derivative
Product Type

Interest rates

Net Level 3 Assets/(Liabilities)
as of December 2013
($ in millions)

Valuation Techniques and
Significant Unobservable Inputs

Range of Significant Unobservable Inputs
(Average / Median) as of December 2013

$(86)

Option pricing models:

Credit

$4,176

Option pricing models, correlation models and
discounted cash flows models 2:

Correlation 1

Volatility

22% to 84% (58% / 60%)

36 bpa to 165 bpa (107 bpa / 112 bpa)

Correlation 1

Credit spreads

5% to 93% (61% / 61%)

1 bps to 1,395 bps (153 bps / 116 bps) 3

Upfront credit points

0 points to 100 points (46 points / 43 points)

Recovery rates

20% to 85% (50% / 40%)

Currencies

$(200)

Option pricing models:

Commodities

$60

Option pricing models and discounted cash
flows models 2:

Correlation 1

65% to 79% (72% / 72%)

Volatility

15% to 52% (23% / 21%)

Spread per MMBTU of natural gas

$(1.74) to $5.62 ($(0.11) / $(0.04))

Spread per MT of coal

$(17.00) to $0.50 ($(6.54) / $(5.00))

Equities

$(959)

Option pricing models:

Correlation 1

Volatility

23% to 99% (58% / 59%)

6% to 63% (20% / 20%)

1. The range of unobservable inputs for correlation across derivative product types (i.e., cross-asset correlation) was (42)% to 78% (Average: 25% / Median: 30%) as of

December 2013.

2. 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.

3. The difference between the average and the median for these credit spread inputs indicates that the majority of the inputs fall in the lower end of the range.

126 Goldman Sachs 2014 Annual Report

Notes to Consolidated Financial Statements

Range of Significant Unobservable Inputs
The following provides further 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 market (e.g., equity index and
equity single stock names) and across markets (e.g.,
correlation of an interest rate and a foreign exchange
rate), as well as across regions. Generally, cross-asset
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

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.

volatility

for

‰ 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 locations.

Sensitivity of Fair Value Measurement to Changes
in Significant Unobservable Inputs
The following provides a description of the directional
sensitivity of the firm’s level 3 fair value measurements to
changes in significant unobservable inputs, in isolation.
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.
‰ 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
inflation rates and equity prices), an
exchange rates,
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.

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.

In general,

Goldman Sachs 2014 Annual Report 127

Notes to Consolidated Financial Statements

Fair Value of Derivatives by Level
The tables below present the fair value of derivatives on a
gross basis by level and major product type as well as the
impact of netting. 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 and cash
collateral netting.” Where the counterparty netting is across
levels, the netting is reflected in “Cross-Level Netting.”

Derivative Assets at Fair Value as of December 2014

$ in millions

Interest rates
Credit
Currencies
Commodities
Equities
Gross fair value of derivative assets
Counterparty and cash collateral netting
Fair value included in financial instruments owned

Level 1

Level 2

Level 3

$123
—
—
—
175
298
—
$298

$ 800,028
47,190
109,891
28,124
58,122
1,043,355
(882,841)
$ 160,514

483
7,658
150
866
634
9,791
(2,717)
$ 7,074

Cross-Level
Netting

Cash
Collateral
Netting

Total

$ — $
—
—
—
—
—
(1,112)
$(1,112)

— $ 800,634
54,848
—
110,041
—
28,990
—
58,931
—
1,053,444
—
(990,174)
(103,504)
63,270
$(103,504)

$ in millions

Interest rates
Credit
Currencies
Commodities
Equities
Gross fair value of derivative liabilities
Counterparty and cash collateral netting
Fair value included in financial instruments sold,

but not yet purchased

Derivative Liabilities at Fair Value as of December 2014

Level 1

Level 2

Level 3

$ 14
—
—
—
94
108
—

$ 739,332
46,026
108,206
26,538
56,546
976,648
(882,841)

523
4,128
417
2,008
2,009
9,085
(2,717)

Cross-Level
Netting

Cash
Collateral
Netting

Total

$ — $
—
—
—
—
—
(1,112)

— $ 739,869
50,154
—
108,623
—
28,546
—
58,649
—
985,841
—
(922,825)
(36,155)

$108

93,807

$ 6,368

$(1,112)

$ (36,155)

63,016

Derivative Assets at Fair Value as of December 2013

$ in millions

Interest rates
Credit
Currencies
Commodities
Equities
Gross fair value of derivative assets
Counterparty and cash collateral netting
Fair value included in financial instruments owned

Level 1

Level 2

Level 3

$ 91
—
—
—
3
94
—
$ 94

$ 652,104
52,834
70,481
17,517
55,826
848,762
(702,703)
$ 146,059

394
7,917
350
526
890
10,077
(3,001)
$ 7,076

Cross-Level
Netting

Cash
Collateral
Netting

Total

$ —
—
—
—
—
—
(1,707)
$(1,707)

— $ 652,589
60,751
—
70,831
—
18,043
—
56,719
—
858,933
—
(801,054)
(93,643)
57,879
$ (93,643)

$ in millions

Interest rates
Credit
Currencies
Commodities
Equities
Gross fair value of derivative liabilities
Counterparty and cash collateral netting
Fair value included in financial instruments sold,

but not yet purchased

128 Goldman Sachs 2014 Annual Report

Derivative Liabilities at Fair Value as of December 2013

Level 1

Level 2

Level 3

$ 93
—
—
—
6
99
—

$ 586,966
52,599
63,165
17,762
53,617
774,109
(702,703)

480
3,741
550
466
1,849
7,086
(3,001)

Cross-Level
Netting

Cash
Collateral
Netting

Total

$ —
—
—
—
—
—
(1,707)

— $ 587,539
56,340
—
63,715
—
18,228
—
55,472
—
781,294
—
(731,572)
(24,161)

$ 99

71,406

$ 4,085

$(1,707)

$ (24,161)

49,722

Notes to Consolidated Financial Statements

Level 3 Rollforward
If a derivative was transferred to level 3 during a reporting
period, its entire gain or loss for the period is included in
level 3. Transfers between levels are reported at
the
beginning of the reporting period in which they occur. In
the tables below, negative amounts for transfers into level 3
and positive amounts for transfers out of level 3 represent
net transfers of derivative liabilities.

Gains and losses on level 3 derivatives should be considered
in the context of the following:
‰ 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 as level 3.

‰ Gains or losses that have been reported 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
level 2 and level 3 cash
derivatives and/or level 1,
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 tables below present changes in fair value for all
derivatives categorized as level 3 as of the end of the year.

Level 3 Derivative Assets and Liabilities at Fair Value for the Year Ended December 2014

$ in millions

Interest rates — net
Credit — net
Currencies — net
Commodities — net
Equities — net
Total derivatives — net

Asset/
(liability)
balance,
beginning
of year

$ (86)
4,176
(200)
60
(959)
$2,991

Net
realized
gains/
(losses)

$ (50)
64
(70)
(19)
(48)
$(123) 1

Net unrealized
gains/(losses)
relating to
instruments
still held at
year-end

Purchases

Sales

Settlements

Transfers
into
level 3

Transfers
out of
level 3

Asset/
(liability)
balance,
end of
year

$ (101)
1,625
(175)
(1,096)
(436)
$ (183) 1

$ 97
151
19
38
344
$649

(2)
(138)
—
(272)
(979)
$(1,391)

92
(1,693)
172
95
270
$(1,064)

$ 14
(194)
(9)
84
(115)
$(220)

$ (4)
(461)
(4)
(32)
548
$ 47

(40)
3,530
(267)
(1,142)
(1,375)
706

1. The aggregate amounts include losses of approximately $276 million and $30 million reported in “Market making” and “Other principal transactions,” respectively.

Transfers out of level 3 derivatives during 2014 primarily
reflected transfers of certain equity derivative liabilities to
level 2, principally due to unobservable correlation inputs
no longer being significant to the valuation of these
derivatives, and transfers of certain credit derivative assets
to level 2, principally due to unobservable credit spread
inputs no longer being significant to the net risk of certain
portfolios.

The net unrealized loss on level 3 derivatives of
$183 million for 2014 was primarily attributable to the
impact of a decrease in commodity prices on certain
commodity derivatives, a decrease in equity prices on
certain equity derivatives, and the impact of changes in
foreign exchange rates on certain currency derivatives,
largely offset by the impact of tighter credit spreads and a
decrease in interest rates on certain credit derivatives.

Transfers into level 3 derivatives during 2014 primarily
reflected transfers of certain credit derivative liabilities from
level 2, principally due to unobservable credit spread inputs
becoming significant to the valuation of these derivatives
and transfers of certain equity derivative liabilities from
level 2, primarily due to reduced transparency of volatility
inputs used to value these derivatives.

Goldman Sachs 2014 Annual Report 129

Notes to Consolidated Financial Statements

$ in millions

Interest rates — net
Credit — net
Currencies — net
Commodities — net
Equities — net
Total derivatives — net

Level 3 Derivative Assets and Liabilities at Fair Value for the Year Ended December 2013

Asset/
(liability)
balance,
beginning
of year

Net
realized
gains/
(losses)

Net unrealized
gains/(losses)
relating to
instruments
still held at
year-end

Purchases

Sales

Settlements

$ (355)
6,228
35
(304)
(1,248)
$4,356

$ (78)
(1)
(93)
(6)
(67)
$(245) 1

$ 168
(977)
(419)
58
(202)
$(1,372) 1

1
201
22
21
77
$322

(8)
(315)
(6)
(48)
(472)
$(849)

196
(1,508)
169
281
1,020
158

Transfers
into
level 3

Transfers
out of
level 3

$ (9)
695
139
50
(15)
$860

(1)
(147)
(47)
8
(52)
$(239)

Asset/
(liability)
balance,
end of
year

$ (86)
4,176
(200)
60
(959)
$2,991

1. The aggregate amounts include losses of approximately $1.29 billion and $324 million reported in “Market making” and “Other principal transactions,” respectively.

The net unrealized loss on level 3 derivatives of
$1.37 billion for 2013 principally resulted from changes in
level 2 inputs and was primarily attributable to losses on
certain credit derivatives, principally due to the impact of
tighter credit spreads, and losses on certain currency
derivatives, primarily due to changes in foreign exchange
rates.

Transfers into level 3 derivatives during 2013 primarily
reflected transfers of credit derivative assets from level 2,
principally due to reduced transparency of upfront credit
points and correlation inputs used to value
these
derivatives.

Transfers out of level 3 derivatives during 2013 primarily
reflected transfers of certain credit derivatives to level 2,
spread and
principally due
correlation inputs no longer being significant
to the
valuation of these derivatives and unobservable inputs not
being significant to the net risk of certain portfolios.

to unobservable

credit

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 gain/(loss), including hedges, attributable to the
impact of changes in credit exposure and credit spreads
(counterparty
firm’s) on derivatives was
$135 million for 2014, $(66) million for 2013 and
$(735) million for 2012.

and the

Bifurcated Embedded Derivatives
The table below presents the fair value and the notional
amount of derivatives that have been bifurcated from their
related borrowings. 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.

$ in millions

Fair value of assets
Fair value of liabilities
Net liability

Notional amount

As of December

2014

2013

$ 390
690
$ 300

$ 285
373
88

$7,735

$7,580

130 Goldman Sachs 2014 Annual Report

Notes to Consolidated Financial Statements

OTC Derivatives
The tables below present the fair values of OTC derivative
assets and liabilities by tenor and major product type.
Tenor is based on expected duration for mortgage-related
credit derivatives and generally on remaining contractual
maturity for other derivatives. Counterparty netting within
the same product type and tenor category is included within

$ in millions

Interest rates
Credit
Currencies
Commodities
Equities
Counterparty and cash collateral netting
Total

$ in millions

Interest rates
Credit
Currencies
Commodities
Equities
Counterparty and cash collateral netting
Total

$ in millions

Interest rates
Credit
Currencies
Commodities
Equities
Counterparty and cash collateral netting
Total

$ in millions

Interest rates
Credit
Currencies
Commodities
Equities
Counterparty and cash collateral netting
Total

such product type and tenor category. Counterparty netting
across product types within the same tenor category is
included in “Counterparty and cash collateral netting.”
Where the counterparty netting is across tenor categories,
the netting is reflected in “Cross-Tenor Netting.”

OTC Derivative Assets as of December 2014

1 - 5
Years

5 Years or
Greater

Cross-Tenor
Netting

Cash Collateral
Netting

Total

$25,049
6,093
9,897
4,068
9,285
(7,016)
$47,376

$ 90,553
5,707
6,386
161
3,750
(4,058)
$102,499

—
—
—
—
—
(20,819)
$(20,819)

— $ 122,666
13,496
—
34,118
—
12,527
—
17,806
—
(139,876)
(103,504)
$ (103,504) $ 60,737

OTC Derivative Liabilities as of December 2014

1 - 5
Years

5 Years or
Greater

Cross-Tenor
Netting

Cash Collateral
Netting

Total

$17,649
4,942
7,667
4,105
6,845
(7,016)
$34,192

$ 37,242
1,706
6,482
2,810
3,571
(4,058)
$ 47,753

—
—
—
—
—
(20,819)
$(20,819)

— $ 61,892
8,802
—
32,698
—
12,601
—
—
17,480
(72,527)
(36,155)
$ (36,155) $ 60,946

OTC Derivative Assets as of December 2013

1 - 5
Years

5 Years or
Greater

Cross-Tenor
Netting

Cash Collateral
Netting

Total

$26,029
8,410
8,478
4,040
9,229
(5,063)
$51,123

$ 75,731
5,787
7,361
143
4,972
(3,395)
$ 90,599

—
—
—
—
—
(19,744)
$(19,744)

— $ 108,995
15,430
—
25,338
—
7,026
—
—
21,217
(124,404)
(93,643)
$ (93,643) $ 53,602

OTC Derivative Liabilities as of December 2013

1 - 5
Years

5 Years or
Greater

Cross-Tenor
Netting

Cash Collateral
Netting

Total

$16,910
6,778
5,042
2,424
6,964
(5,063)
$33,055

$ 21,903
1,901
4,313
2,387
4,068
(3,395)
$ 31,177

—
—
—
—
—
(19,744)
$(19,744)

— $ 43,832
11,018
—
18,198
—
7,873
—
—
17,357
(54,922)
(24,161)
$ (24,161) $ 43,356

0 - 12
Months

$ 7,064
1,696
17,835
8,298
4,771
(4,479)
$35,185

0 - 12
Months

$ 7,001
2,154
18,549
5,686
7,064
(4,479)
$35,975

0 - 12
Months

$ 7,235
1,233
9,499
2,843
7,016
(2,559)
$25,267

0 - 12
Months

$ 5,019
2,339
8,843
3,062
6,325
(2,559)
$23,029

Goldman Sachs 2014 Annual Report 131

Notes to Consolidated Financial Statements

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 the aggregate fair value of net
derivative liabilities under such agreements (excluding
application of collateral posted to reduce these liabilities),
the related aggregate fair value of the assets posted as
collateral, and the additional collateral or termination
payments that could have been called at the reporting date
by counterparties in the event of a one-notch and two-notch
downgrade in the firm’s credit ratings.

$ in millions

Net derivative liabilities under bilateral

agreements
Collateral posted
Additional collateral or termination payments for

a one-notch downgrade

Additional collateral or termination payments for

a two-notch downgrade

As of December

2014

2013

$35,764
30,824

$22,176
18,178

1,072

911

2,815

2,989

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 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 (reference entity) 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 of protection. However, if
a credit event occurs, the seller of protection is required to
make a payment to the buyer of protection, which is
calculated in accordance with the terms of the contract.

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 in the capital structure.

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 from the
protection seller a floating rate of interest and protection
against any reduction in fair value of
the reference
obligation, and in return the protection seller receives the
cash flows associated with the reference obligation, plus
any increase in the fair value of the reference obligation.

Credit derivatives are individually negotiated contracts and
can have various settlement and payment conventions.
to pay, bankruptcy,
failure
Credit
acceleration of indebtedness, restructuring, repudiation and
dissolution of the reference entity.

include

events

132 Goldman Sachs 2014 Annual Report

Notes to Consolidated Financial Statements

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.

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.

gross notional

As of December 2014, written and purchased credit
derivatives had total
amounts of
$1.22 trillion and $1.28 trillion, respectively, for total net
notional purchased protection of $59.35 billion. As of
December 2013, written and purchased credit derivatives
had total gross notional amounts of $1.43 trillion and
$1.52 trillion, respectively, for total net notional purchased
protection of $81.55 billion. Substantially all of the firm’s
written and purchased credit derivatives are in the form of
credit default swaps.

The table below presents certain information about credit
derivatives. In the table below:
‰ 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 expected duration for mortgage-related
credit derivatives and on remaining contractual maturity
for other credit derivatives.

‰ 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.

Maximum Payout/Notional Amount
of Written Credit Derivatives by Tenor

0 - 12
Months

1 - 5
Years

5 Years or
Greater

Maximum Payout/Notional
Amount of Purchased
Credit Derivatives

Offsetting
Purchased
Credit

Other
Purchased
Credit

Fair Value of
Written Credit Derivatives

Net
Asset/
(Liability)

Total

Derivatives 1

Derivatives 2

Asset

Liability

$261,591
7,726
8,449
8,728
$286,494

$ 775,784
37,255
18,046
26,834
$ 857,919

$68,830
5,042
1,309
1,279
$76,460

$1,106,205 $1,012,874
41,657
26,240
33,112
$1,220,873 $1,113,883

50,023
27,804
36,841

$152,465 $28,004
1,542
112
82
$166,339 $29,740

8,426
1,949
3,499

$ 3,629
2,266
1,909
13,943
$21,747

$ 24,375
(724)
(1,797)
(13,861)
$ 7,993

$286,029
7,148
3,968
5,600
$302,745

$ 950,126
42,570
18,637
27,911
$1,039,244

$79,241
10,086
1,854
1,226
$92,407

$1,315,396 $1,208,334
44,642
22,748
30,510
$1,434,396 $1,306,234

59,804
24,459
34,737

$183,665 $ 32,508
2,837
101
514
$209,710 $ 35,960

16,884
2,992
6,169

$ 4,396
1,147
1,762
12,436
$19,741

$ 28,112
1,690
(1,661)
(11,922)
$ 16,219

$ in millions

As of December 2014
Credit spread on underlier
(basis points)
0 - 250
251 - 500
501 - 1,000
Greater than 1,000
Total

As of December 2013
Credit spread on underlier
(basis points)
0 - 250
251 - 500
501 - 1,000
Greater than 1,000
Total

1. Offsetting purchased credit derivatives represent the notional amount of purchased credit derivatives that economically hedge written credit derivatives with

identical underliers.

2. This purchased protection represents the notional amount of all other purchased credit derivatives not included in “Offsetting Purchased Credit Derivatives.”

Goldman Sachs 2014 Annual Report 133

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
and is subsequently amortized into interest expense over its
remaining life. Gains or losses resulting from hedge
ineffectiveness are 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, the related hedged
hedge
borrowings
ineffectiveness on these derivatives, which primarily
consists of amortization of prepaid credit spreads resulting
from the passage of time.

deposits,

bank

and

the

$ in millions

Year Ended December

2014

2013

2012

Interest rate hedges
$ 1,936
Hedged borrowings and bank deposits (2,451)
$ (515)
Hedge ineffectiveness

$(8,683)
6,999
$(1,684)

$(2,383)
665
$(1,718)

Notes to Consolidated Financial Statements

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,
(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 and (iii) certain commodities-related
swap and forward contracts used to manage the exposure
to the variability in cash flows associated with the
forecasted sales of certain energy commodities by one of the
firm’s consolidated investments.

To qualify for hedge accounting, the derivative hedge must
be highly effective at reducing the risk from the exposure
formally
being hedged. Additionally,
document the hedging relationship at inception and test the
hedging relationship at least on a quarterly basis to ensure
the derivative hedge continues to be highly effective over the
life of the hedging relationship.

the firm must

Fair Value Hedges
The firm designates certain interest rate swaps as fair value
hedges. These interest rate swaps hedge changes in fair
value attributable to the designated benchmark interest rate
(e.g., London Interbank Offered Rate (LIBOR) or OIS),
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%.

134 Goldman Sachs 2014 Annual Report

Notes to Consolidated Financial Statements

Net Investment Hedges
The firm seeks to reduce the impact of fluctuations in
foreign exchange rates on its net investment 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, the gains or losses on
the hedging instruments,
to the extent effective, are
included in “Currency translation” within the consolidated
statements of comprehensive income.

The table below presents the gains/(losses)
investment hedging.

from net

$ in millions

Year Ended December

2014

2013

2012

Foreign currency forward contract hedges
Foreign currency-denominated debt hedges

$576
202

$150
470

$(233)
347

The gain/(loss) related to ineffectiveness and the gain/(loss)
reclassified
other
comprehensive income/(loss) were not material for 2014,
2013 or 2012.

from accumulated

earnings

As of December 2014 and December 2013, the firm had
designated $1.36 billion and $1.97 billion, respectively, of
foreign
in
“Unsecured long-term borrowings” and “Unsecured short-
term borrowings,” as hedges of net investments in non-U.S.
subsidiaries.

currency-denominated

included

debt,

the

2013,

firm designated

Cash Flow Hedges
Beginning
certain
commodities-related swap and forward contracts as cash
flow hedges. These swap and forward contracts hedged the
firm’s exposure to the variability in cash flows associated
with the forecasted sales of certain energy commodities by
one of the firm’s consolidated investments. During the
fourth quarter of 2014, the firm de-designated these swaps
and forward contracts as cash flow hedges as it became
probable that the hedged forecasted sales would not occur.

Prior to de-designation,
the firm applied a statistical
method that utilized regression analysis when assessing
hedge effectiveness. A cash flow hedge was considered
highly effective in offsetting changes in forecasted cash
flows attributable to the hedged risk when the regression
analysis resulted in a coefficient of determination of 80% or
greater and a slope between 80% and 125%.

For qualifying cash flow hedges, the gains or losses on
derivatives, to the extent effective, were included in “Cash
flow hedges” within the consolidated statements of
comprehensive
losses were
income. Such gains or
reclassified to “Other principal transactions” within the
consolidated statements of earnings when it became
probable that the hedged forecasted sales would not occur.
Gains or losses resulting from hedge ineffectiveness were
included in “Other principal transactions.”

gains

reclassified to earnings

The effective portion of the gains recognized on these cash
from
flow hedges,
accumulated other comprehensive income and gains related
to hedge ineffectiveness were not material for 2014 and
2013. There were no gains/(losses) excluded from the
assessment of hedge effectiveness for 2014 and 2013.

Goldman Sachs 2014 Annual Report 135

Notes to Consolidated Financial Statements

Note 8.
Fair Value Option

Other Financial Assets and Financial Liabilities at
Fair Value
In addition to all cash and derivative instruments included
in “Financial
fair value” and
“Financial instruments sold, but not yet purchased, at fair
value,” the firm accounts for certain of its other financial
assets and financial liabilities at fair value primarily under
the fair value option.

instruments owned, at

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
financial
(e.g.,
measurement attributes
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

transfers of

‰ 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 non-financial 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 within Fixed Income,

Currency and Commodities Client Execution;
‰ Substantially all other secured financings,

including
transfers of assets accounted for as financings rather than
sales;

‰ Certain unsecured short-term borrowings, consisting of
all promissory notes and commercial paper and certain
hybrid financial instruments;

‰ Certain unsecured long-term borrowings,

including
certain prepaid commodity transactions and certain
hybrid financial instruments;

‰ Certain receivables from customers and counterparties,
including transfers of assets accounted for as secured
loans rather than purchases and certain margin loans;

‰ Certain time deposits

issued by the firm’s bank
subsidiaries (deposits with no stated maturity are not
including
eligible for a fair value option election),
structured certificates of deposit, which are hybrid
financial instruments; and

‰ Certain subordinated liabilities issued by consolidated

VIEs.

These financial assets and financial liabilities at fair value
are generally valued based on discounted cash flow
techniques, which incorporate inputs with reasonable levels
of price transparency, and are generally classified as level 2
because the inputs are observable. Valuation adjustments
may be made for liquidity and for counterparty and the
firm’s credit quality.

136 Goldman Sachs 2014 Annual Report

Notes to Consolidated Financial Statements

the

ranges

represent

See below for information about the significant inputs used
to value other financial assets and financial liabilities at fair
value,
including the ranges of significant unobservable
inputs used to value the level 3 instruments within these
significant
categories. These
unobservable inputs that were used in the valuation of each
type of other financial assets and financial liabilities at fair
value. 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 instrument. For
example, the highest yield presented below for resale and
repurchase agreements is appropriate for valuing a specific
agreement in that category but may not be appropriate for
valuing any other agreements in that category. Accordingly,
the ranges of inputs presented below do not represent
uncertainty
value
measurements of the firm’s level 3 other financial assets and
financial liabilities.

in, or possible

ranges of,

fair

Resale and Repurchase Agreements and Securities
Borrowed and Loaned. The significant inputs to the
valuation of
resale and repurchase agreements and
securities borrowed and loaned are funding spreads, the
amount and timing of expected future cash flows and
rates. As of both December 2014 and
interest
December 2013, there were no level 3 securities borrowed
or securities loaned. As of December 2014, the firm’s level 3
resale and repurchase agreements were not material. The
range of significant unobservable inputs used to value
as of
level 3 resale
December 2013 was 1.3% to 3.9% (weighted average:
1.4%) for yield, and 0.2 years to 2.7 years (weighted
average: 2.5 years) for duration. Generally, increases in
yield or duration, in isolation, would result in a lower fair
value measurement. Due to the distinctive nature of each of
the firm’s level 3 resale and repurchase agreements, the
interrelationship of inputs is not necessarily uniform across
such agreements. See Note 10 for further information about
collateralized agreements and financings.

and repurchase

agreements

Other Secured Financings. The significant inputs to the
valuation of other secured financings at fair value are the
amount and timing of expected future cash flows, interest
rates, funding spreads, the fair value of the collateral
delivered by the firm (which is determined using the
amount and timing of expected future cash flows, market
prices, market yields and recovery assumptions) and the
frequency of additional collateral calls. The ranges of
significant unobservable inputs used to value level 3 other
secured financings are as follows:

As of December 2014:
‰ Funding spreads: 210 bps to 325 bps (weighted average:

278 bps)

‰ Yield: 1.1% to 10.0% (weighted average: 3.1%)
‰ Duration: 0.7 to 3.8 years (weighted average: 2.6 years)

As of December 2013:
‰ Funding spreads: 40 bps to 250 bps (weighted average:

162 bps)

‰ Yield: 0.9% to 14.3% (weighted average: 5.0%)
‰ Duration: 0.8 to 16.1 years (weighted average: 3.7 years)

in a lower

Generally, increases in funding spreads, yield or duration,
in isolation, would result
fair value
measurement. Due to the distinctive nature of each of the
firm’s level 3 other secured financings, the interrelationship
of inputs is not necessarily uniform across such financings.
See Note 10 for further information about collateralized
agreements and financings.

Goldman Sachs 2014 Annual Report 137

Notes to Consolidated Financial Statements

Unsecured Short-term and Long-term Borrowings.
The significant inputs to the valuation of unsecured short-
term and long-term borrowings at fair value are the amount
and timing of expected future cash flows, interest rates, the
credit spreads of the firm, as well as commodity prices in
the case of prepaid commodity transactions. The inputs
used to value the embedded derivative component of hybrid
financial instruments are consistent with the inputs used to
value the firm’s other derivative instruments. See Note 7 for
further information about derivatives. See Notes 15 and 16
for further information about unsecured short-term and
long-term borrowings, respectively.

Certain of the firm’s unsecured short-term and long-term
instruments are included in level 3, substantially all of
which are hybrid financial instruments. As the significant
unobservable inputs used to value hybrid financial
instruments primarily relate to the embedded derivative
component of
inputs are
incorporated in the firm’s derivative disclosures related to
unobservable inputs in Note 7.

these borrowings,

these

Deposits. The significant inputs to the valuation of time
deposits are interest rates and the amount and timing of
future cash flows. The inputs used to value the embedded
derivative component of hybrid financial instruments are
consistent with the inputs used to value the firm’s other
derivative instruments. See Note 7 for further information
about derivatives. See Note 14 for further information
about deposits.

The firm’s deposits that are included in level 3 are hybrid
financial
instruments. As the significant unobservable
inputs used to value hybrid financial instruments primarily
relate to the embedded derivative component of these
deposits,
these inputs are incorporated in the firm’s
derivative disclosures related to unobservable inputs in
Note 7.

Receivables from Customers and Counterparties.
Receivables from customers and counterparties at fair value
are primarily comprised of transfers of assets accounted for
as secured loans rather than purchases. The significant
inputs to the valuation of such receivables are commodity
prices, interest rates, the amount and timing of expected
future
of
the firm’s level 3 receivables from
December 2014,
customers and counterparties were not material. The range
of significant unobservable inputs used to value level 3
secured loans as of December 2013 was 40 bps to 477 bps
(weighted average: 142 bps) for funding spreads. Generally,
an increase in funding spreads would result in a lower fair
value measurement.

spreads. As

funding

flows

cash

and

138 Goldman Sachs 2014 Annual Report

Notes to Consolidated Financial Statements

Fair Value of Other Financial Assets and Financial
Liabilities by Level
The tables below present, by level within the fair value
hierarchy, other financial assets and financial liabilities

accounted for at fair value primarily under the fair value
option.

$ in millions

Securities segregated for regulatory and other purposes 1
Securities purchased under agreements to resell
Securities borrowed
Receivables from customers and counterparties
Total

$ in millions

Deposits
Securities sold under agreements to repurchase
Securities loaned
Other secured financings
Unsecured short-term borrowings
Unsecured long-term borrowings
Other liabilities and accrued expenses
Total

$ in millions

Securities segregated for regulatory and other purposes 1
Securities purchased under agreements to resell
Securities borrowed
Receivables from customers and counterparties
Other assets
Total

$ in millions

Other Financial Assets at Fair Value as of December 2014

Level 1

$21,168
—
—
—
$21,168

Level 2

$ 13,123
126,036
66,769
6,888
$212,816

Level 3

$ —
—
—
56
56

Total

$ 34,291
126,036
66,769
6,944
$234,040

Other Financial Liabilities at Fair Value as of December 2014

Level 1

—
—
—
—
—
—
—
—

Level 2

$ 12,458
88,091
765
20,359
15,114
13,420
116
$150,323

Level 3

$1,065
124
—
1,091
3,712
2,585
715
$9,292

Total

$ 13,523
88,215
765
21,450
18,826
16,005
831
$159,615

Other Financial Assets at Fair Value as of December 2013

Level 1

$19,502
—
—
—
—
$19,502

Level 2

$ 12,435
161,234
60,384
7,181
18
$241,252

Level 3

$ —
63
—
235
—
$ 298

Total

$ 31,937
161,297
60,384
7,416
18
$261,052

Other Financial Liabilities at Fair Value as of December 2013

Level 1

$ —
—
—
—
—
—
—
$ —

Level 2

6,870
163,772
973
22,572
15,680
9,854
362
$220,083

Level 3

$ 385
1,010
—
1,019
3,387
1,837
26
$7,664

Total

7,255
164,782
973
23,591
19,067
11,691
388
$227,747

1. Includes securities segregated for regulatory and other purposes accounted for at fair value under the fair value option, which consists of securities borrowed and
resale agreements. In addition, level 1 consists of securities segregated for regulatory and other purposes accounted for at fair value under other U.S. GAAP,
consisting of U.S. Treasury securities and money market instruments.

Transfers Between Levels of the Fair Value Hierarchy
Transfers between levels of the fair value hierarchy are
reported at the beginning of the reporting period in which
they occur. There were no transfers of other financial assets
and financial liabilities between level 1 and level 2 during
2014 or 2013. The tables below present information about
transfers between level 2 and level 3.

Level 3 Rollforward
If a financial asset or financial liability was transferred to
level 3 during a reporting year, its entire gain or loss for the
year is included in level 3.

Goldman Sachs 2014 Annual Report 139

Notes to Consolidated Financial Statements

The tables below present changes in fair value for other
financial assets and financial liabilities accounted for at fair
value categorized as level 3 as of the end of the year. Level 3
other
frequently
economically hedged with cash instruments and derivatives.
Accordingly, gains or losses that are reported in level 3 can

financial assets and liabilities are

be partially offset by gains or losses attributable to level 1, 2
or 3 cash instruments or derivatives. As a result, gains or
losses included in the level 3 rollforward below do not
necessarily represent the overall impact on the firm’s results
of operations, liquidity or capital resources.

Level 3 Other Financial Assets at Fair Value for the Year Ended December 2014

Balance,
beginning
of year

Net
realized
gains/
(losses)

Net unrealized
gains/(losses)
relating to
instruments
still held at

year-end Purchases Sales

Issuances Settlements

Transfers
into
level 3

Transfers
out of
level 3

Balance,
end of
year

$ —

$ — $ — $ —

(63)

$ — $

— $ —

235
$ 298

3
$ 3 1

2
2 1

29
$29

—

—
$ — $ —

(33)
(96)

—

(180)

$ — $ (180) $

56
56

$ in millions

Securities purchased under

agreements to resell

Receivables from customers and

counterparties

Total

1. Included in “Market making.”

Level 3 Other Financial Liabilities at Fair Value for the Year Ended December 2014

Balance,
beginning
of year

Net
realized
(gains)/
losses

Net unrealized
(gains)/losses
relating to
instruments
still held at

year-end Purchases Sales

Issuances Settlements

Transfers
into
level 3

Transfers
out of
level 3

Balance,
end of
year

$ 385

$ —

$ 21

$(5)

$ — $ 442

(6)

$ 280

(52)

$1,065

1,010
1,019
3,387
1,837

—
31
11
46

—
(27)
251
(56)

—
20
5
(3)

—
—
—
—

—
402
2,246
1,221

(886)
(521)
(1,828)
(446)

—
364
981
1,344

—
(197)
(1,341)
(1,358)

124
1,091
3,712
2,585

26
$7,664

5
$93 1

434
$ 623 1

—
$17

19
$19

—
$4,311

(20)
$(3,707)

301
$3,270

(50)
$(2,998)

715
$9,292

$ in millions

Deposits
Securities sold under agreements

to repurchase

Other secured financings
Unsecured short-term borrowings
Unsecured long-term borrowings
Other liabilities and accrued

expenses

Total

1. The aggregate amounts include (gains)/losses of approximately $(150) million, $833 million and $33 million reported in “Market making,” “Other principal

transactions” and “Interest expense,” respectively.

The net unrealized loss on level 3 other financial assets and
liabilities of $621 million (reflecting $2 million of gains on
other financial assets and $623 million of losses on other
financial liabilities) for 2014 primarily reflected losses on
certain subordinated liabilities included in other liabilities
and accrued expenses, principally due to changes in the
market value of the related underlying investments, and
certain hybrid financial instruments included in unsecured
short-term borrowings, principally due to an increase in
global equity prices.

Transfers out of level 3 of other financial assets during 2014
primarily reflected transfers of certain secured loans
included in receivables from customers and counterparties
to level 2, principally due to unobservable inputs not being
significant to the net risk of the portfolio.

140 Goldman Sachs 2014 Annual Report

Transfers into level 3 of other financial liabilities during 2014
primarily reflected transfers of certain hybrid financial
instruments included in unsecured long-term and short-term
borrowings from level 2, principally due to unobservable
inputs being significant to the valuation of these instruments,
and transfers from level 3 unsecured long-term borrowings
to level 3 unsecured short-term borrowings, as these
borrowings neared maturity.

Transfers out of level 3 of other financial liabilities during
2014 primarily reflected transfers of certain hybrid financial
instruments included in unsecured long-term and short-term
borrowings
to level 2, principally due to increased
transparency of certain correlation and volatility inputs used
to value these instruments, transfers of certain other hybrid
instruments included in unsecured short-term
financial
borrowings
to certain
to level 2, principally due
unobservable inputs not being significant to the valuation of
these hybrid financial instruments, and transfers to level 3
unsecured short-term borrowings from level 3 unsecured
long-term borrowings, as these borrowings neared maturity.

Notes to Consolidated Financial Statements

Level 3 Other Financial Assets at Fair Value for the Year Ended December 2013

Balance,
beginning
of year

Net
realized
gains/
(losses)

Net unrealized
gains/(losses)
relating to
instruments
still held at
year-end

$ in millions

Securities purchased under

Purchases

Sales

Issuances

Settlements

Transfers
into
level 3

Transfers
out of
level 3

Balance,
end of
year

agreements to resell

278

$ 4

$ —

$ — $

—

$ —

(16) $ — $ (203) $

Receivables from customers

and counterparties

Other assets
Total

641
507
$ 1,426

1
—
$ 5 1

14
—
$ 14 1

54
—
$54 $

(474)
(507)
(981)

—
—
$ —

235
(1)
—
—
(17) $ — $ (203) $ 298

—
—

1. The aggregate amounts include gains of approximately $14 million, $1 million and $4 million reported in “Market making,” “Other principal transactions” and

“Interest income,” respectively.

Level 3 Other Financial Liabilities at Fair Value for the Year Ended December 2013

Net unrealized
(gains)/losses
relating to
instruments
still held at
year-end

Purchases

Sales

Issuances

Settlements

Transfers
into
level 3

Transfers
out of
level 3

Balance,
end of
year

$ (6)

$ — $

—
2

239

—
—

—

(3)

—

—
—

—

$ 109

(6) $ — $

(71)

$ 385

—
708

(917)
(894)

—
126

— 1,010
1,019

(345)

1,624

(1,502)

714

(273)

3,387

470

(558)

671

(725)

1,837

Balance,
beginning
of year

359

Net
realized
(gains)/
losses

$ —

1,927
1,412

2,584

1,917

—
10

11,274
$19,473

(29)
$ 4 1

(2)
$276 1

— (10,288)
$ (3) $(10,288)

—
$2,911

(426)

26
$(4,303) $1,511 $(1,917) $7,664

(503)

—

$ in millions

Deposits
Securities sold under

agreements to repurchase

Other secured financings
Unsecured short-term

borrowings

Unsecured long-term

borrowings

Other liabilities and accrued

expenses

Total

1. The aggregate amounts include losses of approximately $184 million, $88 million and $8 million reported in “Market making,” “Other principal transactions” and

“Interest expense,” respectively.

The net unrealized loss on level 3 other financial assets and
liabilities of $262 million (reflecting $14 million of gains on
other financial assets and $276 million of losses on other
financial liabilities) for 2013 primarily reflected losses on
certain hybrid financial instruments included in unsecured
short-term borrowings, principally due to an increase in
global equity prices.

Sales of other liabilities and accrued expenses during 2013
primarily reflected the sale of a majority stake in the firm’s
European insurance business.

Transfers out of level 3 of other financial assets during 2013
primarily reflected transfers of certain resale agreements to
level 2, principally due to increased price transparency as a
result of market transactions in similar instruments.

Transfers into level 3 of other financial liabilities during
2013 primarily reflected transfers of certain hybrid
financial instruments included in unsecured short-term and
long-term borrowings from level 2, principally due to
decreased transparency of certain correlation and volatility
inputs used to value these instruments.

Transfers out of level 3 of other financial liabilities during
2013 primarily reflected transfers of certain hybrid
financial instruments included in unsecured short-term and
long-term borrowings to level 2, principally due to
increased transparency of certain correlation and volatility
inputs used to value these instruments, and transfers of
subordinated liabilities included in other liabilities and
accrued expenses to level 2, principally due to increased
price transparency as a result of market transactions in the
related underlying investments.

Goldman Sachs 2014 Annual Report 141

Excluding the gains and losses on the instruments
accounted for under the fair value option described above,
“Market making” and “Other principal
transactions”
primarily represent gains and losses on “Financial
fair value” and “Financial
instruments owned, at
instruments sold, but not yet purchased, at fair value.”

Loans and Lending Commitments
The table below presents the difference between the
aggregate fair value and the aggregate contractual principal
amount for loans and long-term receivables for which the
fair value option was elected.

$ in millions

Performing loans and long-term receivables
Aggregate contractual principal in excess of the

As of December

2014

2013

related fair value

$1,699

$3,106

Loans on nonaccrual status and/or more than

90 days past due 1

Aggregate contractual principal in excess of the

related fair value (excluding loans carried at zero
fair value and considered uncollectible)

Aggregate fair value of loans on nonaccrual status

13,106

11,041

and/or more than 90 days past due

3,333

2,781

1. The aggregate contractual principal amount of these loans exceeds the
related fair value primarily because the firm regularly purchases loans, such
as distressed loans, at values significantly below contractual principal
amounts.

As of December 2014 and December 2013, the fair value of
unfunded lending commitments for which the fair value
option was elected was a liability of $402 million and
$1.22 billion, respectively, and the related total contractual
amount of these lending commitments was $26.19 billion
and $51.54 billion, respectively. See Note 18 for further
information about lending commitments.

Notes to Consolidated Financial Statements

Gains and Losses on Financial Assets and Financial
Liabilities Accounted for at Fair Value Under the
Fair Value Option
The table below presents the gains and losses recognized as
a result of the firm electing to apply the fair value option to
certain financial assets and financial liabilities. These gains
and losses are included in “Market making” and “Other
principal transactions.” The table below also includes gains
and losses on the embedded derivative component of hybrid
financial
instruments included in unsecured short-term
borrowings, unsecured long-term borrowings and deposits.
These gains and losses would have been recognized under
other U.S. GAAP even if the firm had not elected to account
for the entire hybrid financial instrument at fair value.

interest,
The amounts in the table exclude contractual
income” and “Interest
which is included in “Interest
expense,” for all instruments other than hybrid financial
instruments. See Note 23 for further information about
interest income and interest expense.

Gains/(Losses) on Financial Assets
and Financial Liabilities at
Fair Value Under the Fair Value Option

Year Ended December

2014

2013

2012

$(1,180)

$(1,145)

$ (973)

(592)

683

(1,523)

(441)
(366)
$(2,579)

(167)
(443)
$(1,072)

(1,486)
(81)
$(4,063)

$ in millions

Unsecured short-term

borrowings 1

Unsecured long-term

borrowings 2

Other liabilities and

accrued expenses 3

Other 4
Total

1. Includes losses on the embedded derivative component of hybrid financial
instruments of $1.22 billion for 2014, $1.04 billion for 2013 and $814 million
for 2012, respectively.

2. Includes gains/(losses) on the embedded derivative component of hybrid
instruments of $(697) million for 2014, $902 million for 2013 and

financial
$(887) million for 2012, respectively.

3. Includes gains/(losses) on certain subordinated liabilities

issued by
consolidated VIEs. Gains/(losses) for 2013 and 2012 also includes gains on
certain insurance contracts.

4. Primarily

consists of gains/(losses) on securities purchased under
agreements to resell, securities borrowed, receivables from customers and
counterparties, deposits and other secured financings.

142 Goldman Sachs 2014 Annual Report

Notes to Consolidated Financial Statements

Long-Term Debt Instruments
The aggregate contractual principal amount of long-term
other secured financings for which the fair value option was
elected exceeded the related fair value by $203 million and
$154 million as of December 2014 and December 2013,
respectively. The aggregate contractual principal amount of
unsecured long-term borrowings for which the fair value
option was elected exceeded the related fair value by
$163 million and $92 million as of December 2014 and
December 2013, respectively. The amounts above include
both principal and non-principal-protected long-term
borrowings.

Impact of Credit Spreads on Loans and Lending
Commitments
The estimated net gain attributable to changes
in
instrument-specific credit spreads on loans and lending
commitments for which the fair value option was elected
was $1.83 billion for 2014, $2.69 billion for 2013 and
$3.07 billion for 2012, respectively. Changes in the fair
value of loans and lending commitments are primarily
attributable
credit
spreads. Substantially all of the firm’s performing loans and
lending commitments are floating-rate.

in instrument-specific

to changes

Impact of Credit Spreads on Borrowings
The table below presents the net gains/(losses) attributable
to the impact of changes in the firm’s own credit spreads on
borrowings for which the fair value option was elected. The
firm calculates the fair value of borrowings by discounting
future cash flows at a rate which incorporates the firm’s
credit spreads.

$ in millions

Net gains/(losses) including hedges
Net gains/(losses) excluding hedges

Year Ended December

2014

$144
142

2013

2012

$(296) $(714)
(800)

(317)

Note 9.
Loans Receivable

Loans receivable is comprised of loans held for investment
that are accounted for at amortized cost net of allowance
for loan losses. Interest on such loans is recognized over the
life of the loan and is recorded on an accrual basis. The
table below presents details about loans receivable.

$ in millions

Corporate loans
Loans to private wealth management clients
Loans backed by commercial real estate
Other loans
Subtotal
Allowance for loan losses
Total loans receivable

As of December

2014

2013

$15,044
11,289
1,705
1,128
29,166
(228)
$28,938

$ 7,667
6,558
809
—
15,034
(139)
$14,895

As of December 2014 and December 2013, the fair value of
“Loans receivable” was $28.90 billion and $14.91 billion,
respectively. As of December 2014, had these loans been
carried at fair value and included in the fair value hierarchy,
$13.75 billion and $15.15 billion would have been
classified in level 2 and level 3, respectively. As of
December 2013, had these loans been carried at fair value
and included in the fair value hierarchy, $6.16 billion and
$8.75 billion would have been classified in level 2 and
level 3, respectively.

The firm also extends lending commitments that are held
for investment and accounted for on an accrual basis. As of
December 2014 and December 2013,
such lending
commitments were $66.22 billion and $35.66 billion,
respectively, substantially all of which were extended to
corporate borrowers. The carrying value and the estimated
fair value of such lending commitments were liabilities of
$199 million and $1.86 billion,
respectively, as of
December 2014, and $132 million and $1.02 billion,
respectively, as of December 2013. Had these commitments
been included in the firm’s fair value hierarchy, they would
have primarily been classified in level 3 as of both
December 2014 and December 2013.

Goldman Sachs 2014 Annual Report 143

extended

primarily

As of December 2014 and December 2013, loans receivable
were
non-investment-grade
borrowers and lending commitments held for investment
and accounted for on an accrual basis were primarily
extended to investment-grade borrowers. Substantially all
of these loans and lending commitments align with the U.S.
federal bank regulatory agencies’ definition of Pass. Loans
and lending commitments meet the definition of Pass when
they are performing and/or do not demonstrate adverse
characteristics that are likely to result in a credit loss.

Impaired Loans and Loans on Non-Accrual Status
A loan is determined to be impaired when it is probable that
the firm will not be able to collect all principal and interest
due under the contractual terms of the loan. At that time,
loans are placed on non-accrual status and all accrued but
uncollected interest is reversed against interest income and
interest subsequently collected is recognized on a cash basis
to the extent the loan balance is deemed collectible.
Otherwise all cash received is used to reduce the
outstanding loan balance. As of December 2014 and
December 2013, impaired loans receivable in non-accrual
status were not material.

Allowance for Losses on Loans and Lending
Commitments
The firm’s allowance for loan losses is comprised of two
components: specific loan level reserves and a collective,
portfolio level reserve. Specific loan level reserves are
determined on loans that exhibit credit quality weakness
and are therefore individually evaluated for impairment.
Portfolio level reserves are determined on the remaining
loans, not deemed impaired, by aggregating groups of loans
with similar risk characteristics and estimating the probable
loss inherent in the portfolio. As of December 2014 and
December 2013, substantially all of
the firm’s loans
receivable were evaluated for impairment at the portfolio
level.

Notes to Consolidated Financial Statements

Below is a description of the captions in the table above.
‰ Corporate Loans. Corporate loans include term loans,
revolving lines of credit, letter of credit facilities and
bridge loans, and are principally used for operating
liquidity
in
connection with acquisitions. Corporate loans may be
secured or unsecured, depending on the loan purpose, the
risk profile of the borrower and other factors. The
majority of these loans have maturities between one year
and five years and carry a floating interest rate.

corporate purposes, or

and general

‰ Loans to Private Wealth Management Clients. Loans
to the firm’s private wealth management clients include
loans used by clients to finance private asset purchases,
employ leverage for strategic investments in real or
financial assets, bridge cash flow timing gaps or provide
liquidity for other needs. Such loans are primarily secured
by securities or other assets. The majority of these loans
are demand or short-term loans and carry a floating
interest rate.

‰ Loans Backed by Commercial Real Estate. Loans
backed by commercial
loans
collateralized by hotels, retail stores, multifamily housing
complexes and commercial and industrial properties. The
majority of these loans have maturities between one year
and five years and carry a floating interest rate.

include

estate

real

‰ Other Loans. Other loans primarily include loans
secured by consumer loans, residential real estate and
other assets. The majority of these loans have maturities
between one year and five years and carry a floating
interest rate.

Credit Quality
The firm’s risk assessment process includes evaluating the
credit quality of its loans receivable. The firm performs
credit reviews which include initial and ongoing analyses of
its borrowers. A credit review is an independent analysis of
the capacity and willingness of a borrower to meet its
financial obligations, resulting in an internal credit rating.
The determination of
also
incorporates assumptions with respect to the nature of and
outlook for the borrower’s industry, and the economic
environment. The firm also assigns a regulatory risk rating
to such loans based on the definitions provided by the U.S.
federal bank regulatory agencies.

internal

ratings

credit

144 Goldman Sachs 2014 Annual Report

Notes to Consolidated Financial Statements

The allowance for loan losses is determined using various
inputs, including industry default and loss data, current
macroeconomic indicators, borrower’s capacity to meet its
financial obligations, borrower’s country of risk,
loan
seniority, and collateral type. Management’s estimate of
loan losses entails judgment about loan collectability based
on available information at the reporting dates, and there
in those judgments. While
are uncertainties inherent
information available to
management uses
determine
to the
allowance may be necessary based on, among other things,
changes in the economic environment or variances between
actual results and the original assumptions used. Loans are
charged off against the allowance for loan losses when they
are deemed to be uncollectible.

future adjustments

the best

estimate,

this

The firm also records an allowance for losses on lending
commitments that are held for investment and accounted
for on an accrual basis. Such allowance is determined using
the same methodology as the allowance for loan losses,
while also taking into consideration the probability of
drawdowns or funding and is included in “Other liabilities
and accrued expenses” in the consolidated statements of
financial
and
such lending
December 2013,
commitments were evaluated for
the
portfolio level.

substantially all of

condition. As

impairment at

of December

2014

The tables below present the changes in allowance for loan
losses, and allowance for losses on lending commitments
for the years ended December 2014 and December 2013.

$ in millions

Allowance for loan losses

Balance, beginning of year
Charge-offs
Provision for loan losses
Balance, end of year

Year Ended December

2014

$139
(3)
92
$228

2013

$ 24
—
115
$139

$ in millions

Year Ended December

Allowance for losses on lending commitments

Balance, beginning of year
Provision for losses on lending commitments
Balance, end of year

2014

$ 57
29
$ 86

2013

$ 28
29
$ 57

The provision for losses on loans and lending commitments
is included in “Other principal
transactions” in the
consolidated statements of earnings. As of December 2014
and December 2013, substantially all of the allowance for
loan losses and allowance
losses on lending
loans and
commitments were
corporate lending commitments. Substantially all of these
allowances were determined at the portfolio level.

for
related to corporate

Note 10.
Collateralized Agreements and Financings

Collateralized agreements are securities purchased under
agreements to resell (resale agreements) and securities
borrowed. Collateralized financings are securities sold
under agreements to repurchase (repurchase agreements),
securities loaned and other secured financings. The firm
enters into these transactions in order to, among other
things, facilitate client activities, invest excess cash, acquire
securities to cover short positions and finance certain firm
activities.

Collateralized agreements and financings are presented on a
net-by-counterparty basis when a legal right of setoff exists.
Interest on collateralized agreements and collateralized
financings is recognized over the life of the transaction and
included in “Interest income” and “Interest expense,”
respectively. See Note 23 for further information about
interest income and interest expense.

The table below presents the carrying value of resale and
repurchase agreements and securities borrowed and loaned
transactions.

$ in millions

Securities purchased under agreements to

resell 1

Securities borrowed 2
Securities sold under agreements to

repurchase 1

Securities loaned 2

As of December

2014

2013

$127,938
160,722

$161,732
164,566

88,215
5,570

164,782
18,745

1. Substantially all resale agreements and all repurchase agreements are carried
at fair value under the fair value option. See Note 8 for further information
about the valuation techniques and significant inputs used to determine fair
value.

2. As of December 2014 and December 2013, $66.77 billion and $60.38 billion
of securities borrowed, and $765 million and $973 million of securities loaned
were at fair value, respectively.

Goldman Sachs 2014 Annual Report 145

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

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

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

appropriate. For

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

the carrying value of

Securities borrowed and loaned within Securities Services
are recorded based on the amount of cash collateral
advanced or received plus accrued interest. As these
arrangements generally can be terminated on demand, they
exhibit little, if any, sensitivity to changes in interest rates.
Therefore,
such arrangements
approximates fair value. While these arrangements are
carried at amounts that approximate fair value, they are not
accounted for at fair value under the fair value option or at
fair value in accordance with other U.S. GAAP and
therefore are not included in the firm’s fair value hierarchy
in Notes 6 through 8. Had these arrangements been
included in the firm’s fair value hierarchy, they would have
been classified in level 2 as of December 2014 and
December 2013.

Notes to Consolidated Financial Statements

Resale and Repurchase Agreements
A resale agreement is a transaction in which the firm
purchases financial instruments from a seller, typically in
exchange for cash, and simultaneously enters into an
agreement to resell the same or substantially the same
financial instruments to the seller at a stated price plus
accrued interest at a future date.

A repurchase agreement is a transaction in which the firm
sells financial instruments to a buyer, typically in exchange
for cash, and simultaneously enters into an agreement to
repurchase the same or substantially the same financial
instruments from the buyer at a stated price plus accrued
interest at a future date.

The financial instruments purchased or sold in resale and
repurchase agreements typically include U.S. government
and federal agency, and investment-grade sovereign
obligations.

The firm receives financial instruments purchased under
resale agreements, makes delivery of financial instruments
sold under repurchase agreements, monitors the market
value of these financial instruments on a daily basis, and
delivers or obtains additional collateral due to changes in
instruments, as
the market value of
appropriate. For resale agreements,
the firm typically
requires collateral with a fair value approximately equal to
the carrying value of the relevant assets in the consolidated
statements of financial condition.

financial

the

Even though repurchase and resale agreements involve the
legal transfer of ownership of financial instruments, they
are accounted for as financing arrangements because they
instruments to be repurchased or
require the financial
resold at the maturity of the agreement. However, “repos-
to-maturity” are accounted for as sales. A repo-to-maturity
is a transaction in which the firm transfers a security under
an agreement to repurchase the security where the maturity
date of the repurchase agreement matches the maturity date
of the underlying security. Therefore, the firm effectively no
longer has a repurchase obligation and has relinquished
control over the underlying security and, accordingly,
accounts for the transaction as a sale. See Note 3 for
information about changes to the accounting for repos-to-
maturity which became effective in January 2015. The firm
had no repos-to-maturity outstanding as of December 2014
and December 2013.

146 Goldman Sachs 2014 Annual Report

Other Secured Financings
In addition to repurchase agreements and securities lending
transactions, the firm funds certain assets through the use of
other secured financings and pledges financial instruments
and other assets as collateral in these transactions. These
other secured financings consist of:
‰ Liabilities of consolidated VIEs;
‰ Transfers of assets accounted for as financings rather than
sales (primarily collateralized central bank financings,
pledged commodities, bank loans and mortgage whole
loans); and

‰ Other structured financing arrangements.

Other secured financings include arrangements that are
nonrecourse. As of December 2014 and December 2013,
nonrecourse other secured financings were $1.94 billion
and $1.54 billion, respectively.

The firm has elected to apply the fair value option to
substantially all other secured financings because the use of
fair value eliminates non-economic volatility in earnings
that would arise from using different measurement
attributes. See Note 8 for further information about other
secured financings that are accounted for at fair value.

Other secured financings that are not recorded at fair value
are recorded based on the amount of cash received plus
accrued interest, which generally approximates fair value.
that
While these financings are carried at amounts
approximate fair value, they are not accounted for at fair
value under the fair value option or at fair value in
accordance with other U.S. GAAP and therefore are not
included in the firm’s fair value hierarchy in Notes 6
through 8. Had these financings been included in the firm’s
fair value hierarchy, they would have primarily been
classified in level 2 as of December 2014 and
December 2013.

Notes to Consolidated Financial Statements

Offsetting Arrangements
The tables below present the gross and net resale and
repurchase agreements and securities borrowed and loaned
transactions, and the related amount of netting with the
same counterparty under enforceable netting agreements
(i.e., counterparty netting) included in the consolidated
statements of financial condition. Substantially all of the
gross carrying values of these arrangements are subject to
enforceable netting agreements. The tables below also
present
in the consolidated
statements of financial condition including counterparty
netting that does not meet the criteria for netting under U.S.
GAAP and the fair value of cash or securities collateral
received or posted subject to enforceable credit support
agreements. Where the firm has received or posted
collateral under credit support agreements, but has not yet
determined such agreements are enforceable, the related
collateral has not been netted in the tables below.

the amounts not offset

As of December 2014

Assets

Liabilities

Resale
agreements

Securities
borrowed

Repurchase
agreements

Securities
loaned

$ 160,644 $ 171,384
(26,664)
(3,580)
133,980 1 167,804 1

$ 114,879 $ 9,150
(3,580)
5,570

(26,664)
88,215

(3,834)

(641)
(124,528) (154,058)
5,618 $ 13,105

(3,834)
(78,457)

5,924 $

(641)
(4,882)
47

As of December 2013

Assets

Liabilities

Resale
agreements

Securities
borrowed

Repurchase
agreements

Securities
loaned

$ 190,536 $ 172,283
(19,131)
(4,955)
171,405 1 167,328 1

$ 183,913 $ 23,700
(4,955)
18,745

(19,131)
164,782

(10,725)
(152,914)

(2,224)
(147,223)
7,766 $ 17,881

(10,725)
(141,300)
$ 12,757 $

(2,224)
(16,278)
243

$ in millions

Amounts included in the

consolidated statements
of financial condition

Gross carrying value
Counterparty netting
Total
Amounts not offset in the
consolidated statements
of financial condition

Counterparty netting
Collateral
Total

$ in millions

Amounts included in the

consolidated statements
of financial condition

Gross carrying value
Counterparty netting
Total
Amounts not offset in the
consolidated statements
of financial condition

Counterparty netting
Collateral
Total

1. As of December 2014 and December 2013, the firm had $6.04 billion and
$9.67 billion, respectively, of securities received under resale agreements,
and $7.08 billion and $2.77 billion, respectively, of securities borrowed
transactions that were segregated to satisfy certain regulatory requirements.
These securities are included in “Cash and securities segregated for
regulatory and other purposes.”

Goldman Sachs 2014 Annual Report 147

Notes to Consolidated Financial Statements

The tables below present information about other secured
financings.

$ in millions

Other secured financings (short-term):

At fair value
At amortized cost

Weighted average interest rates
Other secured financings (long-term):

At fair value
At amortized cost

Weighted average interest rates

Total 1

Amount of other secured financings

collateralized by:

Financial instruments 2
Other assets

$ in millions

Other secured financings (short-term):

At fair value
At amortized cost

Weighted average interest rates
Other secured financings (long-term):

At fair value
At amortized cost

Weighted average interest rates

Total 1

Amount of other secured financings

collateralized by:

Financial instruments 2
Other assets

As of December 2014

U.S.
Dollar

Non-U.S.
Dollar

Total

$ 7,887
5
4.33%

3,290
580
2.69%
$11,762

$ 7,668
—
—%

2,605
774
2.31%
$11,047

$15,555
5

5,895
1,354

$22,809

$11,460
302

$10,483
564

$21,943
866

As of December 2013

U.S.
Dollar

Non-U.S.
Dollar

Total

$ 9,374
88
2.86%

$ 7,828
—
—%

$17,202
88

3,711
372
3.78%
$13,545

2,678
763
1.53%
$11,269

6,389
1,135

$24,814

$13,366
179

$10,880
389

$24,246
568

1. Includes $974 million and $1.54 billion related to transfers of financial assets
accounted for as financings rather than sales as of December 2014 and
December 2013,
respectively. Such financings were collateralized by
financial assets included in “Financial instruments owned, at fair value” of
$995 million and $1.58 billion as of December 2014 and December 2013,
respectively.

In the tables above:
‰ Short-term secured

financings
financings
maturing within one year of the financial statement date
and financings that are redeemable within one year of the
financial statement date at the option of the holder.

include

‰ Long-term secured financings that are repayable prior to
maturity at the option of the firm are reflected at their
contractual maturity dates.

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

‰ Weighted average

interest

secured
financings at fair value and include the effect of hedging
activities. See Note 7 for further information about
hedging activities.

exclude

rates

The table below presents other secured financings by
maturity.

$ in millions

Other secured financings (short-term)
Other secured financings (long-term):
2016
2017
2018
2019
2020-thereafter
Total other secured financings (long-term)
Total other secured financings

As of
December 2014

$15,560

3,304
1,800
938
465
742
7,249
$22,809

2. Includes $10.24 billion and $14.75 billion of other secured financings
fair value as of
collateralized by financial
December
includes
$11.70 billion and $9.50 billion of other secured financings collateralized by
financial
and repledged as of
December 2014 and December 2013, respectively.

instruments owned, at
2013,

and December

received as

respectively,

instruments

collateral

2014

and

148 Goldman Sachs 2014 Annual Report

Notes to Consolidated Financial Statements

collateral, primarily

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

agreements

and securities

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

collateralizing

financings,

secured

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

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

$ in millions

Collateral available to be delivered or

repledged 1

Collateral that was delivered or repledged

As of December

2014

2013

$630,046
474,057

$608,390
450,127

1. As of December 2014 and December 2013, amounts exclude $6.04 billion
and $9.67 billion,
resale
agreements, and $7.08 billion and $2.77 billion, respectively, of securities
borrowed transactions that contractually had the right to be delivered or
repledged, but were segregated to satisfy certain regulatory requirements.

respectively, of securities received under

The table below presents information about assets pledged.

$ in millions

Financial instruments owned, at fair value

pledged to counterparties that:

As of December

2014

2013

Had the right to deliver or repledge
Did not have the right to deliver or repledge

$64,473
68,027

$62,348
84,799

Other assets pledged to counterparties that:

Did not have the right to deliver or repledge

1,304

769

Note 11.
Securitization Activities

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

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

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

For transfers of assets that are not accounted for as sales,
the assets remain in “Financial instruments owned, at fair
value” and the transfer is accounted for as a collateralized
financing, with the related interest expense recognized over
the life of the transaction. See Notes 10 and 23 for further
information about collateralized financings and interest
expense, respectively.

Goldman Sachs 2014 Annual Report 149

Notes to Consolidated Financial Statements

also have

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

the performance of

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

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

$ in millions

Residential mortgages
Commercial mortgages
Other financial assets
Total

Year Ended December

2014

2013

2012

$19,099
2,810
1,009
$22,918

$29,772
6,086
—
$35,858

$33,755
300
—
$34,055

Cash flows on retained interests

215

249

389

The tables below present the firm’s continuing involvement
in nonconsolidated securitization entities to which the firm
sold assets, as well as the total outstanding principal
amount of
transferred assets in which the firm has
continuing involvement. In these tables:
‰ The outstanding principal amount is presented for the
purpose of providing information about the size of the
securitization entities in which the firm has continuing
involvement and is not representative of the firm’s risk of
loss.

‰ For retained or purchased interests, the firm’s risk of loss

is limited to the fair value of these interests.

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

$ in millions

U.S. government
agency-issued
collateralized mortgage
obligations

Other residential

mortgage-backed
Other commercial
mortgage-backed
CDOs, CLOs and other
Total

$ in millions

U.S. government
agency-issued
collateralized mortgage
obligations

Other residential

mortgage-backed
Other commercial
mortgage-backed
CDOs, CLOs and other
Total 1

As of December 2014

Outstanding
Principal
Amount

Fair Value of
Retained
Interests

Fair Value of
Purchased
Interests

$56,792

$2,140

$ —

2,273

144

3,313
4,299
$66,677

86
59
$2,429

45
17
$ 67

As of December 2013

Outstanding
Principal
Amount

Fair Value of
Retained
Interests

Fair Value of
Purchased
Interests

$61,543

$3,455

$ —

2,072

7,087
6,861
$77,563

140
86
$3,727

—

153
8
$161

1. Outstanding principal amount includes $418 million related to securitization
entities in which the firm’s only continuing involvement is retained servicing
which is not a variable interest.

150 Goldman Sachs 2014 Annual Report

Notes to Consolidated Financial Statements

In addition, the outstanding principal and fair value of
retained interests in the tables above relate to the following
types of securitizations and vintage as described:
‰ The outstanding principal amount and fair value of
retained interests for U.S. government agency-issued
collateralized mortgage obligations as of December 2014
primarily relate to securitizations during 2014 and 2013,
to
and as of December 2013 primarily
securitizations during 2013 and 2012.

relate

‰ The outstanding principal amount and fair value of
retained interests for other residential mortgage-backed
obligations as of December 2014 primarily relate to
resecuritizations during 2014, and prime and Alt-A
securitizations during 2007, and as of December 2013
primarily relate to prime and Alt-A securitizations during
2007 and 2006.

‰ The outstanding principal amount and fair value of
retained interests for other commercial mortgage-backed
obligations as of December 2014 primarily relate to
securitizations during 2014, and as of December 2013
primarily relate to securitizations during 2013.

‰ The outstanding principal amount and fair value of
retained interests for CDOs, CLOs and other as of
December 2014 primarily relate to securitizations during
2014 and 2007, and as of December 2013 primarily
relate to securitizations during 2007.

In addition to the interests in the tables above, the firm had
other continuing involvement in the form of derivative
transactions with certain nonconsolidated VIEs. The
carrying value of these derivatives was a net asset of
$115 million and $26 million as of December 2014 and
December 2013, respectively. The notional amounts of
these derivatives are included in maximum exposure to loss
in the nonconsolidated VIE tables in Note 12.

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

$ in millions

Fair value of retained interests
Weighted average life (years)
Constant prepayment rate
Impact of 10% adverse change
Impact of 20% adverse change
Discount rate
Impact of 10% adverse change
Impact of 20% adverse change

$ in millions

As of December 2014

Type of Retained Interests

Mortgage-Backed

Other 1

$ 2,370
7.6
13.2%
(33)
$
(66)
4.1%
(50)
(97)

59
3.6
N.M.
N.M.
N.M.
N.M.
N.M.
N.M.

As of December 2013

Type of Retained Interests

Mortgage-Backed

Other 1

$3,641
8.3
7.5%
(36)
(64)
3.9%
(85)
(164)

86
1.9
N.M.
N.M.
N.M.
N.M.
N.M.
N.M.

1. Due to the nature and current fair value of certain of these retained interests,
the weighted average assumptions for constant prepayment and discount
rates and the related sensitivity to adverse changes are not meaningful as of
December 2014 and December 2013. The firm’s maximum exposure to
adverse changes in the value of these interests is the carrying value of
$59 million and $86 million as of December 2014 and December 2013,
respectively.

In the tables above:
‰ Amounts do not reflect the benefit of other financial
instruments that are held to mitigate risks inherent in
these retained interests.

‰ Changes in fair value based on an adverse variation in
assumptions generally cannot be extrapolated because the
relationship of the change in assumptions to the change in
fair value is not usually linear.

‰ The impact of a change in a particular assumption is
in any other
calculated independently of changes
assumption.
in
changes
In practice,
assumptions might magnify or counteract the sensitivities
disclosed above.

simultaneous

‰ The constant prepayment rate is included only for
is a key assumption in the

positions for which it
determination of fair value.

‰ The discount rate for retained interests that relate to U.S.
collateralized mortgage

government
agency-issued
obligations does not include any credit loss.

‰ Expected credit loss assumptions are reflected in the

discount rate for the remainder of retained interests.

Goldman Sachs 2014 Annual Report 151

Notes to Consolidated Financial Statements

Note 12.
Variable Interest Entities

VIEs generally finance the purchase of assets by issuing debt
and equity securities that are either collateralized by or
indexed to the assets held by the VIE. The debt and equity
securities issued by a VIE may include tranches of varying
levels of subordination. The firm’s involvement with VIEs
includes securitization of financial assets, as described in
Note 11, and investments in and loans to other types of
VIEs, as described below. See Note 11 for additional
information about securitization activities, including the
definition of beneficial interests. See Note 3 for the firm’s
consolidation policies, including the definition of a VIE.

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

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

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

152 Goldman Sachs 2014 Annual Report

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

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

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

Other VIEs. Other primarily includes nonconsolidated
power-related and investment
fund VIEs. The firm
purchases debt and equity securities issued by VIEs that
hold power-related assets, and may provide commitments
to these VIEs. The firm also makes equity investments in
certain of the investment fund VIEs it manages, and is
entitled to receive fees from these VIEs. The firm typically
does not sell assets to, or enter into derivatives with, these
VIEs.

Notes to Consolidated Financial Statements

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

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

The enterprise with a controlling financial interest in a VIE
is known as the primary beneficiary and consolidates the
is the primary
VIE. The firm determines whether it
beneficiary of a VIE by performing an analysis that
principally considers:
‰ Which variable interest holder has the power to direct the
activities of the VIE that most significantly impact the
VIE’s economic performance;

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

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

‰ The VIE’s capital structure;
‰ The terms between the VIE and its variable interest

holders and other parties involved with the VIE; and

‰ Related-party relationships.

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

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

firm provides

tables

information

below present

The
about
nonconsolidated VIEs in which the firm holds variable
interests. Nonconsolidated VIEs are aggregated based on
principal business activity. The nature of the firm’s variable
interests can take different forms, as described in the rows
under maximum exposure to loss. In the tables below:
‰ The maximum exposure to loss excludes the benefit of
offsetting financial instruments that are held to mitigate
the risks associated with these variable interests.

‰ For retained and purchased interests, and loans and
the maximum exposure to loss is the

investments,
carrying value of these interests.

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

and guarantees,

commitments

The carrying values of the firm’s variable interests in
nonconsolidated VIEs are included in the consolidated
statement of financial condition as follows:
‰ Substantially all assets held by the firm related to
mortgage-backed, corporate CDO and CLO, and other
asset-backed VIEs are included in “Financial instruments
owned, at fair value.” Substantially all liabilities held by
the firm related to corporate CDO and CLO, and other
asset-backed VIEs are included in “Financial instruments
sold, but not yet purchased, at fair value;”

‰ Substantially all assets held by the firm related to real
estate, credit-related and other
investing VIEs are
included in “Financial instruments owned, at fair value,”
“Loans receivable,” and “Other assets.” Substantially all
liabilities held by the firm related to real estate, credit-
related and other
investing VIEs are included in
“Financial Instruments sold, but not yet purchased, at fair
value” and “Other liabilities and accrued expenses;” and
‰ Substantially all assets held by the firm related to other
VIEs are included in “Financial instruments owned, at
fair value.”

Goldman Sachs 2014 Annual Report 153

Notes to Consolidated Financial Statements

Nonconsolidated VIEs as of December 2014

$ in millions

Assets in VIE
Carrying Value of the Firm’s Variable Interests

Assets
Liabilities

Maximum Exposure to Loss in Nonconsolidated VIEs

Retained interests
Purchased interests
Commitments and guarantees
Derivatives 1
Loans and investments

Total

$ in millions

Assets in VIE
Carrying Value of the Firm’s Variable Interests

Assets
Liabilities

Maximum Exposure to Loss in Nonconsolidated VIEs

Retained interests
Purchased interests
Commitments and guarantees
Derivatives 1
Loans and investments

Total

4,348
—

2,370
1,978
—
392
—
$ 4,740 2

Mortgage-
backed

$86,562 2

5,269
—

3,641
1,627
—
586
—
$ 5,854 2

Mortgage-
backed

Corporate
CDOs and
CLOs

Real estate,
credit-related
and other
investing

$78,107 2

$ 8,317

$8,720

Other
asset-
backed

$8,253

509
16

55
322
213
3,221
—
$3,811

Other

$5,677

Total

$109,074

290
—

—
—
307
88
290
$ 685

8,661
22

2,429
2,484
1,124
5,754
3,341
$ 15,132

463
3

4
184
—
2,053
—
$ 2,241

3,051
3

—
—
604
—
3,051
$3,655

Nonconsolidated VIEs as of December 2013

Corporate
CDOs and
CLOs

$19,761

1,063
3

80
659
—
4,809
—
$ 5,548

Real estate,
credit-related
and other
investing

$8,599

2,756
2

—
—
485
—
2,756
$3,241

Other
asset-
backed

$4,401

284
40

6
142
—
2,115
—
$2,263

Other

$2,925

Total

$122,248

165
—

—
—
281
—
165
$ 446

9,537
45

3,727
2,428
766
7,510
2,921
$ 17,352

1. The aggregate amounts include $1.64 billion and $2.01 billion as of December 2014 and December 2013, respectively, related to derivative transactions with VIEs to

which the firm transferred assets.

2. Assets in VIE and maximum exposure to loss include $3.57 billion and $662 million, respectively, as of December 2014, and $4.55 billion and $900 million,

respectively, as of December 2013, related to CDOs backed by mortgage obligations.

154 Goldman Sachs 2014 Annual Report

Notes to Consolidated Financial Statements

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

$ in millions

Assets
Cash and cash equivalents
Cash and securities segregated for regulatory and other purposes
Loans receivable
Financial instruments owned, at fair value
Other assets
Total

Liabilities
Other secured financings
Financial instruments sold, but not yet purchased, at fair value
Unsecured short-term borrowings, including the current portion of

unsecured long-term borrowings

Unsecured long-term borrowings
Other liabilities and accrued expenses
Total

$ in millions

Assets
Cash and cash equivalents
Cash and securities segregated for regulatory and other purposes
Loans receivable
Financial instruments owned, at fair value
Other assets
Total

Liabilities
Other secured financings
Unsecured short-term borrowings, including the current portion of

unsecured long-term borrowings

Unsecured long-term borrowings
Other liabilities and accrued expenses
Total

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

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

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

Consolidated VIEs as of December 2014

Real estate,
credit-related
and other
investing

CDOs,
mortgage-backed
and other
asset-backed

Principal-
protected
notes

$ 218
19
589
2,608
349
$3,783

$ 419
10

—
12
906
$1,347

$ —
—
—
121
—
$121

$ 99
8

—
—
—
$107

$ —
31
—
276
—
$ 307

$ 439
—

1,090
103
—
$1,632

Consolidated VIEs as of December 2013

Real estate,
credit-related
and other
investing

CDOs,
mortgage-backed
and other
asset-backed

$ 183
84
50
1,309
921
$2,547

$ 417

—
57
556
$1,030

$ —
—
—
310
—
$310

$198

—
—
—
$198

Principal-
protected
notes

$ —
63
—
155
—
$ 218

$ 404

1,258
193
—
$1,855

Total

$ 218
50
589
3,005
349
$4,211

$ 957
18

1,090
115
906
$3,086

Total

$ 183
147
50
1,774
921
$3,075

$1,019

1,258
250
556
$3,083

Goldman Sachs 2014 Annual Report 155

Notes to Consolidated Financial Statements

Note 13.
Other Assets

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

Goodwill and Identifiable Intangible Assets
The tables below present the carrying values of goodwill
and identifiable intangible assets.

$ in millions

Property, leasehold improvements and

equipment

Goodwill and identifiable intangible assets
Income tax-related assets
Equity-method investments 1
Miscellaneous receivables and other 2
Total

As of December

2014

2013

$ 9,344
4,160
5,181
360
3,554
$22,599

$ 9,196
4,376
5,241
417
3,279
$22,509

1. Excludes investments accounted for at fair value under the fair value option
where the firm would otherwise apply the equity method of accounting of
$6.62 billion and $6.07 billion as of December 2014 and December 2013,
respectively, which are included in “Financial
instruments owned, at fair
value.” The firm has generally elected the fair value option for such
investments acquired after the fair value option became available.

2. Includes $461 million related to investments in qualified affordable housing

projects as of December 2014.

Property, Leasehold Improvements and Equipment
Property, leasehold improvements and equipment in the
table above is presented net of accumulated depreciation
and amortization of $8.98 billion and $9.04 billion as of
December 2014 and December 2013,
respectively.
Property, leasehold improvements and equipment included
$5.81 billion and $6.02 billion as of December 2014 and
December 2013, respectively, related to property, leasehold
improvements and equipment
the firm uses in
connection with its operations. The remainder is held by
investment entities, including VIEs, consolidated by the
firm.

that

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

$ in millions

Investment Banking:
Financial Advisory
Underwriting

Institutional Client Services:

Fixed Income, Currency and

Commodities Client Execution

Equities Client Execution
Securities Services
Investing & Lending 1
Investment Management
Total

$ in millions

Institutional Client Services:

Fixed Income, Currency and

Commodities Client Execution 2

Equities Client Execution 3

Investing & Lending 1
Investment Management
Total

Goodwill as of December

2014

2013

98
183

269
2,403
105
—
587
$3,645

98
183

269
2,404
105
60
586
$3,705

Identifiable Intangible Assets
as of December

2014

2013

$ 138
246
18
113
$ 515

35
348
180
108
$ 671

1. The decrease from December 2013 to December 2014 for goodwill and
identifiable intangible assets reflects the sale of
two consolidated
investments. The decrease in goodwill also reflects an impairment of
$22 million in connection with the sale of Metro International Trade Services
LLC (Metro). See “— Impairments” below for further information about the
impairment.

2. The increase from December 2013 to December 2014 is primarily related to

the acquisition of commodities-related intangible assets.

3. The decrease from December 2013 to December 2014 reflects an
impairment related to the firm’s exchange-traded fund lead market maker
(LMM) rights.

156 Goldman Sachs 2014 Annual Report

Notes to Consolidated Financial Statements

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

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

for impairment,

The quantitative goodwill impairment test consists of two
steps:
‰ The first step compares the estimated fair value of each
reporting unit with its estimated net book value
(including goodwill and identifiable intangible assets). If
the reporting unit’s fair value exceeds its estimated net
book value, goodwill is not impaired.

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

test,

test). When performing this

The firm performed a quantitative goodwill impairment
test during the fourth quarter of 2012 (2012 quantitative
goodwill
the firm
estimated the fair value of each reporting unit and
compared it to the respective reporting unit’s net book
value (estimated carrying value). The reporting units were
valued using relative value and residual income valuation
techniques because the firm believes market participants
would use these techniques to value the firm’s reporting
units. The net book value of each reporting unit reflected an
allocation of total shareholders’ equity and represented the
estimated amount of shareholders’ equity required to
support the activities of the reporting unit under guidelines
issued by the Basel Committee on Banking Supervision
(Basel Committee) in December 2010. In performing its
2012 quantitative goodwill test, the firm determined that
goodwill was not impaired, and the estimated fair value of
the firm’s reporting units, in which substantially all of the
firm’s goodwill
significantly exceeded their
estimated carrying values.

is held,

During the fourth quarter of 2014, the firm assessed
goodwill for impairment. Multiple factors were assessed
with respect to each of the firm’s reporting units to
determine whether it was more likely than not that the fair
value of any of the reporting units was less than its carrying
amount. The qualitative assessment also considered
changes since the 2012 quantitative goodwill test.

In accordance with ASC 350, the firm considered the
following factors in the 2014 qualitative assessment
performed in the fourth quarter when evaluating whether it
was more likely than not that the fair value of a reporting
unit was less than its carrying amount:
‰ Macroeconomic

2012
quantitative goodwill test was performed, the firm’s
general operating environment
improved as credit
increased
spreads
significantly, and industry-wide mergers and acquisitions
activity, and industry-wide debt and equity underwriting
activity, improved.

equity prices

conditions.

tightened,

global

Since

the

‰ Industry and market considerations. Since the 2012
quantitative goodwill test was performed, industry-wide
metrics have trended positively and most publicly-traded
including the firm, experienced
industry participants,
increases in stock price, price-to-book multiples and
price-to-earnings multiples.
In addition, clarity was
obtained on a number of regulations and other reforms
have been adopted or proposed by regulators. Many of
these rules are highly complex and their full impact will
not be known until the rules are implemented and market
practices develop under the final regulations. However,
the firm does not expect compliance to have a significant
negative impact on reporting unit results.

‰ Cost factors. Although certain expenses increased, there
were no significant negative changes to the firm’s overall
cost structure since the 2012 quantitative goodwill test
was performed.

‰ Overall financial performance. During 2014, the firm’s
net earnings, pre-tax margin, diluted earnings per
common share, return on average common shareholders’
equity and book value per common share increased as
compared with 2012.

Goldman Sachs 2014 Annual Report 157

Notes to Consolidated Financial Statements

‰ Entity-specific events. There were no entity-specific
events since the 2012 quantitative goodwill test was
performed that would have had a significant negative
impact on the valuation of the firm’s reporting units.

‰ Events affecting reporting units. There were no events
since the 2012 quantitative goodwill test was performed
that would have had a significant negative impact on the
valuation of the firm’s reporting units.

‰ Sustained changes in stock price. Since the 2012
quantitative goodwill test was performed, the firm’s stock
price has increased significantly. In addition, the stock
price exceeded book value per common share throughout
most of 2013 and 2014.

The firm also considered other factors in its qualitative
including changes in the book value of
assessment,
reporting units, the estimated excess of the fair values as
compared with the carrying values for the reporting units in
the 2012 quantitative goodwill test, projected earnings and
the cost of equity. The firm considered all of the above
factors in the aggregate as part of its qualitative assessment.

As a result of the 2014 qualitative assessment, the firm
determined that it was more likely than not that the fair
value of each of the reporting units exceeded its respective
carrying amount. Therefore, the firm determined that
goodwill was not impaired and that a quantitative goodwill
impairment test was not required.

158 Goldman Sachs 2014 Annual Report

Identifiable Intangible Assets. The table below presents
the gross carrying amount, accumulated amortization and
net carrying amount of identifiable intangible assets and
their weighted average remaining useful lives.

$ in millions

Customer lists
Gross carrying amount
Accumulated amortization
Net carrying amount

Commodities-related 1
Gross carrying amount
Accumulated amortization
Net carrying amount

Other
Gross carrying amount 2
Accumulated amortization 2
Net carrying amount

Total
Gross carrying amount
Accumulated amortization
Net carrying amount

2014

$1,036
(715)
321

216
(78)
138

200
(144)
56

1,452
(937)
$ 515

As of December

Weighted Average
Remaining Useful
Lives (years)

2013

$ 1,102
(706)
396

510
(341)
169

906
(800)
106

2,518
(1,847)
$ 671

1. Includes commodities-related transportation rights, customer contracts and

relationships, and permits.

2. The decrease from December 2013 to December 2014 is primarily due to the
sale of the firm’s New York Stock Exchange Designated Market Maker rights
in August 2014.

Substantially all of the firm’s identifiable intangible assets
are considered to have finite useful lives and are amortized
lives using the straight-line
over their estimated useful
certain
method or based on economic usage
commodities-related intangibles.

for

The tables below present amortization for 2014, 2013 and
2012, and the estimated future amortization through 2019
for identifiable intangible assets.

$ in millions

Amortization

Year Ended December

2014

2013

2012

$217

$205

$338

$ in millions
Estimated future amortization

As of
December 2014

2015
2016
2017
2018
2019

$117
106
96
81
53

Notes to Consolidated Financial Statements

events

changes

impairment whenever

Impairments
The firm tests property,
leasehold improvements and
equipment, identifiable intangible assets and other assets
for
in
circumstances suggest that an asset’s or asset group’s
carrying value may not be fully recoverable. To the extent
the carrying value of an asset exceeds the projected
undiscounted cash flows expected to result from the use
and eventual disposal of the asset or asset group, the firm
determines the asset is impaired and records an impairment
equal to the difference between the estimated fair value and
the carrying value of the asset or asset group. In addition,
the firm will recognize an impairment prior to the sale of an
asset if the carrying value of the asset exceeds its estimated
fair value.

During 2014 and 2013, primarily as a result of
deterioration in market and operating conditions related to
certain of the firm’s consolidated investments and the firm’s
LMM rights, the firm determined that certain assets were
impaired and recorded impairments of $360 million and
$216 million, respectively.
‰ In 2014, these impairments consisted of $268 million
related to property,
leasehold improvements and
equipment, substantially all of which was attributable to
a consolidated investment in Latin America, $70 million
related to identifiable
intangible assets, primarily
attributable to the firm’s LMM rights, and $22 million
related to goodwill as a result of the sale of Metro. The
impairments related to property, leasehold improvements
and equipment and goodwill were included in the firm’s
Investing & Lending segment and the impairments
related to identifiable intangible assets were principally
included in the firm’s
Institutional Client Services
segment.

‰ In 2013, these impairments consisted of $160 million
related to property,
leasehold improvements and
equipment and $56 million related to identifiable
intangible assets primarily attributable to a consolidated
investment in Latin America. Substantially all of these
impairments were included in the firm’s Investing &
Lending segment.

The impairments in both 2014 and 2013 were included in
“Depreciation and amortization” and represented the
excess of the carrying values of these assets over their
estimated fair values, substantially all of which are
calculated using level 3 measurements. These fair values
were calculated using a combination of discounted cash
flow analyses and relative value analyses, including the
estimated cash flows expected to result from the use and
eventual disposition of these assets.

Goldman Sachs 2014 Annual Report 159

Notes to Consolidated Financial Statements

Note 14.
Deposits

The table below presents deposits held in U.S. and non-U.S.
offices, substantially all of which were interest-bearing.
Substantially all U.S. deposits were held at Goldman Sachs
Bank USA (GS Bank USA) and substantially all non-U.S.
deposits were held at Goldman Sachs International Bank
(GSIB).

$ in millions

U.S. offices
Non-U.S. offices
Total

As of December

2014

2013

$69,270
13,738
$83,008

$61,016
9,791
$70,807

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

$ in millions

2015
2016
2017
2018
2019
2020 - thereafter
Total

As of December 2014

U.S.

Non-U.S.

Total

$ 6,478
3,755
4,067
2,410
2,898
5,661
$25,269 1

$8,395
8
—
—
—
43

$8,446 2

$14,873
3,763
4,067
2,410
2,898
5,704
$33,715 3

1. Includes $1.57 billion greater than $100,000, of which $198 million matures
within three months, $937 million matures within three to six months,
$170 million matures within six to twelve months, and $266 million matures
after twelve months.

2. Includes $6.51 billion greater than $100,000.

3. Includes $13.52 billion of time deposits accounted for at fair value under the
information about deposits

further

fair value option. See Note 8 for
accounted for at fair value.

fair value.

As of December 2014 and December 2013, deposits include
$49.29 billion and $46.02 billion, respectively, of savings
and demand deposits, which have no stated maturity, and
were recorded based on the amount of cash received plus
accrued interest, which approximates
In
addition, the firm designates certain derivatives as fair value
hedges to convert substantially all of its time deposits not
accounted for at fair value from fixed-rate obligations into
floating-rate obligations. Accordingly, the carrying value of
time deposits approximated fair value as of December 2014
and December 2013. While these savings and demand
deposits and time deposits are carried at amounts that
approximate fair value, they are not accounted for at fair
value under the fair value option or at fair value in
accordance with other U.S. GAAP and therefore are not
included in the firm’s fair value hierarchy in Notes 6
through 8. Had these deposits been included in the firm’s
fair value hierarchy, they would have been classified in
level 2 as of December 2014 and December 2013.

160 Goldman Sachs 2014 Annual Report

Note 15.
Short-Term Borrowings

The table below presents details about the firm’s short-term
borrowings.

$ in millions

Other secured financings (short-term)
Unsecured short-term borrowings
Total

As of December

2014

2013

$15,560
44,540
$60,100

$17,290
44,692
$61,982

See Note 10 for
financings.

information about other

secured

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

The firm accounts for promissory notes, commercial paper
and certain hybrid financial instruments at fair value under
the fair value option. See Note 8 for further information
about unsecured short-term borrowings that are accounted
for at fair value. The carrying value of unsecured short-term
borrowings that are not recorded at fair value generally
approximates fair value due to the short-term nature of the
obligations. While these unsecured short-term borrowings
are carried at amounts that approximate fair value, they are
not accounted for at fair value under the fair value option
or at fair value in accordance with other U.S. GAAP and
therefore are not included in the firm’s fair value hierarchy
in Notes 6 through 8. Had these borrowings been included
in the firm’s fair value hierarchy, substantially all would
have been classified in level 2 as of December 2014 and
December 2013.

The table below presents details about the firm’s unsecured
short-term borrowings.

$ in millions

Current portion of unsecured long-term

borrowings 1

Hybrid financial instruments
Promissory notes
Commercial paper
Other short-term borrowings
Total

As of December

2014

2013

$25,126
14,083
338
617
4,376
$44,540

$25,312
13,391
292
1,011
4,686
$44,692

Weighted average interest rate 2

1.52%

1.65%

1. Includes $23.82 billion and $24.20 billion as of December 2014 and

December 2013, respectively, issued by Group Inc.

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

Notes to Consolidated Financial Statements

Note 16.
Long-Term Borrowings

The table below presents details about the firm’s long-term
borrowings.

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

$ in millions

2014

2013

$ in millions

Group Inc.

Subsidiaries

Total

As of December

As of December 2014

Other secured financings (long-term)
Unsecured long-term borrowings
Total

7,249
167,571
$174,820

7,524
160,965
$168,489

information about other

secured
See Note 10 for
financings. The tables below present unsecured long-term
borrowings
extending through 2061 and consisting
principally of senior borrowings.

$ in millions

Fixed-rate obligations 1

Group Inc.
Subsidiaries

Floating-rate obligations 2

Group Inc.
Subsidiaries

Total

$ in millions

Fixed-rate obligations 1

Group Inc.
Subsidiaries

Floating-rate obligations 2

Group Inc.
Subsidiaries

Total

As of December 2014

U.S.
Dollar

Non-U.S.
Dollar

Total

$ 86,403
3,074

$34,146
711

$120,549
3,785

23,402
4,139
$117,018

14,615
1,081
$50,553

38,017
5,220
$167,571

As of December 2013

U.S.
Dollar

Non-U.S.
Dollar

Total

$ 83,537
1,978

$34,362
989

$117,899
2,967

19,446
3,144
$108,105

16,168
1,341
$52,860

35,614
4,485
$160,965

1. Interest

rates on U.S. dollar-denominated debt

ranged from 1.55% to
10.04% (with a weighted average rate of 5.08%) and 1.35% to 10.04% (with
a weighted average rate of 5.19%)
as of December 2014 and
December 2013, respectively. Interest rates on non-U.S. dollar-denominated
debt ranged from 0.02% to 13.00% (with a weighted average rate of 4.06%)
and 0.33% to 13.00% (with a weighted average rate of 4.29%) as of
December 2014 and December 2013, respectively.

2. Floating interest rates generally are based on LIBOR or OIS. Equity-linked

and indexed instruments are included in floating-rate obligations.

2016
2017
2018
2019
2020 - thereafter
Total 1

$ 22,368
20,818
22,564
14,718
78,098
$158,566

$ 789
367
1,272
1,791
4,786
$9,005

$ 23,157
21,185
23,836
16,509
82,884
$167,571

1. Includes $9.54 billion of adjustments to the carrying value of certain
unsecured long-term borrowings resulting from the application of hedge
accounting by year of maturity as follows: $485 million in 2016, $738 million
in 2017, $816 million in 2018, $459 million in 2019 and $7.04 billion in 2020
and thereafter.

In the table above:
‰ Unsecured long-term borrowings maturing within one
year of the financial statement date and unsecured long-
term borrowings that are redeemable within one year of
the financial statement date at the option of the holders
are excluded from the table as they are included as
unsecured short-term borrowings.

‰ Unsecured long-term borrowings that are repayable prior
to maturity at the option of the firm are reflected at their
contractual maturity dates.

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

The firm designates certain derivatives as fair value hedges
to convert a substantial portion of its fixed-rate unsecured
long-term borrowings not accounted for at fair value into
excluding the
floating-rate obligations. Accordingly,
cumulative impact of changes in the firm’s credit spreads,
the carrying value of unsecured long-term borrowings
approximated fair value as of December 2014 and
December 2013. See Note 7 for further information about
hedging activities. For unsecured long-term borrowings for
which the firm did not elect the fair value option, the
cumulative impact due to changes in the firm’s own credit
spreads would be an increase of 2% and 3% in the carrying
value of
total unsecured long-term borrowings as of
December 2014 and December 2013, respectively. As these
borrowings are not accounted for at fair value under the
fair value option or at fair value in accordance with other
U.S. GAAP, their fair value is not included in the firm’s fair
value hierarchy in Notes 6 through 8. Had these
borrowings been included in the firm’s fair value hierarchy,
substantially all would have been classified in level 2 as of
December 2014 and December 2013.

Goldman Sachs 2014 Annual Report 161

Notes to Consolidated Financial Statements

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

$ in millions

Group Inc.

Subsidiaries

Total

As of December 2014

Fixed-rate obligations

At fair value
At amortized cost 1
Floating-rate obligations

At fair value
At amortized cost 1

Total

—
31,296

11,661
115,609
$158,566

$ 861
2,452

861
33,748

3,483
2,209
$9,005

15,144
117,818
$167,571

$ in millions

Group Inc.

Subsidiaries

Total

As of December 2013

Fixed-rate obligations

At fair value
At amortized cost 1
Floating-rate obligations

At fair value
At amortized cost 1

Total

—
31,741

8,671
113,101
$153,513

$ 471
1,959

471
33,700

2,549
2,473
$7,452

11,220
115,574
$160,965

1. The weighted average interest rates on the aggregate amounts were 2.68%
(5.09% related to fixed-rate obligations and 2.01% related to floating-rate
obligations) and 2.73% (5.23% related to fixed-rate obligations and 2.04%
2014
related
and
of December
December 2013, respectively. These rates exclude financial
instruments
accounted for at fair value under the fair value option.

floating-rate

obligations)

Subordinated Borrowings
Unsecured long-term borrowings include subordinated debt
and junior subordinated debt. Junior subordinated debt is
junior in right of payment to other subordinated borrowings,
which are junior to senior borrowings. As of December 2014
and December 2013, subordinated debt had maturities
ranging from 2017 to 2038, and 2015 to 2038, respectively.
The tables below present subordinated borrowings.

$ in millions

Subordinated debt 2
Junior subordinated debt
Total subordinated borrowings

$ in millions

Subordinated debt 2
Junior subordinated debt
Total subordinated borrowings

As of December 2014

Par
Amount

$14,254
1,582
$15,836

Carrying
Amount

$17,241
2,122
$19,363

Rate 1

3.77%
6.21%
4.02%

As of December 2013

Par
Amount

$14,508
2,835
$17,343

Carrying
Amount

$16,982
3,760
$20,742

Rate 1

4.16%
4.79%
4.26%

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

2. Par amount and carrying amount of subordinated debt issued by Group Inc.
was $13.68 billion and $16.67 billion, respectively, as of December 2014, and
$13.94 billion and $16.41 billion, respectively, as of December 2013.

162 Goldman Sachs 2014 Annual Report

Junior Subordinated Debt
Junior Subordinated Debt Held by 2012 Trusts. In
2012, the Vesey Street Investment Trust I and the Murray
Street Investment Trust I (together, the 2012 Trusts) issued
an aggregate of $2.25 billion of senior guaranteed trust
securities to third parties. The proceeds of that offering
were used to purchase $1.75 billion of junior subordinated
debt issued by Group Inc. that pays interest semi-annually
at a fixed annual rate of 4.647% and matures on
March 9, 2017, and $500 million of junior subordinated
debt issued by Group Inc. that pays interest semi-annually
at a fixed annual rate of 4.404% and matures on
September 1, 2016. During 2014, the firm exchanged
$175 million of the senior guaranteed trust securities held
by the firm for $175 million of junior subordinated debt
held by the Murray Street Investment Trust I. Following the
exchange, these senior guaranteed trust securities and
junior subordinated debt were extinguished.

The 2012 Trusts purchased the junior subordinated debt
from Goldman Sachs Capital II and Goldman Sachs Capital
III (APEX Trusts). The APEX Trusts used the proceeds
from such sales to purchase shares of Group Inc.’s
Perpetual Non-Cumulative Preferred Stock, Series E
(Series E Preferred Stock) and Perpetual Non-Cumulative
Preferred Stock, Series F (Series F Preferred Stock). See
Note 19 for more information about the Series E and
Series F Preferred Stock.

The 2012 Trusts are required to pay distributions on their
senior guaranteed trust securities in the same amounts and
on the same dates that they are scheduled to receive interest
on the junior subordinated debt they hold, and are required
to redeem their respective senior guaranteed trust securities
upon the maturity or earlier redemption of the junior
subordinated debt they hold.

The firm has the right to defer payments on the junior
subordinated debt, subject to limitations. During any such
deferral period, the firm will not be permitted to, among
other things, pay dividends on or make certain repurchases
of its common or preferred stock. However, as Group Inc.
fully and unconditionally guarantees the payment of the
distribution and redemption amounts when due on a senior
basis on the senior guaranteed trust securities issued by the
if the 2012 Trusts are unable to make
2012 Trusts,
the senior
scheduled distributions to the holders of
guaranteed trust securities, under the guarantee, Group Inc.
would be obligated to make those payments. As such, the
$2.08 billion of junior subordinated debt held by the 2012
Trusts for the benefit of investors, included in “Unsecured
long-term borrowings” in the consolidated statements of
financial condition,
is not classified as subordinated
borrowings.

Notes to Consolidated Financial Statements

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

debt

subordinated

6.345% junior

The firm has covenanted in favor of the holders of Group
Inc.’s
due
February 15, 2034, that, subject to certain exceptions, the
firm will not redeem or purchase the capital securities
issued by the APEX Trusts or shares of Group Inc.’s
Series E or Series F Preferred Stock prior to specified dates
in 2022 for a price that exceeds a maximum amount
determined by reference to the net cash proceeds that the
firm has received from the sale of qualifying securities.

Inc.

Preferred Securities. Group

Junior Subordinated Debt Issued in Connection with
Trust
issued
$2.84 billion of junior subordinated debt in 2004 to
Goldman Sachs Capital I (Trust), a Delaware statutory
trust. The Trust
issued $2.75 billion of guaranteed
preferred beneficial interests (Trust Preferred Securities) to
third parties and $85 million of common beneficial interests
to Group Inc. and used the proceeds from the issuances to
purchase the junior subordinated debt from Group Inc.
During the second quarter of 2014, the firm purchased
$1.22 billion (par amount) of Trust Preferred Securities and
delivered these securities, along with $37.6 million of
common beneficial
interests, to the Trust in the third
quarter of 2014 in exchange for a corresponding par
amount of the junior subordinated debt. Following the
these Trust Preferred Securities, common
exchange,
beneficial
interests and junior subordinated debt were
extinguished and the firm recognized a gain of $289 million
($270 million of which was recorded at extinguishment in
the third quarter of 2014), which is included in “Market
making” in the consolidated statements of earnings.
Subsequent to this exchange, during the second half of
2014, the firm purchased $214 million (par amount) of
Trust Preferred Securities and delivered these securities,
along with $6.6 million of common beneficial interests, to
the Trust in February 2015 in exchange for a corresponding
par amount of the junior subordinated debt. The Trust is a
wholly-owned finance subsidiary of the firm for regulatory
and legal purposes but is not consolidated for accounting
purposes.

interest

to defer payment of

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

its common stock. The Trust

Note 17.
Other Liabilities and Accrued Expenses

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

$ in millions

Compensation and benefits
Noncontrolling interests 1
Income tax-related liabilities
Employee interests in consolidated funds
Subordinated liabilities issued by

consolidated VIEs

Accrued expenses and other
Total

1. Primarily relates to consolidated investment funds.

As of December

2014

2013

$ 8,368
404
1,533
176

$ 7,874
326
1,974
210

843
4,751
$16,075

477
5,183
$16,044

Goldman Sachs 2014 Annual Report 163

Notes to Consolidated Financial Statements

Note 18.
Commitments, Contingencies and Guarantees

Commitments
The table below presents the firm’s commitments.

$ in millions

Commitments to extend credit
Commercial lending:
Investment-grade
Non-investment-grade

Warehouse financing
Total commitments to extend credit
Contingent and forward starting resale and securities borrowing

agreements

Forward starting repurchase and secured lending agreements
Letters of credit
Investment commitments
Other
Total commitments

Commitments to Extend Credit
The firm’s commitments to extend credit are agreements to
lend with fixed termination dates and depend on the
satisfaction of all contractual conditions to borrowing.
These
commitments are presented net of amounts
syndicated to third parties. The total commitment amount
does not necessarily reflect actual future cash flows because
the firm may syndicate all or substantial additional portions
In addition, commitments can
of
expire unused or be reduced or cancelled at
the
counterparty’s request.

these commitments.

As of December 2014 and December 2013, $66.22 billion
and $35.66 billion, respectively, of the firm’s lending
commitments were held for investment and were accounted
for on an accrual basis. See Note 9 for further information
about such commitments.

Commitment Amount by Period
of Expiration as of December 2014

Total Commitments
as of December

2015

2016 -
2017

2018 -
2019

2020 -
Thereafter

2014

2013

$ 9,712
4,136
1,306
15,154

34,343
8,180
280
1,684
6,136
$65,777

$15,003
7,080
1,152
23,235

557
—
14
2,818
87
$26,711

$36,200
14,111
112
50,423

325
—
10
25
42
$50,825

$2,719
4,278
140
7,137

—
—
4
637
56
$7,834

$ 63,634
29,605
2,710
95,949

35,225
8,180
308
5,164
6,321
$151,147

$ 60,499
25,412
1,716
87,627

34,410
8,256
501
7,116
3,955
$141,865

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

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

164 Goldman Sachs 2014 Annual Report

Notes to Consolidated Financial Statements

Sumitomo Mitsui Financial Group, Inc. (SMFG) provides
the firm with credit loss protection on certain approved
loan commitments (primarily investment-grade commercial
lending commitments). The notional amount of such loan
commitments was $27.51 billion and $29.24 billion as of
December 2014 and December 2013, respectively. The
credit loss protection on loan commitments provided by
SMFG is generally limited to 95% of the first loss the firm
realizes on such commitments, up to a maximum of
approximately $950 million. In addition, subject to the
satisfaction of certain conditions, upon the firm’s request,
SMFG will provide protection for 70% of additional losses
on such commitments, up to a maximum of $1.13 billion,
of which $768 million and $870 million of protection had
been provided as of December 2014 and December 2013,
respectively. The firm also uses other financial instruments
to mitigate credit risks related to certain commitments not
covered by SMFG. These instruments primarily include
credit default swaps that reference the same or similar
underlying instrument or entity, or credit default swaps that
reference a market index.

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

Contingent and Forward Starting Resale and
Securities Borrowing Agreements/Forward Starting
Repurchase and Secured Lending Agreements
The firm enters into resale and securities borrowing
agreements and repurchase and secured lending agreements
that settle at a future date, generally within three business
days. The firm also enters into commitments to provide
contingent
financing to its clients and counterparties
through resale agreements. The firm’s funding of these
commitments depends on the satisfaction of all contractual
conditions to the resale agreement and these commitments
can expire unused.

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

Investment Commitments
The firm’s investment commitments of $5.16 billion and
$7.12 billion as of December 2014 and December 2013,
respectively,
include commitments to invest in private
equity, real estate and other assets directly and through
funds that the firm raises and manages. Of these amounts,
$2.87 billion and $5.48 billion as of December 2014 and
December 2013, respectively, relate to commitments to
invest in funds managed by the firm. If these commitments
are called, they would be funded at market value on the
date of investment.

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

$ in millions

2015
2016
2017
2018
2019
2020 - thereafter
Total

As of
December 2014

$ 321
292
274
226
190
870
$2,173

Rent charged to operating expense was $309 million for
2014, $324 million for 2013 and $374 million for 2012.

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

Goldman Sachs 2014 Annual Report 165

Notes to Consolidated Financial Statements

Contingencies
Legal Proceedings. See Note 27 for information about
legal proceedings,
including certain mortgage-related
matters, and agreements the firm has entered into to toll the
statute of limitations.

Certain Mortgage-Related Contingencies. There are
multiple areas of
focus by regulators, governmental
agencies and others within the mortgage market that may
impact originators, issuers, servicers and investors. There
remains significant uncertainty surrounding the nature and
extent of any potential exposure for participants in this
market.
‰ Representations and Warranties. The firm has not
been a significant originator of residential mortgage
loans. The firm did purchase loans originated by others
and generally received loan-level representations of the
type described below from the originators. During the
period 2005 through 2008, the firm sold approximately
$10 billion of loans to government-sponsored enterprises
and approximately $11 billion of loans to other third
parties. In addition, the firm transferred loans to trusts
and other mortgage securitization vehicles. As of
December 2014 and December 2013, the outstanding
balance of the loans transferred to trusts and other
mortgage securitization vehicles during the period 2005
through 2008 was approximately $25 billion and
$29 billion, respectively. These amounts reflect paydowns
and cumulative losses of approximately $100 billion
($23 billion of which are cumulative losses) as of
December 2014 and approximately $96 billion
($22 billion of which are cumulative losses) as of
December 2013. A small number of these Goldman
Sachs-issued securitizations with an outstanding principal
balance of $401 million and total paydowns and
cumulative losses of $1.66 billion ($550 million of which
are cumulative losses) as of December 2014, and an
outstanding principal balance of $463 million and total
paydowns and cumulative losses of $1.60 billion
($534 million of which are cumulative losses) as of
December 2013, were structured with credit protection
obtained from monoline insurers. In connection with
both sales of loans and securitizations, the firm provided
loan level representations of the type described below
and/or assigned the loan level representations from the
party from whom the firm purchased the loans.

166 Goldman Sachs 2014 Annual Report

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

(ii)

loans

based

alleged

breaches

third parties,

The firm has received repurchase claims for residential
mortgage
of
representations from government-sponsored enterprises,
other
and other mortgage
trusts
securitization vehicles, which have not been significant.
During both the years ended December 2014 and
December 2013, the firm repurchased loans with an
unpaid principal balance of less than $10 million and
related losses were not material. The firm has received a
communication from counsel purporting to represent
certain institutional investors in portions of Goldman
Sachs-issued securitizations between 2003 and 2007,
such securitizations having a total original notional face
amount of approximately $150 billion, offering to enter
into a “settlement dialogue” with respect to alleged
breaches of representations made by Goldman Sachs in
connection with such offerings.

Ultimately, the firm’s exposure to claims for repurchase
of residential mortgage loans based on alleged breaches of
representations will depend on a number of factors
including the following: (i) the extent to which these
claims are actually made within the statute of limitations
taking into consideration the agreements to toll the
statute of limitations the firm has entered into with
trustees representing trusts; (ii) the extent to which there
are underlying breaches of representations that give rise
to valid claims for repurchase; (iii) in the case of loans
originated by others, the extent to which the firm could be
held liable and, if it is, the firm’s ability to pursue and
collect on any claims against the parties who made
representations to the firm; (iv) macroeconomic factors,
including developments in the residential real estate
market; and (v) legal and regulatory developments. Based
upon the large number of defaults
in residential
mortgages, including those sold or securitized by the firm,
there is a potential for increasing claims for repurchases.
However, the firm is not in a position to make a
meaningful estimate of that exposure at this time.

Notes to Consolidated Financial Statements

‰ Foreclosure and Other Mortgage Loan Servicing
Practices and Procedures. The firm had received a
number of requests for information from regulators and
other agencies,
including state attorneys general and
banking regulators, as part of an industry-wide focus on
the practices of lenders and servicers in connection with
foreclosure proceedings and other aspects of mortgage
loan servicing practices and procedures. The requests
sought information about the foreclosure and servicing
protocols and activities of Litton Loan Servicing LP
(Litton), a residential mortgage servicing subsidiary sold
by the firm to Ocwen Financial Corporation (Ocwen) in
the third quarter of 2011. The firm is cooperating with
the requests and these inquiries may result
in the
imposition of fines or other regulatory action.

representations

and warranties,

In connection with the sale of Litton, the firm provided
customary
and
indemnities for breaches of these representations and
warranties, to Ocwen. These indemnities are subject to
various limitations, and are capped at approximately
$50 million. The firm has not yet received any claims
under these indemnities. The firm also agreed to provide
specific indemnities to Ocwen related to claims made by
third parties with respect to servicing activities during the
period that Litton was owned by the firm and which are
in excess of the related reserves accrued for such matters
by Litton at the time of the sale. These indemnities are
capped at approximately $125 million. The firm has
recorded a reserve for the portion of these potential losses
that
it believes is probable and can be reasonably
estimated. As of December 2014, claims received and
payments made in connection with these claims were not
material to the firm.

The firm further agreed to provide indemnities to Ocwen
not subject to a cap, which primarily relate to potential
liabilities constituting fines or civil monetary penalties
which could be imposed in settlements with U.S. states’
attorneys general or in consent orders with the U.S.
federal bank regulatory agencies or the New York State
Department of Financial Services, in each case relating to
Litton’s foreclosure and servicing practices while it was
owned by the firm. The firm has entered into a settlement
with the Federal Reserve Board relating to foreclosure
and servicing matters.

lender-placed mortgage

Under the Litton sale agreement the firm also retained
liabilities associated with claims related to Litton’s failure
to maintain
insurance,
obligations to repurchase certain loans from government-
sponsored enterprises, subpoenas from one of Litton’s
regulators, and fines or civil penalties imposed by the
Federal Reserve Board or
the New York State
Department of Financial Services in connection with
certain compliance matters. Management does not
believe, based on currently available information, that
any payments under these indemnities will have a
material adverse effect on the firm’s financial condition.

Other Contingencies. In connection with the sale of
Metro, the firm provided customary representations and
warranties, and indemnities
these
representations and warranties, to the buyer. The firm
further agreed to provide indemnities to the buyer, which
primarily relate to potential liabilities for legal or regulatory
proceedings arising out of the conduct of Metro’s business
while it was owned by the firm.

for breaches of

Goldman Sachs 2014 Annual Report 167

Notes to Consolidated Financial Statements

Guarantees
Derivative Guarantees. The firm enters into various
derivatives that meet the definition of a guarantee under
U.S. GAAP, including written equity and commodity put
options, written currency contracts and interest rate caps,
floors and swaptions. These derivatives are risk managed
together with derivatives that do not meet the definition of
a guarantee, and therefore the amounts in the tables below
do not reflect the firm’s overall risk related to its derivative
activities. Disclosures about derivatives are not required if
they may be cash settled and the firm has no basis to
conclude it is probable that the counterparties held the
underlying instruments at inception of the contract. The
firm has concluded that these conditions have been met for
commercial and
certain large,
investment
clearing
central
counterparties.
certain
counterparties
Accordingly, the firm has not included such contracts in the
tables below.

internationally active

counterparties,

other

bank

and

Derivatives are accounted for at fair value and therefore the
carrying value is considered the best indication of payment/
performance risk for individual contracts. However, the
carrying values in the tables below exclude the effect of
counterparty and cash collateral netting.

Securities Lending Indemnifications. The firm, in its
capacity as an agency lender,
indemnifies most of its
securities lending customers against losses incurred in the
event that borrowers do not return securities and the
collateral held is insufficient to cover the market value of
the securities borrowed. Collateral held by the lenders in
connection with securities lending indemnifications was
$28.49 billion and $27.14 billion as of December 2014 and
December 2013, respectively. Because the contractual
nature of these arrangements requires the firm to obtain
collateral with a market value that exceeds the value of the
is minimal
securities
performance risk associated with these guarantees.

to the borrower,

there

lent

168 Goldman Sachs 2014 Annual Report

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

to enable clients

guarantees).

and

The tables below present
information about certain
derivatives that meet the definition of a guarantee, securities
lending indemnifications and certain other guarantees. The
maximum payout in the tables below is based on the
notional amount of the contract and therefore does not
represent anticipated losses. See Note 7 for information
about credit derivatives that meet the definition of a
guarantee which are not included below. The tables below
also exclude certain commitments to issue standby letters of
that are included in “Commitments to extend
credit
credit.” See the table in “Commitments” above for a
summary of the firm’s commitments.

$ in millions

Derivatives

Carrying Value of Net

As of December 2014

Securities
lending
indemnifications

Other
financial
guarantees

Liability

$ 11,201

—

$ 119

Maximum Payout/Notional Amount by Period of Expiration
2015
2016 - 2017
2018 - 2019
2020 - Thereafter
Total

$351,308
150,989
51,927
58,511
$612,735

$27,567
—
—
—
$27,567

$ 471
935
1,390
1,690
$4,486

$ in millions

Derivatives

Carrying Value of Net

As of December 2013

Securities
lending
indemnifications

Other
financial
guarantees

Liability

7,634

—

$ 213

Maximum Payout/Notional Amount by Period of Expiration
2014
2015 - 2016
2017 - 2018
2019 - Thereafter
Total

$517,634
180,543
39,367
57,736
$795,280

$26,384
—
—
—
$26,384

$1,361
620
1,140
1,046
$4,167

Notes to Consolidated Financial Statements

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

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

that

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

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

The firm may also be liable to some clients or other parties,
for losses arising from its custodial role or caused by acts or
omissions of third-party service providers, including sub-
custodians and third-party brokers. In certain cases, the
firm has the right to seek indemnification from these third-
party service providers for certain relevant losses incurred
by the firm. In addition, the firm is a member of payment,
clearing and settlement networks as well as securities
exchanges around the world that may require the firm to
meet the obligations of such networks and exchanges in the
event of member defaults and other loss scenarios.

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

The firm is unable to develop an estimate of the maximum
payout under
these guarantees and indemnifications.
However, management believes that it is unlikely the firm
will have to make any material payments under these
arrangements, and no material liabilities related to these
guarantees and indemnifications have been recognized in
the consolidated statements of financial condition as of
December 2014 and December 2013.

Warranties

Representations,

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

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

These indemnifications generally are standard contractual
terms and are entered into in the ordinary course of
business. Generally,
there are no stated or notional
amounts included in these indemnifications, and the
contingencies triggering the obligation to indemnify are not
expected to occur. The firm is unable to develop an estimate
of
the maximum payout under these guarantees and
indemnifications. However, management believes that it is
unlikely the firm will have to make any material payments
under these arrangements, and no material liabilities related
to these arrangements have been recognized in the
consolidated statements of
financial condition as of
December 2014 and December 2013.

Goldman Sachs 2014 Annual Report 169

Notes to Consolidated Financial Statements

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

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

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

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

Note 19.
Shareholders’ Equity

Common Equity
Dividends declared per common share were $2.25 in 2014,
$2.05 in 2013 and $1.77 in 2012. On January 15, 2015,
Group Inc. declared a dividend of $0.60 per common share
to be paid on March 30, 2015 to common shareholders of
record on March 2, 2015.

The firm’s share repurchase program is intended to help
maintain the appropriate level of common equity. The
share repurchase program is effected primarily through
regular open-market purchases
(which may include
repurchase plans designed to comply with Rule 10b5-1),
the amounts and timing of which are determined primarily
by the firm’s current and projected capital position, but
which may also be influenced by general market conditions
and the prevailing price and trading volumes of the firm’s
common stock. Prior to repurchasing common stock, the
firm must receive confirmation that the Federal Reserve
Board does not object to such capital actions.

The table below presents the amount of common stock
repurchased by the firm under the share repurchase
program during 2014, 2013 and 2012.

Year Ended December

in millions, except per share amounts

2014

2013

2012

Common share repurchases
Average cost per share
Total cost of common share

repurchases

31.8
$171.79

39.3
$157.11

42.0
$110.31

$ 5,469

$ 6,175

$ 4,637

Pursuant to the terms of certain share-based compensation
plans, employees may remit shares to the firm or the firm
may cancel restricted stock units (RSUs) or stock options to
satisfy minimum statutory employee tax withholding
requirements and the exercise price of stock options. Under
these plans, during 2014, 2013 and 2012, employees
remitted 174,489 shares, 161,211 shares and 33,477 shares
with a total value of $31 million, $25 million and
$3 million, and the firm cancelled 5.8 million, 4.0 million
and 12.7 million of RSUs with a total value of $974 million,
$599 million and $1.44 billion. Under these plans, the firm
also cancelled 15.6 million stock options with a total value
of $2.65 billion during 2014.

170 Goldman Sachs 2014 Annual Report

Notes to Consolidated Financial Statements

Preferred Equity
The tables below present details about
preferred
December 2014.

issued

stock

and

the perpetual
of
as

outstanding

Series

A
B
C
D
E
F
I
J
K 1
L 1
Total

Shares
Authorized

50,000
50,000
25,000
60,000
17,500
5,000
34,500
46,000
32,200
52,000
372,200

Shares
Issued

30,000
32,000
8,000
54,000
17,500
5,000
34,000
40,000
28,000
52,000
300,500

Shares
Outstanding

Depositary
Shares
Per Share

29,999
32,000
8,000
53,999
17,500
5,000
34,000
40,000
28,000
52,000
300,498

1,000
1,000
1,000
1,000
N/A
N/A
1,000
1,000
1,000
25

1. In April 2014, Group Inc. issued 28,000 shares of Series K perpetual 6.375%
Fixed-to-Floating Rate Non-Cumulative Preferred Stock (Series K Preferred
Stock) and 52,000 shares of Series L perpetual 5.70% Fixed-to-Floating Rate
Non-Cumulative Preferred Stock (Series L Preferred Stock).

Liquidation
Preference

$ 25,000

25,000

100,000

25,000

Redemption Price Per Share

$25,000 plus declared and
unpaid dividends
$25,000 plus declared and
unpaid dividends
$25,000 plus declared and
unpaid dividends
$25,000 plus declared and
unpaid dividends
$100,000 plus declared and
unpaid dividends
$100,000 plus declared and
unpaid dividends
$25,000 plus accrued and
unpaid dividends
$25,000 plus accrued and
unpaid dividends
$25,000 plus accrued and
unpaid dividends
$25,000 plus accrued and
unpaid dividends

Redemption
Value
($ in millions)

$ 750

800

200

1,350

1,750

500

850

1,000

700

1,300

$9,200

Series

Total

In the tables above:
‰ Each share of non-cumulative Series A, Series B, Series C
and Series D Preferred Stock issued and outstanding is
redeemable at the firm’s option.

‰ Each share of non-cumulative Series E and Series F
Preferred Stock issued and outstanding is redeemable at
the firm’s option, subject to certain covenant restrictions
governing the firm’s ability to redeem or purchase the
preferred stock without issuing common stock or other
instruments with equity-like characteristics. See Note 16
for information about the replacement capital covenants
applicable to the Series E and Series F Preferred Stock.

‰ Each share of non-cumulative Series I Preferred Stock
issued and outstanding is redeemable at the firm’s option
beginning November 10, 2017.

‰ Each share of non-cumulative Series J Preferred Stock
issued and outstanding is redeemable at the firm’s option
beginning May 10, 2023.

‰ Each share of non-cumulative Series K Preferred Stock
issued and outstanding is redeemable at the firm’s option
beginning May 10, 2024.

‰ Each share of non-cumulative Series L Preferred Stock
issued and outstanding is redeemable at the firm’s option
beginning May 10, 2019.

‰ All shares of preferred stock have a par value of $0.01 per
share and, where applicable, each share of preferred stock
is represented by the specified number of depositary
shares.

Prior to redeeming preferred stock, the firm must receive
confirmation that the Federal Reserve Board does not
object to such capital actions. All series of preferred stock
are pari passu and have a preference over the firm’s
common stock on liquidation. Dividends on each series of
preferred stock, excluding Series L Preferred Stock,
if
declared, are payable quarterly in arrears. Dividends on
Series L Preferred Stock, if declared, are payable semi-
annually in arrears from the issuance date to, but excluding,
May 10, 2019, and quarterly thereafter. The firm’s ability
to declare or pay dividends on, or purchase, redeem or
otherwise acquire, its common stock is subject to certain
restrictions in the event that the firm fails to pay or set aside
full dividends on the preferred stock for the latest
completed dividend period.

The table below presents the dividend rates of the firm’s
perpetual preferred stock as of December 2014.

Series

Dividend Rate

A
B
C
D
E
F
I
J

3 month LIBOR + 0.75%, with floor of 3.75% per annum
6.20% per annum
3 month LIBOR + 0.75%, with floor of 4.00% per annum
3 month LIBOR + 0.67%, with floor of 4.00% per annum
3 month LIBOR + 0.77%, with floor of 4.00% per annum
3 month LIBOR + 0.77%, with floor of 4.00% per annum
5.95% per annum
5.50% per annum to, but excluding, May 10, 2023;
3 month LIBOR + 3.64% per annum thereafter
6.375% per annum to, but excluding, May 10, 2024;
3 month LIBOR + 3.55% per annum thereafter
5.70% per annum to, but excluding, May 10, 2019;
3 month LIBOR + 3.884% per annum thereafter

Goldman Sachs 2014 Annual Report 171

On January 7, 2015, Group Inc. declared dividends of
$239.58, $387.50, $255.56, $255.56, $371.88, $343.75
and $398.44 per share of Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred
Stock, Series I Preferred Stock, Series J Preferred Stock and
Series K Preferred Stock, respectively, to be paid on
February 10, 2015 to preferred shareholders of record on
January 26, 2015. In addition, the firm declared dividends
of $1,011.11 per each share of Series E Preferred Stock and
Series F Preferred Stock, to be paid on March 2, 2015 to
preferred shareholders of record on February 15, 2015.

Accumulated Other Comprehensive Loss
The tables below present accumulated other comprehensive
loss, net of tax by type.

Year Ended December 2014

per share

$ in millions

$ 945.32
1,550.00
1,008.34
1,008.34
4,044.44
4,044.44
1,487.52
1,375.00
850.00
760.00

$ 28
50
8
54
71
20
51
55
24
39
$400

Year Ended December 2013

per share

$ in millions

$ 947.92
1,550.00
1,011.11
1,011.11
4,044.44
4,044.44
1,553.63
744.79

$ 28
50
8
54
71
20
53
30
$314

$ in millions

Currency translation
Pension and postretirement

liabilities

Cash flow hedges
Accumulated other

comprehensive loss, net
of tax

Year Ended December 2012

per share

$ in millions

$ 960.94
1,550.00
1,025.01
1,025.01
2,055.56
1,000.00

$ 29
50
8
55
36
5
$183

$ in millions

Currency translation
Pension and postretirement

liabilities

Available-for-sale securities
Cash flow hedges
Accumulated other

comprehensive loss, net of
tax

December 2014

Other
comprehensive
income/(loss)
adjustments,
net of tax

Balance,
end of
year

$(109)

$(473)

(102)
(8)

(270)
—

Balance,
beginning
of year

$(364)

(168)
8

$(524)

$(219)

$(743)

December 2013

Other
comprehensive
income/(loss)
adjustments,
net of tax

Balance,
end of
year

$ (50)

$(364)

38
(327)
8

(168)
—
8

Balance,
beginning
of year

$(314)

(206)
327
—

$(193)

$(331)

$(524)

Notes to Consolidated Financial Statements

The tables below present preferred dividends declared on
the firm’s preferred stock.

Series

A
B
C
D
E
F
I
J
K
L
Total

Series

A
B
C
D
E
F
I
J
Total

Series

A
B
C
D
E
F
Total

172 Goldman Sachs 2014 Annual Report

Notes to Consolidated Financial Statements

Note 20.
Regulation and Capital Adequacy

The Federal Reserve Board is the primary regulator of
Group Inc., a bank holding company under the Bank
Holding Company Act of 1956 (BHC Act) and a financial
holding company under amendments to the BHC Act. As a
bank holding company, the firm is subject to consolidated
requirements which are
risk-based regulatory capital
computed in accordance with the applicable risk-based
capital regulations of the Federal Reserve Board.

These capital requirements are expressed as capital ratios
to risk-
that compare measures of regulatory capital
weighted assets (RWAs). The firm’s capital
levels are
subject to qualitative judgments by the regulators about
components of capital, risk weightings and other factors. In
addition, the firm is subject to requirements with respect to
leverage.

Furthermore, certain of the firm’s subsidiaries are subject to
separate regulations and capital requirements as described
below.

Applicable Capital Framework
As of December 2013, the firm was subject to the risk-
based capital regulations of the Federal Reserve Board that
were based on the Basel I Capital Accord of the Basel
Committee on Banking Supervision (Basel Committee), and
incorporated the revised market risk regulatory capital
requirements (together, the Prior Capital Rules).

subject

regulations,

As of January 1, 2014, the firm became subject to the
Federal Reserve Board’s revised risk-based capital and
to certain transitional
leverage
provisions (Revised Capital Framework). These regulations
are largely based on the Basel Committee’s final capital
framework
capital
standards (Basel III) and also implement certain provisions
of
the Dodd-Frank Act. Under the Revised Capital
Framework, the firm is an “Advanced approach” banking
organization.

strengthening

international

for

The firm was notified in the first quarter of 2014 that it had
completed a “parallel run” to the satisfaction of the Federal
Reserve Board, as required under the Revised Capital
Framework. As such, additional changes in the firm’s
capital requirements became effective on April 1, 2014.

Beginning on January 1, 2014, regulatory capital was
calculated based on the Revised Capital Framework.
Beginning April 1, 2014, there were no changes to the
calculation of regulatory capital, but RWAs were calculated
using (i) the Prior Capital Rules, adjusted for certain items
related to capital deductions under the previous definition
of regulatory capital and for the phase-in of new capital
deductions (Hybrid Capital Rules), and (ii) the Advanced
approach and market risk rules set out in the Revised
Capital Framework (together,
III Advanced
Rules). The lower of the ratios calculated under the Hybrid
Capital Rules and those calculated under the Basel III
Advanced Rules are the binding regulatory capital
requirements for the firm. The ratios calculated under the
Basel III Advanced Rules were lower than those calculated
under the Hybrid Capital Rules and therefore were the
binding ratios for the firm as of December 2014.

the Basel

the changes in the applicable capital
As a result of
framework in 2014,
the firm’s capital ratios as of
December 2014 and those as of December 2013 were
calculated on a different basis and, accordingly, are not
comparable.

Goldman Sachs 2014 Annual Report 173

Risk-Weighted Assets.

Definition
of
December 2014, RWAs were calculated under both the
Basel III Advanced Rules and the Hybrid Capital Rules.
Under both the Basel III Advanced Rules and the Hybrid
Capital Rules, certain amounts not required to be deducted
from CET1 under the transitional provisions are either
deducted from Tier 1 capital or are risk weighted.

The primary difference between the Basel III Advanced
Rules and the Hybrid Capital Rules is that the latter utilizes
prescribed risk-weightings for credit RWAs and does not
contemplate the use of
internal models to compute
exposure for credit risk on derivatives and securities
financing transactions, whereas the Basel III Advanced
Rules permit the use of such models, subject to supervisory
approval. In addition, RWAs under the Hybrid Capital
Rules depend largely on the type of counterparty (e.g.,
whether the counterparty is a sovereign, bank, broker-
dealer or other entity), rather than on internal assessments
of each counterparty’s creditworthiness. Furthermore, the
Hybrid Capital Rules do not include a capital requirement
for operational risk.

As of December 2013, the firm calculated RWAs under the
Prior Capital Rules.

Notes to Consolidated Financial Statements

Effective on January 1, 2015, regulatory capital continues
to be calculated under the Revised Capital Framework, but
RWAs are required to be calculated under the Basel III
Advanced Rules, as well as the Standardized approach and
market risk rules set out in the Revised Capital Framework
(together, the Standardized Capital Rules). The lower of the
ratios calculated under the Basel III Advanced Rules and
those calculated under the Standardized Capital Rules are
the binding regulatory capital requirements for the firm.

The Basel III Advanced Rules, Hybrid Capital Rules and
Standardized Capital Rules are discussed in more detail
below.

Regulatory Capital and Capital Ratios. The Revised
Capital Framework changed the definition of regulatory
capital to include a new capital measure called Common
Equity Tier 1 (CET1) and the related regulatory capital
ratio of CET1 to RWAs (CET1 ratio), and changed the
definition of Tier 1 capital. The Revised Capital
Framework also increased the level of certain minimum
risk-based capital and leverage ratios applicable to the firm.

The table below presents the minimum ratios applicable to
the firm as of December 2014 and January 2015. Failure to
comply with these capital requirements could result in
restrictions being imposed by the firm’s regulators.

CET1 ratio
Tier 1 capital ratio
Total capital ratio 1
Tier 1 leverage ratio 2

December 2014
Minimum Ratio

January 2015
Minimum Ratio

4.0%
5.5%
8.0%
4.0%

4.5%
6.0%
8.0%
4.0%

1. In order to meet the quantitative requirements for being “well-capitalized”
under the Federal Reserve Board’s capital regulations, the firm must meet a
higher required minimum Total capital ratio of 10.0%

Certain aspects of
the Revised Capital Framework’s
requirements phase in over time (transitional provisions).
These include increases in the minimum capital ratio
requirements and the introduction of new capital buffers
and certain deductions from regulatory capital (such as
investments in nonconsolidated financial institutions). In
addition, junior subordinated debt issued to trusts is being
phased out of regulatory capital. The minimum CET1,
Tier 1 and Total capital ratios applicable to the firm will
increase as the transitional provisions phase in and new
capital buffers are introduced.

174 Goldman Sachs 2014 Annual Report

Notes to Consolidated Financial Statements

Credit Risk
Credit RWAs are calculated based upon measures of
exposure, which are then risk weighted. The exposure
amount is generally based on the following:
‰ For on-balance-sheet assets, the carrying value; and
‰ For off-balance-sheet exposures, including commitments
and guarantees, a credit equivalent exposure amount is
calculated based on the notional amount of each
exposure multiplied by a credit conversion factor.

Counterparty credit risk is a component of total credit risk,
and includes credit exposure arising from derivatives,
securities financing transactions and eligible margin loans.
‰ For the Basel III Advanced Rules, the firm uses the
Internal Models Methodology for the measurement of
exposure on derivatives, securities financing transactions
and eligible margin loans. The Revised Capital
Framework requires that a bank holding company obtain
prior written agreement from its regulators before using
the Internal Models Methodology; and

‰ For the Hybrid and Prior Capital Rules, the exposure
amount for derivatives is based on a combination of
positive net exposure and a percentage of the notional
amount
for each trade, and includes the effect of
counterparty netting and collateral, as applicable; for
securities financing transactions and eligible margin
loans, it is based on the carrying value.

All exposures are then assigned a risk weight computed as
follows:
‰ For the Basel III Advanced Rules, the firm has been given
permission by its supervisors to compute risk weights for
certain exposures in accordance with the Advanced
Internal Ratings-Based approach, which utilizes internal
assessments of each counterparty’s creditworthiness. Key
inputs to the risk weight calculation are the probability of
default, loss given default and the effective maturity.
RWAs
for securitization and equity exposures are
calculated using specific required formula approaches;
and

‰ For the Hybrid and Prior Capital Rules, a standard risk
weight is assigned depending on, among other things,
whether the counterparty is a sovereign, bank or a
qualifying securities firm or other entity (and if collateral
is held, the risk weight may depend on the nature of the
collateral).

The Standardized Capital Rules utilize prescribed risk-
weightings for credit RWAs and do not contemplate the use
of internal models to compute exposure for credit risk on
derivatives and securities
financing transactions. The
exposure measure for securities financing transactions is
calculated to reflect adjustments
for potential price
volatility, the size of which depends on factors such as the
type of and maturity of the security, and whether it is
denominated in the same currency as the other side of the
financing transaction.
the
Standardized Capital Rules depend largely on the type of
counterparty (e.g., whether the counterparty is a sovereign,
bank, broker-dealer or other entity), rather than on internal
assessments of each counterparty’s creditworthiness.

In addition, RWAs under

Market Risk
RWAs for market risk are determined using measures for
Value-at-Risk (VaR), stressed VaR, incremental risk and
comprehensive risk based on internal models, and a
standardized measurement method for specific risk. The
market risk regulatory capital rules require that a bank
holding company obtain prior written agreement from its
regulators before using any internal model to calculate its
risk-based capital requirement.
‰ VaR is the potential loss in value of inventory positions,
as well as certain other financial assets and financial
liabilities, due to adverse market movements over a
defined time horizon with a specified confidence level. For
both risk management purposes and regulatory capital
calculations the firm uses a single VaR model which
captures risks including those related to interest rates,
equity prices, currency rates and commodity prices.
However, VaR used for regulatory capital requirements
(regulatory VaR) differs from risk management VaR due
to different time horizons and confidence levels (10-day
and 99% for regulatory VaR vs. one-day and 95% for
risk management VaR), as well as differences in the scope
of positions on which VaR is calculated. In addition, the
daily trading net revenues used to determine risk
management VaR exceptions (i.e., comparing the daily
trading net revenues to the VaR measure calculated as of
the prior business day) include intraday activity, whereas
the Federal Reserve Board’s regulatory capital regulations
require that intraday activity be excluded from daily
trading net revenues when calculating regulatory VaR
exceptions.
Intraday activity includes bid/offer net
revenues, which are more likely than not to be positive.
Under these regulations,
losses
observed on a single day exceeded its 99% one-day
regulatory VaR on three occasions during 2014. There
was no change in the VaR multiplier used to calculate
Market RWAs;

the firm’s positional

Goldman Sachs 2014 Annual Report 175

Notes to Consolidated Financial Statements

‰ Stressed VaR is the potential loss in value of inventory

positions during a period of significant market stress;

‰ Incremental risk is the potential loss in value of non-
securitized inventory positions due to the default or credit
migration of issuers of financial instruments over a one-
year time horizon; and

‰ Comprehensive risk is the potential loss in value, due to
price risk and defaults, within the firm’s credit correlation
positions.

The
standardized measurement method is used to
determine RWAs for specific risk on certain positions by
applying supervisory defined risk-weighting factors to such
positions after applicable netting is performed.

RWAs for market risk under the Standardized Capital
Rules are calculated in a manner that is generally consistent
with the RWAs calculated under the Basel III Advanced
Rules.

Operational Risk
The Basel III Advanced Rules include a capital requirement
for operational risk. The firm has been given permission by
its supervisors to compute operational RWAs in accordance
the
with the “Advanced Measurement Approach” of
Revised Capital Framework. Operational RWAs are
risk-based
therefore calculated based on an internal
operational risk quantification model
that meets the
requirements for the “Advanced Measurement Approach.”

The Standardized Capital Rules do not include a capital
requirement for operational risk.

Consolidated Regulatory Capital Ratios
December 2014 Capital Ratios and RWAs. The firm was
required to calculate ratios under both the Basel
III
Advanced Rules and Hybrid Capital Rules as of
December 2014,
in both cases subject to transitional
III
provisions. The ratios calculated under the Basel
Advanced Rules presented in the table below were lower
than those calculated under the Hybrid Capital Rules and
therefore were the binding ratios for the firm as of
December 2014.

Effective on January 1, 2015, the firm was required to
calculate ratios under both the Basel III Advanced Rules
ratios
and Standardized Capital Rules. The
calculated under the Standardized Capital Rules as of
December 2014 are also presented in the table below,
although the ratios were not binding until January 2015.

firm’s

176 Goldman Sachs 2014 Annual Report

$ in millions

Common shareholders’ equity
Deductions for goodwill and identifiable intangible

assets, net of deferred tax liabilities

Deductions for investments in nonconsolidated

financial institutions

Other adjustments
Common Equity Tier 1
Perpetual non-cumulative preferred stock
Junior subordinated debt issued to trusts
Other adjustments
Tier 1 capital
Qualifying subordinated debt
Junior subordinated debt issued to trusts
Other adjustments
Tier 2 capital 1
Total capital

Basel III Advanced
RWAs
CET1 ratio
Tier 1 capital ratio
Total capital ratio
Tier 1 leverage ratio
Standardized
RWAs
CET1 ratio
Tier 1 capital ratio
Total capital ratio

As of
December 2014

$ 73,597

(2,787)

(953)
(27)
69,830
9,200
660
(1,257)
78,433
11,894
660
(9)
12,545
$ 90,978

$570,313
12.2%
13.8%
16.0%
9.0%

$619,216
11.3%
12.7%
14.7%

1. Tier 2 capital under

the Standardized Capital Rules is approximately
$300 million higher due to the allowance for losses on loans and lending
commitments.

In the table above:
‰ The deduction for goodwill and identifiable intangible
assets, net of deferred tax liabilities, represents goodwill
of $3.65 billion and identifiable intangible assets of
$103 million (20% of $515 million), net of associated
deferred tax liabilities of $961 million. The remaining
80% of the deduction of identifiable intangible assets will
be phased in ratably per year from 2015 to 2018.
Identifiable intangible assets that are not deducted during
the transitional period are risk weighted.

‰ The deduction for

institutions

in nonconsolidated
investments
financial institutions represents the amount by which the
firm’s investments in the capital of nonconsolidated
financial
prescribed
thresholds. As of December 2014, 20% of the deduction
was
transitional
thresholds). The remaining 80% will be phased in ratably
per year from 2015 to 2018. The balance that is not
deducted during the transitional period is risk weighted.

(calculated

reflected

certain

exceed

based

Notes to Consolidated Financial Statements

‰ Other adjustments within CET1 and Tier 1 capital
primarily include accumulated other comprehensive loss,
credit valuation adjustments on derivative liabilities, the
overfunded portion of the firm’s defined benefit pension
plan obligation, net of associated deferred tax liabilities,
disallowed deferred tax assets and other required credit
risk-based deductions. As of December 2014, 20% of the
deductions related to credit valuation adjustments on
derivative liabilities, the overfunded portion of the firm’s
defined benefit pension plan obligation, net of associated
deferred tax liabilities, disallowed deferred tax assets and
other required credit risk-based deductions were included
in other adjustments within CET1 and 80% of the
deductions were included in other adjustments within
Tier 1 capital. Most of the deductions that were included
in other adjustments within Tier 1 capital will be phased
into CET1 ratably per year from 2015 to 2018. Other
adjustments within Tier 1 capital also include a deduction
for
of
the
nonconsolidated financial institutions.

investments

preferred

equity

‰ Junior subordinated debt issued to trusts is reflected in
both Tier 1 capital (50%) and Tier 2 capital (50%) and is
reduced by the amount of trust preferred securities
purchased by the firm. Junior subordinated debt issued to
trusts will be fully phased out of Tier 1 capital by 2016,
and then also from Tier 2 capital by 2022. See Note 16
for additional
the firm’s junior
subordinated debt issued to trusts and trust preferred
securities purchased by the firm.

information about

‰ Qualifying subordinated debt represents subordinated
debt issued by Group Inc. with an original term to
maturity of five years or greater. The outstanding amount
of subordinated debt qualifying for Tier 2 capital
is
reduced, or discounted, upon reaching a remaining
maturity of
five years. See Note 16 for additional
information about the firm’s subordinated debt.

The table below presents the changes in CET1, Tier 1
capital and Tier 2 capital for the period December 31, 2013
to December 31, 2014.

$ in millions

Common Equity Tier 1
Balance, December 31, 2013

Change in CET1 related to the transition to the

Revised Capital Framework 1

Increase in common shareholders’ equity
Change in deduction for goodwill and identifiable
intangible assets, net of deferred tax liabilities

Change in deduction for investments in
nonconsolidated financial institutions

Change in other adjustments
Balance, December 31, 2014

Tier 1 capital
Balance, December 31, 2013

Change in CET1 related to the transition to the

Revised Capital Framework 1

Change in Tier 1 capital related to the transition to the

Revised Capital Framework 2

Other net increase in CET1
Increase in perpetual non-cumulative preferred stock
Redesignation of junior subordinated debt issued to

trusts and decrease related to trust preferred
securities purchased by the firm

Change in other adjustments

Balance, December 31, 2014
Tier 2 capital
Balance, December 31, 2013

Change in Tier 2 capital related to the transition to the

Revised Capital Framework 3

Decrease in qualifying subordinated debt
Trust preferred securities purchased by the firm,
net of redesignation of junior subordinated debt
issued to trusts

Change in other adjustments

Balance, December 31, 2014
Total capital

Period Ended
December 2014

$63,248

3,177
2,330

144

839
92
$69,830

$72,471

3,177

(443)
3,405
2,000

(1,403)
(774)
78,433

13,632

(197)
(879)

(27)
16
12,545
$90,978

1. Includes $3.66 billion related to the transition to the Revised Capital
Framework on January 1, 2014 as well as $(479) million related to the firm’s
application of the Basel III Advanced Rules on April 1, 2014.

2. Includes $(219) million related to the transition to the Revised Capital
Framework on January 1, 2014 as well as $(224) million related to the firm’s
application of the Basel III Advanced Rules on April 1, 2014.

3. Includes $(2) million related to the transition to the Revised Capital
Framework on January 1, 2014 as well as $(195) million related to the firm’s
application of the Basel III Advanced Rules on April 1, 2014.

Goldman Sachs 2014 Annual Report 177

Notes to Consolidated Financial Statements

The change in CET1 related to the transition to the Revised
Capital Framework is principally related to the change in
treatment of equity investments in certain nonconsolidated
entities. Under the Prior Capital Rules, such investments
were treated as deductions. However, during the transition
to the Revised Capital Framework, only a portion of such
investments that exceed certain prescribed thresholds are
treated as deductions from CET1 and the remainder are
risk weighted.

The table below presents the components of RWAs under
the Basel III Advanced Rules and Standardized Capital
Rules as of December 2014.

$ in millions

Credit RWAs
Derivatives
Commitments, guarantees and loans
Securities financing transactions 1
Equity investments
Other 2
Total Credit RWAs
Market RWAs
Regulatory VaR
Stressed VaR
Incremental risk
Comprehensive risk
Specific risk
Total Market RWAs
Total Operational RWAs
Total RWAs

As of December 2014

Basel III
Advanced

$122,501
95,209
15,618
40,146
54,470
327,944

10,238
29,625
16,950
8,150
79,918
144,881
97,488
$570,313

Standardized

$180,771
89,783
92,116
38,526
71,499
472,695

10,238
29,625
16,950
9,855
79,853
146,521
—
$619,216

1. Represents resale and repurchase agreements and securities borrowed and

loaned transactions.

2. Includes receivables, other assets, and cash and cash equivalents.

The table below presents the changes in RWAs under the
Basel III Advanced Rules for the period December 31, 2013
to December 31, 2014, and reflects the transition to the
Revised Capital Framework from the Prior Capital Rules
on January 1, 2014.

$ in millions

Risk-weighted assets
Total RWAs, December 31, 2013
Credit RWAs
Change related to the transition to the Revised Capital

Framework 1
Other changes:

Decrease in derivatives
Increase in commitments, guarantees and loans
Decrease in securities financing transactions
Decrease in equity investments
Increase in other

Change in Credit RWAs
Market RWAs
Change related to the transition to the Revised Capital

Framework

Decrease in regulatory VaR
Decrease in stressed VaR
Increase in incremental risk
Decrease in comprehensive risk
Decrease in specific risk
Change in Market RWAs
Operational RWAs
Change related to the transition to the Revised Capital

Framework

Increase in operational risk
Change in Operational RWAs
Total RWAs, December 31, 2014

Period Ended
December 2014

$433,226

69,101

(24,109)
18,208
(2,782)
(2,728)
2,007
59,697

1,626
(5,175)
(11,512)
7,487
(6,617)
(5,907)
(20,098)

88,938
8,550
97,488
$570,313

1. Includes $26.67 billion of RWA changes related to the transition to the
Revised Capital Framework on January 1, 2014 and $42.43 billion of changes
to the calculation of Credit RWAs under the Basel III Advanced Rules related
to the firm’s application of the Basel III Advanced Rules on April 1, 2014.

Credit RWAs as of December 2014 increased by
$59.70 billion compared with December 2013, primarily
due to increased risk weightings related to counterparty
credit risk for derivative exposures and the inclusion of
RWAs for equity investments in certain nonconsolidated
entities, both resulting from the transition to the Revised
Capital Framework. Market RWAs as of December 2014
decreased
with
December 2013, primarily due to a decrease in stressed
reflecting reduced fixed income and equities
VaR,
exposures. Operational RWAs as of December 2014
increased
with
December 2013, substantially all of which was due to the
transition to the Revised Capital Framework.

compared

$97.49

$20.10

billion

178 Goldman Sachs 2014 Annual Report

Notes to Consolidated Financial Statements

December 2013 Capital Ratios and RWAs. The table
below presents information about the firm’s regulatory
ratios as of December 2013 under the Prior Capital Rules.

The table below presents the changes in Tier 1 capital and
Tier 2 capital for the period ended December 2013 under
the Prior Capital Rules.

$ in millions

Common shareholders’ equity
Perpetual non-cumulative preferred stock
Junior subordinated debt issued to trusts
Deduction for goodwill and identifiable intangible assets
Deduction for equity investments in certain entities
Other adjustments
Tier 1 capital
Qualifying subordinated debt
Junior subordinated debt issued to trusts
Other adjustments
Tier 2 capital
Total capital

Credit RWAs
Market RWAs
Total RWAs

Tier 1 capital ratio
Total capital ratio
Tier 1 leverage ratio

As of
December 2013

$ in millions

Period Ended
December 2013

$ 71,267
7,200
2,063
(4,376)
(3,314)
(369)
72,471
12,773
687
172
13,632
$ 86,103

$268,247
164,979
$433,226

16.7%
19.9%
8.1%

Tier 1 capital
Balance, December 31, 2012

Increase in common shareholders’ equity
Increase in perpetual non-cumulative preferred stock
Redesignation of junior subordinated debt issued to

trusts

Change in goodwill and identifiable intangible assets
Change in equity investments in certain entities
Change in other adjustments

Balance, December 31, 2013
Tier 2 capital
Balance, December 31, 2012

Decrease in qualifying subordinated debt
Redesignation of junior subordinated debt issued to

trusts

Change in other adjustments

Balance, December 31, 2013
Total capital

$66,977
1,751
1,000

(687)
723
1,491
1,216
72,471

13,429
(569)

687
85
13,632
$86,103

In the table above:
‰ Junior subordinated debt issued to trusts is reflected in
both Tier 1 capital (75%) and Tier 2 capital (25%). See
Note 16 for additional
information about the firm’s
junior subordinated debt issued to trusts.

‰ The deduction for goodwill and identifiable intangible
assets includes goodwill of $3.71 billion and identifiable
intangible assets of $671 million.

‰ Other adjustments within Tier 1 capital primarily include
disallowed deferred tax assets and the overfunded portion
of the firm’s defined benefit pension plan obligation, net
of associated deferred tax liabilities.

‰ Qualifying subordinated debt represents subordinated
debt issued by Group Inc. with an original term to
maturity of five years or greater. The outstanding amount
is
of subordinated debt qualifying for Tier 2 capital
reduced, or discounted, upon reaching a remaining
maturity of
five years. See Note 16 for additional
information about the firm’s subordinated debt.

The table below presents the components of RWAs as of
December 2013 under the Prior Capital Rules.

$ in millions

As of
December 2013

$ 94,753
78,997
30,010
3,673
60,814
268,247

13,425
38,250
9,463
18,150
85,691
164,979
$433,226

1. Represents resale and repurchase agreements and securities borrowed and

loaned transactions.

2. Includes receivables, other assets, and cash and cash equivalents.

Goldman Sachs 2014 Annual Report 179

Notes to Consolidated Financial Statements

The table below presents the changes in RWAs for the
period ended December 31, 2013 under the Prior Capital
Rules.

$ in millions

Risk-weighted assets
Balance, December 31, 2012
Credit RWAs
Decrease in derivatives
Increase in commitments, guarantees and loans
Decrease in securities financing transactions
Increase in equity investments
Change in other
Change in Credit RWAs
Market RWAs
Increase related to the revised market risk rules
Decrease in regulatory VaR
Decrease in stressed VaR
Decrease in incremental risk
Decrease in comprehensive risk
Decrease in specific risk
Change in Market RWAs
Total RWAs, December 31, 2013

Period Ended
December 2013

$399,928

(12,516)
18,151
(17,059)
1,077
(8,932)
(19,279)

127,608
(2,038)
(13,700)
(17,350)
(9,568)
(32,375)
52,577
$433,226

2013

of December

Credit RWAs
decreased
$19.28 billion compared with December 2012, primarily
due to a decrease in securities financing exposure. Market
RWAs as of December 2013 increased by $52.58 billion
compared with December 2012, reflecting the impact of the
revised market risk regulatory capital requirements, which
became effective on January 1, 2013, partially offset by,
among other things, a decrease in specific risk due to a
decrease in inventory.

Bank Subsidiaries
Regulatory Capital Ratios. GS Bank USA, an FDIC-
insured, New York State-chartered bank and a member of
the Federal Reserve System, is supervised and regulated by
the Federal Reserve Board, the FDIC, the New York State
Department of Financial Services and the Consumer
Financial Protection Bureau, and is subject to minimum
capital requirements (described below) that are calculated
in a manner similar to those applicable to bank holding
companies. For purposes of assessing the adequacy of its
capital, GS Bank USA computes its capital ratios in
accordance with the regulatory capital
requirements
applicable to state member banks. Those requirements are
based on the Revised Capital Framework described above,
with changes to the definition of regulatory capital and
capital ratios effective from January 1, 2014. GS Bank USA
was notified in the first quarter of 2014 that it had
completed a “parallel run” to the satisfaction of the Federal
Reserve Board, as required under the Revised Capital
Framework. As such, additional changes in GS Bank USA’s
capital requirements, including changes to RWAs, became
effective on April 1, 2014. GS Bank USA is an Advanced
approach banking organization under the Revised Capital
Framework. Under the Revised Capital Framework, as of
January 1, 2014, GS Bank USA became subject to a new
minimum CET1 ratio requirement of 4.0%. As of
January 2015, the minimum CET1 ratio for GS Bank USA
increased from 4.0% to 4.5%.

Under the regulatory framework for prompt corrective
action applicable to GS Bank USA as of December 2014, in
order to meet the quantitative requirements for being a
“well-capitalized” depository institution, GS Bank USA
was required to maintain a Tier 1 capital ratio of at least
6.0%, a Total capital ratio of at least 10.0% and a Tier 1
leverage ratio of at least 5.0%. As of January 1, 2015, the
Revised Capital Framework changed the standards for
“well-capitalized” status under prompt corrective action
regulations by, among other things, introducing a CET1
ratio requirement of 6.5% and increasing the Tier 1 capital
ratio requirement from 6.0% to 8.0%. The Total capital
ratio and Tier 1 leverage ratio requirements remain at
10.0% and 5.0%, respectively.

180 Goldman Sachs 2014 Annual Report

Notes to Consolidated Financial Statements

As noted in the tables below, GS Bank USA was in
compliance with these minimum capital requirements as of
December 2014 and December 2013. GS Bank USA’s
capital levels and prompt corrective action classification are
also subject to qualitative judgments by the regulators
about components of capital, risk weightings and other
factors. Failure to comply with these capital requirements
could result in restrictions being imposed by GS Bank
USA’s regulators.

Similar to the firm, GS Bank USA is required to calculate
ratios under both the Basel III Advanced Rules and Hybrid
Capital Rules as of December 2014, in both cases subject to
transitional provisions. The ratios calculated under the
Hybrid Capital Rules presented in the table below were
lower than those calculated under the Basel III Advanced
Rules, and therefore were the binding ratios for GS Bank
USA as of December 2014.

As a result of
the changes in the applicable capital
framework in 2014, GS Bank USA’s capital ratios as of
December 2014 and December 2013 were calculated on a
different basis and, accordingly, are not comparable.

Effective on January 1, 2015, GS Bank USA was required to
calculate ratios under both the Basel III Advanced Rules
and Standardized Capital Rules. GS Bank USA’s ratios
calculated under the Standardized Capital Rules as of
December 2014 are also presented in the table below,
although the ratios were not binding until January 2015.

$ in millions

Common Equity Tier 1
Tier 1 capital
Tier 2 capital
Total capital
Hybrid RWAs
CET1 ratio
Tier 1 capital ratio
Total capital ratio
Tier 1 leverage ratio
Standardized RWAs
CET1 ratio
Tier 1 capital ratio
Total capital ratio

As of
December 2014

$ 21,293
$ 21,293
$
2,182
$ 23,475
$149,963
14.2%
14.2%
15.7%
17.3%
$200,605
10.6%
10.6%
11.7%

The table below presents information as of December 2013
regarding GS Bank USA’s regulatory ratios under the Prior
Capital Rules.

$ in millions

Tier 1 capital
Tier 2 capital
Total capital
Risk-weighted assets
Tier 1 capital ratio
Total capital ratio
Tier 1 leverage ratio

As of
December 2013

$ 20,086
116
$
$ 20,202
$134,935
14.9%
15.0%
16.9%

institution,

The firm’s principal non-U.S. bank subsidiary, GSIB, is a
wholly-owned credit
the
Prudential Regulation Authority (PRA) and the Financial
Conduct Authority (FCA) and is subject to minimum
requirements. As of December 2014 and
capital
December 2013, GSIB was
in compliance with all
regulatory capital requirements.

regulated by

Goldman Sachs 2014 Annual Report 181

non-U.S.

principal

regulated

Non-U.S. Regulated Broker-Dealer Subsidiaries. The
firm’s
broker-dealer
subsidiaries include Goldman Sachs International (GSI) and
Goldman Sachs Japan Co., Ltd. (GSJCL). GSI, the firm’s
regulated U.K. broker-dealer, is regulated by the PRA and
the FCA. GSJCL, the firm’s Japanese broker-dealer,
is
regulated by Japan’s Financial Services Agency. These and
certain other non-U.S. subsidiaries of the firm are also
subject to capital adequacy requirements promulgated by
authorities of the countries in which they operate. As of
December 2014 and December 2013, these subsidiaries
were in compliance with their local capital adequacy
requirements.

Restrictions on Payments
Group Inc.’s ability to withdraw capital from its regulated
limited by minimum equity capital
subsidiaries
requirements applicable to those subsidiaries, as well as by
provisions of applicable law and regulations that limit the
ability of those subsidiaries to declare and pay dividends
without prior regulatory approval even if the relevant
subsidiary would satisfy the equity capital requirements
applicable to it after giving effect to the dividend. As of
December 2014 and December 2013, Group Inc. was
required to maintain $33.62 billion and $31.20 billion,
respectively, of minimum equity capital in its regulated
subsidiaries in order to satisfy the regulatory requirements
of such subsidiaries. In addition to statutory limitations on
the payment of dividends, the Federal Reserve Board, the
FDIC and the New York State Department of Financial
Services have authority to prohibit or to limit the payment
of dividends by the banking organizations they supervise
(including GS Bank USA) if, in the relevant regulator’s
opinion, payment of a dividend would constitute an unsafe
or unsound practice in the light of the financial condition of
the banking organization. Similar restrictions are imposed
by regulators in jurisdictions outside of the U.S.

Notes to Consolidated Financial Statements

Other. The deposits of GS Bank USA are insured by the
FDIC to the extent provided by law. The Federal Reserve
Board requires that GS Bank USA maintain cash reserves
with the Federal Reserve Bank of New York. The amount
deposited by GS Bank USA held at the Federal Reserve
Bank of New York was $38.68 billion and $50.39 billion as
of December 2014 and December 2013, respectively, which
exceeded required reserve amounts by $38.57 billion and
$50.29 billion as of December 2014 and December 2013,
respectively.

Broker-Dealer Subsidiaries
U.S. Regulated Broker-Dealer Subsidiaries. The firm’s
U.S. regulated broker-dealer subsidiaries include GS&Co.
and GSEC. GS&Co. and GSEC are registered U.S. broker-
dealers and futures commission merchants, and are subject
to regulatory capital requirements, including those imposed
by the SEC,
the U.S. Commodity Futures Trading
Commission (CFTC), the Chicago Mercantile Exchange,
the Financial Industry Regulatory Authority, Inc. (FINRA)
and the National Futures Association. Rule 15c3-1 of the
SEC and Rule 1.17 of the CFTC specify uniform minimum
net capital requirements, as defined, for their registrants,
and also effectively require that a significant part of the
registrants’ assets be kept in relatively liquid form. GS&Co.
and GSEC have elected to compute their minimum capital
requirements in accordance with the “Alternative Net
Capital Requirement” as permitted by Rule 15c3-1.

As of December 2014 and December 2013, GS&Co. had
regulatory net capital, as defined by Rule 15c3-1, of
$14.83 billion and $15.81 billion, respectively, which
exceeded the amount required by $12.46 billion and
$13.76 billion, respectively. As of December 2014 and
December 2013, GSEC had regulatory net capital, as
defined by Rule 15c3-1, of $1.67 billion and $1.38 billion,
respectively, which exceeded the amount required by
$1.53 billion and $1.21 billion, respectively.

In addition to its alternative minimum net capital
requirements, GS&Co. is also required to hold tentative net
capital in excess of $1 billion and net capital in excess of
$500 million in accordance with the market and credit risk
standards of Appendix E of Rule 15c3-1. GS&Co. is also
required to notify the SEC in the event that its tentative net
capital is less than $5 billion. As of December 2014 and
December 2013, GS&Co. had tentative net capital and net
capital in excess of both the minimum and the notification
requirements.

182 Goldman Sachs 2014 Annual Report

Notes to Consolidated Financial Statements

Note 21.
Earnings Per Common Share

Note 22.
Transactions with Affiliated Funds

458.9

471.3

496.2

both cash and in-kind distributions received by the firm.

1. The decrease from December 2013 to December 2014 primarily reflects

Basic earnings per common share (EPS) is calculated by
dividing net earnings applicable to common shareholders
by the weighted average number of common shares
outstanding. Common
includes
shares
common stock and RSUs for which no future service is
required as a condition to the delivery of the underlying
common stock. Diluted EPS includes the determinants of
basic EPS and, in addition, reflects the dilutive effect of the
common stock deliverable for stock warrants and options
and for RSUs for which future service is required as a
condition to the delivery of the underlying common stock.

outstanding

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

in millions, except per share amounts

2014

2013

2012

Year Ended December

Numerator for basic and diluted

EPS —net earnings applicable to
common shareholders

Denominator for basic EPS — weighted
average number of common shares

Effect of dilutive securities:

RSUs
Stock options and warrants

Dilutive potential common shares
Denominator for diluted EPS —
weighted average number of
common shares and dilutive
potential common shares

Basic EPS
Diluted EPS

$8,077

$7,726

$7,292

6.1
8.2
14.3

7.2
21.1
28.3

11.3
8.6
19.9

473.2

499.6

516.1

$17.55
17.07

$16.34
15.46

$14.63
14.13

In the table above, unvested share-based awards that have
non-forfeitable rights to dividends or dividend equivalents
are treated as a separate class of securities in calculating
EPS. The impact of applying this methodology was a
reduction in basic EPS of $0.05 for both 2014 and 2013,
and $0.07 for 2012.

The diluted EPS computations in the table above do not
include antidilutive RSUs and common shares underlying
antidilutive stock options and warrants of 6.0 million for
both 2014 and 2013, and 52.4 million for 2012.

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

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

$ in millions

Year Ended December

2014

2013

2012

Fees earned from affiliated funds

$3,232

$2,897

$2,935

$ in millions

Fees receivable from funds
Aggregate carrying value of interests in funds 1

As of December

2014

$ 724
9,099

2013

817
13,124

its

As of December 2014 and December 2013, the firm had
outstanding guarantees on behalf of
funds of
$304 million and $147 million, respectively. The amounts
as of December 2014 and December 2013 primarily relate
to a guarantee that the firm has voluntarily provided in
connection with a financing agreement with a third-party
lender executed by one of the firm’s real estate funds that is
not covered by the Volcker Rule. As of December 2014 and
December 2013, the firm had no outstanding loans or
commitments to extend credit to affiliated funds.

The Volcker Rule will restrict the firm from providing
financial support to covered funds (as defined in the rule)
after the expiration of the transition period. As a general
matter, in the ordinary course of business, the firm does not
expect to provide additional voluntary financial support to
any covered funds but may choose to do so with respect to
funds that are not subject to the Volcker Rule; however, in
the event that such support is provided, the amount is not
expected to be material.

In addition, in the ordinary course of business, the firm may
also engage in other activities with its affiliated funds
including,
trade
execution, market making, custody, and acquisition and
bridge financing. See Note 18 for the firm’s investment
commitments related to these funds.

among others,

securities

lending,

Goldman Sachs 2014 Annual Report 183

Notes to Consolidated Financial Statements

Note 23.
Interest Income and Interest Expense

Note 24.
Income Taxes

Interest is recorded over the life of the instrument on an
accrual basis based on contractual interest rates. The table
below presents the firm’s sources of interest income and
interest expense.

$ in millions

Interest income
Deposits with banks
Securities borrowed, securities

purchased under agreements to
resell and federal funds sold 1

Financial instruments owned, at fair

value

Loans receivable
Other interest 2
Total interest income
Interest expense
Deposits
Securities loaned and securities sold
under agreements to repurchase
Financial instruments sold, but not yet

purchased, at fair value
Short-term borrowings 3
Long-term borrowings 3
Other interest 4
Total interest expense
Net interest income

Year Ended December

2014

2013

2012

$ 164

186

156

(81)

(77)

7,452
708
1,361
9,604

333

431

8,159
296
1,376
10,060

9,817
150
1,335
11,381

387

576

399

822

1,741
447
3,460
(855)
5,557
$4,047

2,054
394
3,752
(495)
6,668
$ 3,392

2,438
581
3,736
(475)
7,501
$ 3,880

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

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

earning assets.

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

4. Includes rebates received on other interest-bearing liabilities and interest

expense on customer credit balances.

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

The tables below present the components of the provision/
(benefit) for taxes and a reconciliation of the U.S. federal
statutory income tax rate to the firm’s effective income tax
rate.

$ in millions

Current taxes
U.S. federal
State and local
Non-U.S.
Total current tax expense
Deferred taxes
U.S. federal
State and local
Non-U.S.
Total deferred tax (benefit)/expense
Provision for taxes

U.S. federal statutory income tax rate
State and local taxes, net of U.S. federal

income tax effects

Tax credits
Non-U.S. operations 1
Tax-exempt income, including dividends
Other
Effective income tax rate

Year Ended December

2014

2013

2012

$1,908
576
901
3,385

190
38
267
495
$3,880

$2,589
466
613
3,668

$3,013
628
447
4,088

(188)
67
150
29
$3,697

(643)
38
249
(356)
$3,732

Year Ended December

2014

2013

2012

35.0% 35.0% 35.0%

3.2%

4.1% 3.8%
(1.1)% (1.0)% (1.0)%
(5.8)% (5.6)% (4.8)%
(0.3)% (0.5)% (0.5)%
0.4% (0.5)% 0.8%
31.4% 31.5% 33.3%

1. Includes the impact of permanently reinvested earnings.

184 Goldman Sachs 2014 Annual Report

Notes to Consolidated Financial Statements

the net

Deferred Income Taxes
Deferred income taxes reflect
tax effects of
temporary differences between the financial reporting and
tax bases of assets and liabilities. These temporary
differences result in taxable or deductible amounts in future
years and are measured using the tax rates and laws that
will be in effect when such differences are expected to
reverse. Valuation allowances are established to reduce
deferred tax assets to the amount that more likely than not
will be realized and primarily relate to the ability to utilize
losses in various tax jurisdictions. Tax assets and liabilities
are presented as a component of “Other assets” and “Other
liabilities and accrued expenses,” respectively.

As of December 2014, the U.S. federal and foreign net
operating loss carryforwards were $108 million and
$1.2 billion, respectively. If not utilized, the U.S. federal net
operating loss carryforward will begin to expire in 2015.
The foreign net operating loss carryforwards can be carried
forward indefinitely. State and local net operating loss
carryforwards of $790 million will begin to expire in 2015.
If these carryforwards expire, they will not have a material
impact on the firm’s results of operations. The firm had no
foreign tax credit carryforwards and no related net deferred
income
and
December 2013.

of December

assets

2014

tax

The table below presents the significant components of
deferred tax assets and liabilities, excluding the impact of
netting within tax jurisdictions.

The firm had no capital loss carryforwards and no related
net deferred income tax assets as of December 2014 and
December 2013.

$ in millions

Deferred tax assets
Compensation and benefits
Unrealized losses
ASC 740 asset related to unrecognized tax benefits
Non-U.S. operations
Net operating losses
Occupancy-related
Other comprehensive income-related
Other, net
Subtotal
Valuation allowance
Total deferred tax assets

Depreciation and amortization
Unrealized gains
Other comprehensive income-related
Total deferred tax liabilities

As of December

2014

2013

$3,032
—
172
1,418
336
78
277
545
5,858
(64)
$5,794

$1,176
406
—
$1,582

$2,740
309
475
1,318
232
108
69
729
5,980
(183)
$5,797

$1,269
—
68
$1,337

The valuation allowance decreased by $119 million during
2014 and increased by $15 million during 2013. The
decrease in 2014 was primarily due to a decrease in
deferred tax assets from which the firm does not expect to
realize any benefit. The increase in 2013 was primarily due
to an increase in deferred tax assets from which the firm
does not expect to realize any benefit.

The firm permanently reinvests eligible earnings of certain
foreign subsidiaries and, accordingly, does not accrue any
U.S. income taxes that would arise if such earnings were
repatriated. As of December 2014 and December 2013, this
policy resulted in an unrecognized net deferred tax liability
of $4.66 billion and $4.06 billion, respectively, attributable
to reinvested earnings of $24.88 billion and $22.54 billion,
respectively.

of December

$232 million

The firm has recorded deferred tax assets of $336 million
and
and
December 2013, respectively,
in connection with U.S.
federal, state and local and foreign net operating loss
carryforwards. The firm also recorded a valuation
allowance of $26 million and $45 million as of
December 2014 and December 2013, respectively, related
to these net operating loss carryforwards.

2014

Goldman Sachs 2014 Annual Report 185

Notes to Consolidated Financial Statements

Unrecognized Tax Benefits
The firm recognizes tax positions in the financial statements
only when it is more likely than not that the position will be
sustained on examination by the relevant taxing authority
based on the technical merits of the position. A position
that meets this standard is measured at the largest amount
of benefit that will more likely than not be realized on
settlement. A liability is established for differences between
positions taken in a tax return and amounts recognized in
the financial statements.

As of December 2014 and December 2013, the accrued
liability for interest expense related to income tax matters
and income
tax penalties was $101 million and
$410 million, respectively. The firm recognized interest
expense and income tax penalties of $45 million,
$53 million and $95 million for 2014, 2013 and 2012,
respectively. It is reasonably possible that unrecognized tax
benefits could change significantly during the twelve
months subsequent to December 2014 due to potential
audit settlements. However, at this time it is not possible to
estimate any potential change.

The table below presents the changes in the liability for
unrecognized tax benefits. This liability is included in
“Other liabilities and accrued expenses.” See Note 17 for
further information.

$ in millions

Balance, beginning of year
Increases based on tax positions related

As of December

2014

2013

2012

$ 1,765

$2,237

$1,887

to the current year

204

144

190

Increases based on tax positions related

to prior years

263

149

336

Decreases based on tax positions

related to prior years

Decreases related to settlements
Acquisitions/(dispositions)
Exchange rate fluctuations
Balance, end of year

Related deferred income tax asset 1
Net unrecognized tax benefit 2

(241)
(1,112)
—
(8)
871

172
699

(471)
(299)
—
5
$1,765

475
$1,290

(109)
(35)
(47)
15
$2,237

685
$1,552

1. Included in “Other assets.” See Note 13.

2. If recognized, the net tax benefit would reduce the firm’s effective income

tax rate.

186 Goldman Sachs 2014 Annual Report

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

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

Jurisdiction

U.S. Federal
New York State and City
United Kingdom
Japan
Hong Kong
Korea

As of
December 2014

2008
2007
2012
2010
2006
2010

The U.S. Federal examinations of fiscal 2008 through
calendar 2010 were finalized, but the settlement is subject
to review by the Joint Committee of Taxation. The
examinations of 2011 and 2012 began in 2013.

New York State and City examinations of fiscal 2004
2014. The
finalized
through
examinations of fiscal 2007 through 2010 began in 2013.

2006 were

during

The United Kingdom examinations of fiscal 2008 through
2011 were finalized during 2014.

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

that

In January 2013,
the firm was accepted into the
Compliance Assurance Process program by the IRS. This
program allows the firm to work with the IRS to identify
and resolve potential U.S. federal tax issues before the filing
of tax returns. The 2013 tax year is the first year that was
examined under the program, and remains subject to post-
filing review. The firm was also accepted into the program
for the 2014 and 2015 tax years.

Notes to Consolidated Financial Statements

Note 25.
Business Segments

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

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

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

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

the

Management believes that the information in the table
below provides a reasonable representation of each
segment’s contribution to consolidated pre-tax earnings
and total assets.

$ in millions

Investment Banking
Financial Advisory

Equity underwriting
Debt underwriting
Total Underwriting
Total net revenues
Operating expenses
Pre-tax earnings

Segment assets

Year Ended or as of December

2014

2013

2012

2,474

1,978

1,975

1,750
2,240
3,990
6,464
3,688
2,776

1,845

1,659
2,367
4,026
6,004
3,479
2,525

1,901

987
1,964
2,951
4,926
3,333
1,593

1,712

Institutional Client Services
Fixed Income, Currency and

Commodities Client Execution

8,461

8,651

9,914

Equities client execution
Commissions and fees
Securities services
Total Equities
Total net revenues 1
Operating expenses
Pre-tax earnings

2,079
3,153
1,504
6,736
15,197
10,880
4,317

2,594
3,103
1,373
7,070
15,721
11,792
3,929

3,171
3,053
1,986
8,210
18,124
12,490
5,634

Segment assets

$696,013

$788,238

$825,496

Investing & Lending
Equity securities
Debt securities and loans
Other
Total net revenues
Operating expenses
Pre-tax earnings

3,813
2,165
847
6,825
2,819
4,006

3,930
1,947
1,141
7,018
2,686
4,332

2,800
1,850
1,241
5,891
2,668
3,223

Segment assets

$143,842

$109,285

$ 98,600

Investment Management
Management and other fees
Incentive fees
Transaction revenues
Total net revenues
Operating expenses
Pre-tax earnings

4,800
776
466
6,042
4,647
1,395

4,386
662
415
5,463
4,357
1,106

4,105
701
416
5,222
4,296
926

Segment assets

$ 14,540

$ 12,083

$ 12,747

Total net revenues
Total operating expenses 2
Total pre-tax earnings

Total assets

$ 34,528
22,171
$ 12,357

$ 34,206
22,469
$ 11,737

$ 34,163
22,956
$ 11,207

$856,240

$911,507

$938,555

1. Includes $37 million for 2013 and $121 million for 2012 of realized gains on

available-for-sale securities.

2. Includes charitable contributions that have not been allocated to the firm’s
segments of $137 million for 2014, $155 million for 2013 and $169 million for
2012. Operating expenses related to real estate-related exit costs, previously
not allocated to the firm’s segments, have now been allocated. This
allocation reflects the change in the manner in which management views the
performance of the firm’s segments. Reclassifications have been made to
previously
to conform to the current
amounts
presentation.

reported segment

Goldman Sachs 2014 Annual Report 187

Notes to Consolidated Financial Statements

The segment information presented in the table above is
prepared according to the following methodologies:
‰ Revenues and expenses directly associated with each
segment are included in determining pre-tax earnings.
‰ Net revenues in the firm’s segments include allocations of
interest income and interest expense to specific securities,
commodities and other positions in relation to the cash
such
generated by, or
underlying positions. Net interest is included in segment
net revenues as it is consistent with the way in which
management assesses segment performance.

funding requirements of,

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

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

$ in millions

Investment Banking
Institutional Client Services
Investing & Lending
Investment Management
Total net interest income

Year Ended December

2014

2013

2012

$ — $ — $

3,679
237
131
$4,047

3,250
25
117
$3,392

(15)
3,723
26
146
$3,880

$ in millions

Investment Banking
Institutional Client Services
Investing & Lending
Investment Management
Total depreciation and amortization 1

Year Ended December

2014

2013

2012

$ 135
525
530
147
$1,337

$ 144
571
441
166
$1,322

$ 166
802
565
205
$1,738

1. Depreciation and amortization related to real estate-related exit costs,
previously not allocated to the firm’s segments, have now been allocated.
This allocation reflects the change in the manner in which management
views the performance of the firm’s segments. Reclassifications have been
made to previously reported segment amounts to conform to the current
presentation.

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

188 Goldman Sachs 2014 Annual Report

Geographic results are generally allocated as follows:
‰ Investment Banking: location of the client and investment

banking team.

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

‰ Investing & Lending:

Investing:

location of

the

investment; Lending: location of the client.

‰ Investment Management: location of the sales team.

The table below presents the total net revenues, pre-tax
earnings and net earnings of the firm by geographic region
allocated based on the methodology referred to above, as
well as the percentage of total net revenues, pre-tax
earnings and net earnings (excluding Corporate) for each
geographic region.
In the table below, Asia includes
Australia and New Zealand.

$ in millions

2014

2013

2012

Year Ended December

Net revenues
Americas
Europe, Middle

East and Africa

Asia
Total net

$20,062

58% $19,858

58% $20,159

59%

9,057
5,409

26%
16%

8,828
5,520

26% 8,612
16% 5,392

25%
16%

revenues

$34,528 100% $34,206 100% $34,163 100%

Pre-tax earnings
Americas
Europe, Middle

East and Africa

Asia
Subtotal
Corporate 1
Total pre-tax
earnings

Net earnings
Americas
Europe, Middle

East and Africa

Asia
Subtotal
Corporate
Total net

$ 7,144

57% $ 6,794

57% $ 6,956

61%

3,338
2,012

26%
13%
12,494 100% 11,892 100% 11,376 100%

27% 2,931
16% 1,489

3,230
1,868

27%
16%

(137)

(155)

(169)

$12,357

$11,737

$11,207

$ 4,558

53% $ 4,425

54% $ 4,255

56%

30%
2,576
1,434
17%
8,568 100%

29% 2,361
971
17%

31%
2,377
1,345
13%
8,147 100% 7,587 100%

(91)

(107)

(112)

earnings

$ 8,477

$ 8,040

$ 7,475

1. Includes charitable contributions that have not been allocated to the firm’s
geographic regions. Operating expenses related to real estate-related exit
costs, previously not allocated to the firm’s geographic regions, have now
been allocated. This allocation reflects the change in the manner in which
management
regions.
Reclassifications have been made to previously reported geographic region
amounts to conform to the current presentation.

performance

geographic

views

the

Notes to Consolidated Financial Statements

Note 26.
Credit Concentrations

investing,

underwriting,

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

lending

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

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

The table below presents the credit concentrations in cash
instruments held by the firm.

To reduce credit exposures, the firm may enter into
agreements with counterparties that permit the firm to
offset receivables and payables with such counterparties
and/or enable the firm to obtain collateral on an upfront or
contingent basis. Collateral obtained by the firm related to
derivative assets is principally cash and is held by the firm
or a third-party custodian. Collateral obtained by the firm
related to resale agreements and securities borrowed
transactions is primarily U.S. government and federal
agency obligations and non-U.S. government and agency
obligations. See Note 10 for further information about
collateralized agreements and financings.

that

collateralize

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

segregated for

$ in millions

U.S. government and federal

agency obligations 1

% of total assets
Non-U.S. government and

agency obligations 1

% of total assets

As of December

2014

2013

$69,170
8.1%

$90,118
9.9%

$37,059
4.3%

$40,944
4.5%

$ in millions

U.S. government and federal

agency obligations

Non-U.S. government and

agency obligations 1

As of December

2014

2013

$103,263

$100,672

71,302

79,021

1. Included in “Financial

instruments owned, at fair value” and “Cash and

United Kingdom, Japan and Germany.

securities segregated for regulatory and other purposes.”

1. Principally consists of securities issued by the governments of France, the

As of December 2014 and December 2013, the firm did not
have credit exposure to any other counterparty that
exceeded 2% of total assets.

Goldman Sachs 2014 Annual Report 189

Management is generally unable to estimate a range of
reasonably possible loss for matters other than those
included in the estimate above, including where (i) actual or
potential plaintiffs have not claimed an amount of money
damages, except in those instances where management can
otherwise determine an appropriate amount, (ii) matters
are in early stages,
(iii) matters relate to regulatory
investigations or reviews, except in those instances where
management can otherwise determine an appropriate
amount, (iv) there is uncertainty as to the likelihood of a
class being certified or the ultimate size of the class, (v) there
is uncertainty as to the outcome of pending appeals or
motions, (vi) there are significant factual
issues to be
resolved, and/or (vii) there are novel legal issues presented.
For example, the firm’s potential liabilities with respect to
future mortgage-related “put-back” claims, any future
claims arising from the ongoing investigations by members
of the Residential Mortgage-Backed Securities Working
Group of the U.S. Financial Fraud Enforcement Task Force
(RMBS Working Group) and the action filed by the Libyan
Investment Authority discussed below may ultimately result
in a significant increase in the firm’s liabilities, but are not
included in management’s estimate of reasonably possible
loss. As another example, the firm’s potential liabilities
with respect to the investigations and reviews discussed
below under “Regulatory Investigations and Reviews and
Related Litigation” also generally are not included in
management’s
loss.
However, management does not believe, based on currently
available information, that the outcomes of such other
matters will have a material adverse effect on the firm’s
financial condition, though the outcomes could be material
to the firm’s operating results for any particular period,
depending, in part, upon the operating results for such
period. See Note 18 for
information about
mortgage-related contingencies.

reasonably possible

estimate of

further

Notes to Consolidated Financial Statements

Note 27.
Legal Proceedings

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

Under ASC 450, an event is “reasonably possible” if “the
chance of the future event or events occurring is more than
remote but less than likely” and an event is “remote” if “the
chance of the future event or events occurring is slight.”
Thus, references to the upper end of the range of reasonably
possible loss for cases in which the firm is able to estimate a
range of reasonably possible loss mean the upper end of the
range of loss for cases for which the firm believes the risk of
loss is more than slight.

With respect
to matters described below for which
management has been able to estimate a range of
reasonably possible loss where (i) actual or potential
plaintiffs have claimed an amount of money damages,
(ii) the firm is being, or threatened to be, sued by purchasers
in an underwriting and is not being indemnified by a party
that the firm believes will pay any judgment, or (iii) the
purchasers are demanding that
the firm repurchase
securities, management has estimated the upper end of the
range of reasonably possible loss as being equal to (a) in the
case of (i), the amount of money damages claimed, (b) in the
case of (ii), the difference between the initial sales price of
the securities that the firm sold in such underwriting and the
estimated lowest subsequent price of such securities and
(c) in the case of (iii), the price that purchasers paid for the
securities
if any, as of
December 2014 of the relevant securities, in each of cases
(i), (ii) and (iii), taking into account any factors believed to
be relevant to the particular matter or matters of that type.
As of the date hereof, the firm has estimated the upper end
of the range of reasonably possible aggregate loss for such
matters and for any other matters described below where
management has been able to estimate a range of
reasonably possible aggregate loss to be approximately
$3.0 billion in excess of the aggregate reserves for such
matters.

estimated value,

less

the

190 Goldman Sachs 2014 Annual Report

Notes to Consolidated Financial Statements

Mortgage-Related Matters. Beginning in April 2010, a
number of purported securities law class actions were filed
in the U.S. District Court for the Southern District of New
York challenging the adequacy of Group Inc.’s public
disclosure of, among other things, the firm’s activities in the
CDO market, the firm’s conflict of interest management,
and the SEC investigation that led to GS&Co. entering into
a consent agreement with the SEC, settling all claims made
against GS&Co. by the SEC in connection with the
ABACUS 2007-AC1 CDO offering (ABACUS 2007-AC1
transaction), pursuant to which GS&Co. paid $550 million
of disgorgement and civil penalties. The consolidated
amended complaint filed on July 25, 2011, which names as
defendants Group Inc. and certain officers and employees
of Group Inc. and its affiliates, generally alleges violations
of Sections 10(b) and 20(a) of the Exchange Act and seeks
unspecified damages. On June 21, 2012, the district court
dismissed the claims based on Group Inc.’s not disclosing
that it had received a “Wells” notice from the staff of the
SEC related to the ABACUS 2007-AC1 transaction, but
permitted the plaintiffs’ other claims to proceed.

the firm. On February 15, 2013,

In June 2012, the Board of Directors of Group Inc. (Board)
received a demand from a shareholder that the Board
investigate and take action relating to the firm’s mortgage-
related activities and to stock sales by certain directors and
executives of
this
shareholder filed a putative shareholder derivative action in
New York Supreme Court, New York County, against
Group Inc. and certain current or former directors and
employees, based on these activities and stock sales. The
derivative complaint includes allegations of breach of
fiduciary duty, unjust enrichment, abuse of control, gross
mismanagement and corporate waste, and seeks, among
other things, unspecified monetary damages, disgorgement
of profits and certain corporate governance and disclosure
reforms. On May 28, 2013, Group Inc.
informed the
shareholder that the Board completed its investigation and
determined to refuse the demand. On June 20, 2013, the
shareholder made a books and records demand requesting
materials relating to the Board’s determination. The parties
have agreed to stay proceedings in the putative derivative
action pending resolution of
the books and records
demand.

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

institutions

assistance

financial

GS&Co., Goldman Sachs Mortgage Company and GS
Mortgage Securities Corp. and three current or former
Goldman Sachs employees are defendants in a putative
class action commenced on December 11, 2008 in the U.S.
District Court for the Southern District of New York
brought on behalf of purchasers of various mortgage pass-
through certificates and asset-backed certificates issued by
various securitization trusts established by the firm and
underwritten by GS&Co. in 2007. The complaint generally
the registration statement and prospectus
alleges that
supplements
the certificates violated the federal
for
securities
laws, and seeks unspecified compensatory
damages and rescission or rescissionary damages. By a
decision dated September 6, 2012, the U.S. Court of
Appeals for the Second Circuit affirmed the district court’s
dismissal of plaintiff’s claims with respect to 10 of the 17
offerings included in plaintiff’s original complaint but
vacated the dismissal and remanded the case to the district
court with instructions to reinstate the plaintiff’s claims
with
offerings. On
other
respect
the
the plaintiff served an amended
October 31, 2012,
complaint relating to those seven offerings, plus seven
additional
offerings). On
July 10, 2014, the court granted the defendants’ motion to
dismiss as to the additional offerings. On June 3, 2010,
another investor filed a separate putative class action
asserting substantively similar allegations relating to one of
the additional offerings and thereafter moved to further
amend its amended complaint to add claims with respect to
two of the additional offerings. On March 27, 2014, the
district court largely denied defendants’ motion to dismiss
as to the original offering, but denied the separate plaintiff’s
motion to add the two additional offerings through an
amendment. The securitization trusts issued, and GS&Co.
underwrote, approximately $11 billion principal amount of
certificates to all purchasers in the offerings at issue in the
complaints.

(additional

offerings

seven

Goldman Sachs 2014 Annual Report 191

Notes to Consolidated Financial Statements

On September 30, 2010, a class action was filed in the U.S.
District Court for the Southern District of New York
against GS&Co., Group Inc. and two former GS&Co.
employees on behalf of investors in $823 million of notes
issued in 2006 and 2007 by two synthetic CDOs (Hudson
Mezzanine 2006-1 and 2006-2). The amended complaint
asserts federal securities law and common law claims, and
seeks unspecified compensatory, punitive and other
damages. The defendants’ motion to dismiss was granted as
to plaintiff’s claim of market manipulation and denied as to
the remainder of plaintiff’s claims by a decision dated
March 21, 2012. On May 21, 2012, the defendants
counterclaimed for breach of contract and fraud. On
June 27, 2014, the appellate court denied defendants’
petition for leave to appeal
from the district court’s
January 22, 2014 order granting class certification. On
summary
January 30, 2015, defendants moved for
judgment.

Various alleged purchasers of, and counterparties and
providers of credit enhancement involved in transactions
relating to, mortgage pass-through certificates, CDOs and
other mortgage-related products (including Aozora Bank,
Ltd., Basis Yield Alpha Fund (Master), the Charles Schwab
Corporation, CIFG Assurance of North America, Inc.,
CMFG Life Insurance Company and related parties,
Deutsche Zentral-Genossenschaftbank,
the FDIC (as
receiver for Guaranty Bank), the Federal Home Loan Banks
of Chicago and Seattle, IKB Deutsche Industriebank AG,
John Hancock and related parties, Massachusetts Mutual
Life Insurance Company, National Australia Bank, the
National Credit Union Administration (as conservator or
liquidating agent for several failed credit unions), Phoenix
Light SF Limited and related parties, Royal Park
Investments SA/NV, The Union Central Life Insurance
Company, Ameritas Life Insurance Corp., Acacia Life
Insurance
Bank,
Commerzbank, Texas County & District Retirement
System and the Commonwealth of Virginia (on behalf of
the Virginia Retirement System)) have filed complaints or
summonses with notice in state and federal court or
initiated arbitration proceedings against firm affiliates,
generally alleging that the offering documents for the
securities that they purchased contained untrue statements
of material fact and material omissions and generally
these
seeking rescission and/or damages. Certain of
complaints allege fraud and seek punitive damages. Certain
of these complaints also name other firms as defendants.

Company, Watertown

Savings

192 Goldman Sachs 2014 Annual Report

A number of other entities (including John Hancock and
related parties, Norges Bank Investment Management,
Selective Insurance Company and the State of Illinois (on
behalf of Illinois state retirement systems)) have threatened
to assert claims of various types against the firm in
connection with the sale of mortgage-related securities. The
firm has entered into agreements with a number of these
entities to toll the relevant statute of limitations.

As of the date hereof, the aggregate amount of mortgage-
related securities sold to plaintiffs in active and threatened
cases described in the preceding two paragraphs where
those plaintiffs are seeking rescission of such securities was
approximately $6.6 billion (which does not
reflect
adjustment for any subsequent paydowns or distributions
or any residual value of such securities, statutory interest or
any other adjustments that may be claimed). This amount
does not include the potential claims by these or other
purchasers in the same or other mortgage-related offerings
that have not been described above, or claims that have
been dismissed.

The firm has entered into agreements with Deutsche Bank
National Trust Company and U.S. Bank National
Association to toll the relevant statute of limitations with
respect to claims for repurchase of residential mortgage
loans based on alleged breaches of representations related
to $11.4 billion original notional
face amount of
securitizations issued by trusts for which they act as
trustees.

generally

challenging

of New York

Group Inc., Litton, Ocwen and Arrow Corporate Member
Holdings LLC, a former subsidiary of Group Inc., are
defendants
in a putative class action pending since
January 23, 2013 in the U.S. District Court for the Southern
District
the
procurement manner and scope of “force-placed” hazard
insurance arranged by Litton when homeowners failed to
arrange for insurance as required by their mortgages. The
complaint asserts claims for breach of contract, breach of
fiduciary duty, misappropriation,
conversion, unjust
enrichment and violation of Florida unfair practices law,
and seeks unspecified compensatory and punitive damages
as well as declaratory and injunctive relief. An amended
filed on November 19, 2013, added an
complaint,
additional
On
and
September 29, 2014, the court denied without prejudice and
with leave to renew at a later date Group Inc.’s motion to
sever the claims against it and certain other defendants.

plaintiff

claims.

RICO

Notes to Consolidated Financial Statements

federal,

state and local

The firm has also received, and continues to receive,
requests for information and/or subpoenas as part of
inquiries or investigations by the U.S. Department of
Justice, other members of the RMBS Working Group and
regulators and law
other
enforcement authorities relating to the mortgage-related
securitization process,
subprime mortgages, CDOs,
synthetic mortgage-related products, sales communications
and particular transactions involving these products, and
servicing and foreclosure activities, which may subject the
firm to actions, including litigation, penalties and fines. In
December 2014, as part of the RMBS Working Group
investigation, the firm received a letter from the U.S.
Attorney for the Eastern District of California stating in
connection with potentially bringing a civil action that it
had preliminarily concluded that the firm had violated
law in connection with its underwriting,
federal
securitization and sale of residential mortgage-backed
securities and offering the firm an opportunity to respond.
The firm is cooperating with these regulators and other
authorities, including in some cases agreeing to the tolling
of the relevant statute of limitations. See also “Regulatory
Investigations and Reviews and Related Litigation” below.

investor

The firm expects to be the subject of additional putative
shareholder derivative actions, purported class actions,
rescission and “put back” claims and other litigation,
additional
and
additional regulatory and other investigations and actions
loan sales,
with respect to mortgage-related offerings,
CDOs, and servicing and foreclosure activities. See Note 18
for information regarding mortgage-related contingencies
not described in this Note 27.

and shareholder demands,

for

that

the District of Massachusetts

Private Equity-Sponsored Acquisitions Litigation.
Group Inc. is among numerous private equity firms named
as defendants in a federal antitrust action filed in the U.S.
in
District Court
December 2007. As amended, the complaint generally
alleges
the defendants have colluded to limit
competition in bidding for private equity-sponsored
acquisitions of public companies, thereby resulting in lower
prevailing bids and, by extension, less consideration for
shareholders of those companies in violation of Section 1 of
the U.S. Sherman Antitrust Act and common law. The
complaint seeks, among other things, treble damages in an
unspecified amount. In June 2014, Group Inc. and the
plaintiffs agreed to a settlement, which the
court
preliminarily approved on September 29, 2014. Group Inc.,
together with its affiliates, has paid the full amount of its
proposed contribution to the settlement.

Inc.

their officers

RALI Pass-Through Certificates Litigation. GS&Co. is
among numerous underwriters named as defendants in a
securities class action initially filed in September 2008 in
New York Supreme Court, and subsequently removed to
the U.S. District Court for the Southern District of New
York. As to the underwriters, plaintiffs allege that the
offering documents in connection with various offerings of
mortgage-backed pass-through certificates violated the
disclosure requirements of the federal securities laws. In
addition to the underwriters,
the defendants include
Residential Capital, LLC (ResCap), Residential Accredit
Loans,
(RALI), Residential Funding Corporation
(RFC), Residential Funding Securities Corporation (RFSC),
and certain of
and directors. On
January 3, 2013, the district court certified a class in
connection with one offering underwritten by GS&Co.
which includes only initial purchasers who bought the
securities directly from the underwriters or their agents no
later than ten trading days after the offering date. On
April 30, 2013, the district court granted in part plaintiffs’
request to reinstate a number of the previously dismissed
claims relating to an additional nine offerings underwritten
by GS&Co. On May 10, 2013, the plaintiffs filed an
amended complaint incorporating those nine additional
offerings. On December 27, 2013, the court granted the
plaintiffs’ motion for class certification as to the nine
additional offerings but denied the plaintiffs’ motion to
expand the time period and scope covered by the previous
class definition. On October 17, 2014, the plaintiffs and
defendants moved
judgment. On
February 11, 2015, GS&Co. and the other underwriter
defendants agreed to a settlement with the plaintiffs, subject
to court approval. The firm has reserved the full amount of
its proposed contribution to the settlement.

summary

for

GS&Co. underwrote approximately $5.57 billion principal
amount of securities to all purchasers in the offerings
included in the amended complaint. On May 14, 2012,
ResCap, RALI and RFC filed for Chapter 11 bankruptcy in
the U.S. Bankruptcy Court for the Southern District of New
York. On June 28, 2013, the district court entered a final
order and judgment approving a settlement between
plaintiffs and ResCap, RALI, RFC, RFSC and their officers
and directors named as defendants in the action.

Goldman Sachs 2014 Annual Report 193

Notes to Consolidated Financial Statements

MF Global Securities Litigation. GS&Co.
is among
numerous underwriters named as defendants in class action
complaints and an individual action filed in the U.S. District
Court for the Southern District of New York commencing
November 18, 2011. These complaints generally allege that
the offering materials for two offerings of MF Global
Holdings Ltd. (MF Global) convertible notes (aggregating
approximately $575 million in principal amount)
in
February 2011 and July 2011, among other things, failed to
describe adequately the nature, scope and risks of MF
Global’s exposure to European sovereign debt, in violation
of the disclosure requirements of the federal securities laws.
On December 12, 2014, the court preliminarily approved a
settlement
on
January 5, 2015, the court entered an order effectuating the
settlement of all claims against GS&Co. in the individual
action. GS&Co. has paid the full amount of its contribution
to the settlements.

resolving

action,

class

and

the

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

filed

class

actions

putative

securities

GT Advanced Technologies Securities Litigation.
GS&Co. is among the underwriters named as defendants in
several
in
October 2014 in the U.S. District Court for the District of
New Hampshire. In addition to the underwriters, the
defendants include certain directors and officers of GT
Advanced Technologies Inc. (GT Advanced Technologies).
As to the underwriters, the complaints generally allege
misstatements and omissions in connection with the
December 2013 offerings by GT Advanced Technologies of
approximately $86 million of
common stock and
$214 million principal amount of convertible senior notes,
assert claims under the federal securities laws, and seek
compensatory damages in an unspecified amount and
rescission. GS&Co. underwrote 3,479,769 shares of
common stock and $75 million principal amount of notes
approximately
for
$105 million. On October 6, 2014, GT Advanced
Technologies filed for Chapter 11 bankruptcy.

an aggregate offering price of

194 Goldman Sachs 2014 Annual Report

FireEye Securities Litigation. GS&Co.
is among the
underwriters named as defendants in several putative
securities class actions, filed beginning in June 2014 in the
California Superior Court, County of Santa Clara. In
the defendants include
addition to the underwriters,
FireEye, Inc. (FireEye) and certain of its directors and
officers. The complaints generally allege misstatements and
omissions in connection with the offering materials for the
March 2014 offering of approximately $1.15 billion of
FireEye common stock, assert claims under the federal
securities laws, and seek compensatory damages in an
unspecified amount and rescission. GS&Co. underwrote
2,100,000 shares for a total offering price of approximately
$172 million.

complaint

Millennial Media Securities Litigation. GS&Co.
is
among the underwriters named as defendants in a putative
securities class action filed on September 30, 2014 in the
U.S. District Court for the Southern District of New York.
In addition to the underwriters, the defendants include
Millennial Media, Inc. (Millennial Media) and certain of its
directors, officers and shareholders. As to the underwriters,
generally
the
and
omissions
connection with Millennial Media’s
$152 million March 2012 initial public offering and the
October 2012 offering of approximately $163 million of
Millennial Media’s common stock, asserts claims under the
federal securities laws, and seeks compensatory damages in
an unspecified amount and rescission. GS&Co. underwrote
3,519,000 and 3,450,000 shares of common stock in the
March and October 2012 offerings, respectively, for an
aggregate offering price of approximately $95 million.

alleges misstatements

Zynga Securities Litigation. GS&Co. was among the
underwriters named as defendants in a putative securities
class action filed on August 1, 2012 in the California
Superior Court, County of San Francisco. In addition to the
underwriters, the defendants included Zynga Inc. (Zynga)
and certain of its directors and officers. The consolidated
amended complaint, filed on April 29, 2013, generally
alleged that the offering materials for the March 2012
$516 million secondary offering of Zynga common stock
by certain of Zynga’s shareholders violated the disclosure
requirements of the federal securities laws, and sought
compensatory damages in an unspecified amount and
rescission. On February 11, 2015, the court dismissed the
action.

Notes to Consolidated Financial Statements

Cobalt
International Energy Securities Litigation.
Cobalt International Energy, Inc. (Cobalt), certain of its
officers and directors (including employees of affiliates of
Group Inc. who served as directors of Cobalt), shareholders
of Cobalt (including certain funds affiliated with Group
Inc.), affiliates of these shareholders (including Group Inc.)
and underwriters (including GS&Co.) for certain offerings
of Cobalt’s securities are defendants in a putative securities
class action filed on November 30, 2014 in the U.S. District
Court for the Southern District of Texas. The complaint
asserts claims under the federal securities laws, seeks
compensatory and rescissory damages
in unspecified
amounts and alleges material misstatements and omissions
concerning Cobalt in connection with a $1.67 billion
February 2012 offering of Cobalt common stock, a
$1.38 billion December 2012 offering of Cobalt’s
convertible notes, a $1.00 billion January 2013 offering of
Cobalt’s common stock, a $1.33 billion May 2013 offering
of Cobalt’s common stock, and a $1.30 billion May 2014
offering of Cobalt’s convertible notes. The complaint
alleges that Group Inc., GS&Co. and the affiliated funds
are liable as controlling persons with respect to all five
offerings. The complaint also seeks damages (i) from
GS&Co. in connection with its acting as an underwriter of
14,430,000 shares of common stock representing an
aggregate offering price of approximately $465 million,
$690 million principal amount of convertible notes, and
approximately
of
convertible notes in the February 2012, December 2012
and May 2014 offerings, respectively, for an aggregate
offering price of approximately $1.66 billion, and (ii) from
Group Inc. and the affiliated funds in connection with their
sales of 40,042,868 shares of common stock for aggregate
gross proceeds of approximately $1.06 billion in the
February 2012, January 2013 and May 2013 common
stock offerings.

$508 million

principal

amount

Employment-Related Matters. On September 15, 2010,
a putative class action was filed in the U.S. District Court
for the Southern District of New York by three female
former employees alleging that Group Inc. and GS&Co.
have systematically discriminated against female employees
in respect of compensation, promotion, assignments,
mentoring and performance evaluations. The complaint
alleges a class consisting of all female employees employed
at specified levels in specified areas by Group Inc. and
GS&Co. since July 2002, and asserts claims under federal
and New York City discrimination laws. The complaint
seeks class action status, injunctive relief and unspecified
amounts of compensatory, punitive and other damages. On
July 17, 2012, the district court issued a decision granting in
part Group Inc.’s and GS&Co.’s motion to strike certain of
plaintiffs’ class allegations on the ground that plaintiffs
lacked standing to pursue certain equitable remedies and
denying Group Inc.’s and GS&Co.’s motion to strike
plaintiffs’ class allegations in their entirety as premature.
On March 21, 2013, the U.S. Court of Appeals for the
Second Circuit held that arbitration should be compelled
with one of the named plaintiffs, who as a managing
director was a party to an arbitration agreement with the
firm. On May 19, 2014, plaintiffs moved for class
certification.

Investment Management Services. Group Inc. and
certain of its affiliates are parties to various civil litigation
and arbitration proceedings and other disputes with clients
relating to losses allegedly sustained as a result of the firm’s
investment management services. These claims generally
seek,
other
things,
compensatory damages and,
in some cases, punitive
damages.

restitution

among

other

Financial Advisory Services. Group Inc. and certain of its
affiliates are from time to time parties to various civil
litigation and arbitration proceedings and other disputes
with clients and third parties relating to the firm’s financial
advisory activities. These claims generally seek, among
other things, compensatory damages and, in some cases,
punitive damages, and in certain cases allege that the firm
did not appropriately disclose or deal with conflicts of
interest.

Goldman Sachs 2014 Annual Report 195

Municipal Securities Matters. GS&Co. (along with, in
some cases, other financial services firms) is named as
respondent in a number of FINRA arbitrations filed by
municipalities, municipal-owned entities,
state-owned
agencies or instrumentalities and non-profit entities, based
on GS&Co.’s role as underwriter of
the claimants’
issuances of an aggregate of approximately $2.0 billion of
auction rate securities from 2003 through 2007 and as a
broker-dealer with respect to auctions for these securities.
The claimants generally allege that GS&Co. failed to
disclose that it had a practice of placing cover bids in
auctions, and/or failed to inform the claimant of the
deterioration of the auction rate market beginning in the
fall of 2007, and that, as a result, the claimant was forced to
engage in a series of expensive refinancing and conversion
transactions after the failure of the auction market in
February 2008. Certain claimants also allege that GS&Co.
advised them to enter into interest rate swaps in connection
with their auction rate securities issuances, causing them to
incur additional
losses. The claims include breach of
negligent
duty,
fiduciary
misrepresentation, breach of contract, violations of the
Exchange Act and state securities laws, and breach of duties
under the rules of the Municipal Securities Rulemaking
Board and the NASD. One claimant has also filed a
complaint against GS&Co. in federal court asserting the
same claims as in the FINRA arbitration.

concealment,

fraudulent

GS&Co. filed complaints and motions in federal court
seeking to enjoin certain of the arbitrations to effectuate the
exclusive forum selection clauses
in the transaction
documents. In one case, the district court denied the
injunction but was reversed by the appellate court, and the
U.S. Supreme Court denied the claimant’s petition for
certiorari seeking review of the appellate court’s decision; in
other cases, the district court granted the injunctions, which
have been affirmed by the appellate court.

GS&Co. has also filed motions with the FINRA Panels to
dismiss the arbitrations, one of which has been granted.

Notes to Consolidated Financial Statements

Credit Derivatives Antitrust Matters. The European
Commission announced in April 2011 that it was initiating
proceedings to investigate further numerous financial
services companies, including Group Inc., in connection
with the supply of data related to credit default swaps and
in connection with profit sharing and fee arrangements for
clearing of credit default swaps, including potential anti-
competitive practices. On July 1, 2013, the European
Commission issued to those financial services companies a
Statement of Objections alleging that they colluded to limit
competition in the trading of exchange-traded unfunded
credit derivatives and exchange trading of credit default
swaps more generally, and setting out its process for
determining fines and other remedies. Group Inc.’s current
understanding is that the proceedings related to profit
sharing and fee arrangements for clearing of credit default
swaps have been suspended indefinitely. The firm has
received civil
from the U.S.
investigative demands
Department of Justice for information on similar matters.
Goldman Sachs is cooperating with the investigations and
reviews.

GS&Co. and Group Inc. are among the numerous
defendants in putative antitrust class actions relating to
filed beginning in May 2013 and
credit derivatives,
consolidated in the U.S. District Court for the Southern
District of New York. The complaints generally allege that
defendants violated federal antitrust laws by conspiring to
forestall the development of alternatives to OTC trading of
credit derivatives and to maintain inflated bid-ask spreads
for credit derivatives
seek
declaratory and injunctive relief as well as treble damages in
an unspecified amount. On September 4, 2014, the court
granted in part and denied in part the defendants’ motion to
dismiss, permitting the
claim alleging an antitrust
conspiracy to proceed but confining it to a period after the
fall of 2008.

trading. The complaints

Libya-Related Litigation. GSI is the defendant in an
action filed on January 21, 2014 with the High Court of
Justice in London by the Libyan Investment Authority,
relating to nine derivative transactions between the plaintiff
and GSI and seeking, among other things, rescission of the
transactions and unspecified equitable compensation and
damages exceeding $1 billion. On August 4, 2014, GSI
withdrew its April 10, 2014 motion for summary judgment,
and on December 4, 2014, the Libyan Investment Authority
filed an amended statement of claim.

196 Goldman Sachs 2014 Annual Report

Notes to Consolidated Financial Statements

Commodities-Related Litigation. Group Inc. and its
subsidiary, GS Power Holdings LLC (GS Power), as well as
Metro, a previously consolidated subsidiary of Group Inc.
that was sold in the fourth quarter of 2014, are among the
defendants in a number of putative class actions filed
beginning on August 1, 2013 and consolidated in the U.S.
District Court for the Southern District of New York. The
complaints generally allege violation of federal antitrust
laws and other federal and state laws in connection with the
management of aluminum storage facilities. The complaints
seek declaratory, injunctive and other equitable relief as
well as unspecified monetary damages, including treble
damages. On August 29, 2014, the court granted the
Goldman Sachs defendants’ motion to dismiss. Certain
plaintiffs appealed on September 24, 2014, and the
remaining plaintiffs filed proposed amended complaints on
October 9 and 10, 2014.

Group Inc., GS Power, Metro and GSI are among the
defendants named in putative class actions, filed beginning
on May 23, 2014 in the U.S. District Court for the Southern
District of New York, based on similar alleged violations of
the
in connection with the
management of zinc storage facilities.

federal antitrust

laws

GSI is among the defendants named in putative class
actions relating to trading in platinum and palladium, filed
beginning on November 25, 2014, in the U.S. District
Court
for the Southern District of New York. The
complaints generally allege that the defendants violated
federal antitrust laws and the Commodity Exchange Act in
connection with an alleged conspiracy to manipulate a
benchmark for physical platinum and palladium prices and
seek declaratory and injunctive relief as well as treble
damages in an unspecified amount.

ISDAFIX-Related Litigation. GS&Co.
is among the
defendants named in several putative class actions relating
to trading in interest rate derivatives, filed beginning in
September 2014 in the U.S. District Court for the Southern
District of New York. The complaints generally allege that
the defendants violated federal antitrust laws and the
Commodity Exchange Act in connection with an alleged
conspiracy to manipulate the ISDAFIX benchmark and
seek declaratory and injunctive relief as well as treble
damages in an unspecified amount. On December 12, 2014,
defendants moved to dismiss the consolidated amended
complaint, and on February 12, 2015, the plaintiffs filed a
second amended consolidated complaint.

damages

Currencies-Related Litigation. GS&Co. and Group Inc.
are among the defendants named in several putative
antitrust class actions relating to trading in the foreign
exchange markets, filed beginning in December 2013 in the
U.S. District Court for the Southern District of New York.
The complaints generally allege that defendants violated
federal antitrust
laws in connection with an alleged
conspiracy to manipulate the foreign currency exchange
markets and seek declaratory and injunctive relief as well as
treble
amount. On
February 13, 2014, the cases were consolidated into one
action. On February 28, 2014, Group Inc. was named in a
separate putative class action on behalf of non-U.S.
plaintiffs containing substantially similar allegations, which
was not consolidated but was coordinated with the other
proceedings for pretrial purposes; that complaint was
amended on April 30, 2014. On January 28, 2015, the
court
the
consolidated action and granted defendants’ motion to
dismiss the amended complaint on behalf of the non-U.S.
plaintiffs.

defendants’ motion

unspecified

dismiss

denied

Regulatory Investigations and Reviews and Related
Litigation. Group Inc. and certain of its affiliates are
subject to a number of other investigations and reviews by,
and in some cases have received subpoenas and requests for
documents and information from, various governmental
and regulatory bodies and self-regulatory organizations and
litigation relating to various matters relating to the firm’s
businesses and operations, including:
‰ The 2008 financial crisis;
‰ The public offering process;
‰ The

firm’s
advisory services;
‰ Conflicts of interest;
‰ Research practices, including research independence and
interactions between research analysts and other firm
personnel, including investment banking personnel, as
well as third parties;

investment management and financial

Goldman Sachs 2014 Annual Report 197

Notes to Consolidated Financial Statements

‰ Transactions involving municipal securities,

including
wall-cross procedures and conflict of interest disclosure
with respect to state and municipal clients, the trading
and structuring of municipal derivative instruments in
political
connection with municipal
contribution rules, underwriting of Build America Bonds,
municipal advisory services and the possible impact of
credit default swap transactions on municipal issuers;

offerings,

‰ The sales,

and related sales

trading and clearance of corporate and
government securities, currencies, commodities and other
financial products
and other
including compliance
communications and activities,
with the SEC’s short sale rule, algorithmic, high-
the firm’s U.S.
frequency and quantitative trading,
alternative trading system,
trading, options
futures
trading, transaction reporting, technology systems and
controls,
trading and
clearance of credit derivative instruments, commodities
activities and metals storage, private placement practices,
allocations of and trading in securities, and trading
activities and communications in connection with the
establishment of benchmark rates, such as currency rates
and the ISDAFIX benchmark rates;

lending practices,

securities

‰ Compliance with the U.S. Foreign Corrupt Practices Act,

including with respect to the firm’s hiring practices;
‰ The firm’s system of risk management and controls; and
‰ Insider trading, the potential misuse and dissemination of
material nonpublic information regarding corporate and
governmental developments and the effectiveness of the
firm’s insider trading controls and information barriers.

Goldman Sachs is cooperating with all such regulatory
investigations and reviews.

198 Goldman Sachs 2014 Annual Report

Note 28.
Employee Benefit Plans

The firm sponsors various pension plans and certain other
postretirement benefit plans, primarily healthcare and life
insurance. The firm also provides certain benefits to former
or inactive employees prior to retirement.

Defined Benefit Pension Plans and Postretirement
Plans
Employees of certain non-U.S. subsidiaries participate in
various defined benefit pension plans. These plans generally
provide benefits based on years of credited service and a
percentage of the employee’s eligible compensation. The
firm maintains a defined benefit pension plan for certain
U.K. employees. As of April 2008, the U.K. defined benefit
plan was closed to new participants, but allows existing
participants to continue to accrue benefits. In 2014, the
firm notified plan participants that it intends to close the
U.K. defined benefit plan to future benefit accruals after
March 31, 2016. The non-U.S. plans do not have a material
impact on the firm’s consolidated results of operations.

prior

hired

all U.S.

employees

The firm also maintains a defined benefit pension plan for
substantially
to
November 1, 2003. As of November 2004, this plan was
closed to new participants and frozen such that existing
participants would not accrue any additional benefits. In
addition,
the firm maintains unfunded postretirement
benefit plans that provide medical and life insurance for
eligible retirees and their dependents covered under these
programs. These plans do not have a material impact on the
firm’s consolidated results of operations.

The firm recognizes the funded status of its defined benefit
pension and postretirement plans, measured as
the
difference between the fair value of the plan assets and the
benefit obligation,
in the consolidated statements of
financial condition. As of December 2014, “Other assets”
and “Other liabilities and accrued expenses” included
$273 million (related to overfunded pension plans) and
$739 million, respectively, related to these plans. As of
December 2013, “Other assets” and “Other liabilities and
accrued expenses” included $179 million (related to
overfunded pension plans) and $482 million, respectively,
related to these plans.

Defined Contribution Plans
The firm contributes to employer-sponsored U.S. and non-
U.S. defined contribution plans. The firm’s contribution to
these plans was $223 million for 2014, $219 million for
2013 and $221 million for 2012.

Notes to Consolidated Financial Statements

Note 29.
Employee Incentive Plans

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. Expected forfeitures are included in determining
share-based employee compensation expense.

The firm pays cash dividend equivalents on outstanding
RSUs. Dividend equivalents paid on RSUs are generally
charged to retained earnings. Dividend equivalents paid on
RSUs expected to be forfeited are included in compensation
expense. The firm accounts for the tax benefit related to
dividend equivalents paid on RSUs as an increase to
additional paid-in capital.

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.

Stock Incentive Plan
The firm sponsors a stock incentive plan, The Goldman
Sachs Amended and Restated Stock Incentive Plan
(2013) (2013 SIP), which provides for grants of RSUs,
restricted stock, dividend equivalent rights, incentive stock
options, nonqualified stock options, stock appreciation
rights, and other share-based awards, each of which may be
subject to performance conditions. On May 23, 2013,
shareholders approved the 2013 SIP. The 2013 SIP replaces
The Goldman Sachs Amended and Restated Stock Incentive
Plan (SIP) previously in effect, and applies to awards
granted on or after the date of approval.

The total number of shares of common stock that may be
delivered pursuant to awards granted under the 2013 SIP
cannot exceed 60 million shares, subject to adjustment for
certain changes in corporate structure as permitted under
the 2013 SIP. The 2013 SIP is scheduled to terminate on the
date of the annual meeting of shareholders that occurs in
2016. As of December 2014, 45.7 million shares were
available for grant under the 2013 SIP.

Restricted Stock Units
The firm grants RSUs to employees under the 2013 SIP,
which are valued based on the closing price of
the
underlying shares on the date of grant after taking into
account a liquidity discount for any applicable post-vesting
transfer restrictions. RSUs generally vest and underlying
shares of common stock deliver as outlined in the
applicable RSU agreements. Employee RSU agreements
generally provide that vesting is accelerated in certain
circumstances, such as on retirement, death, disability and
conflicted employment. Delivery of the underlying shares of
common stock is conditioned on the grantees satisfying
certain vesting and other requirements outlined in the
award agreements.

The table below presents the activity related to RSUs.

Restricted Stock
Units Outstanding

Weighted Average
Grant-Date Fair Value
of Restricted Stock
Units Outstanding

Future
Service
Required

No Future
Service
Required

Future
Service
Required

No Future
Service
Required

Outstanding,

December 2013

Granted 1, 2
Forfeited
Delivered 3
Vested 2
Outstanding,

8,226,869 4
4,832,540
(800,429)

21,002,821
9,567,783
(158,958)
— (14,723,912)
5,602,111

(5,602,111)

155.13
130.57

$118.91 $117.53
149.52
139.02
— 121.60
119.78

119.78

December 2014

6,656,869 4

21,289,845

143.07

129.52

1. The weighted average grant-date fair value of RSUs granted during
2014, 2013 and 2012 was $151.40, $122.59 and $84.72, respectively. The
fair value of the RSUs granted during 2014, 2013 and 2012 includes a
liquidity discount of 13.8%, 13.7% and 21.7%, respectively, to reflect post-
vesting transfer restrictions of up to 4 years.

2. The aggregate fair value of awards that vested during 2014, 2013 and 2012

was $2.39 billion, $2.26 billion and $1.57 billion, respectively.

3. Includes RSUs that were cash settled.

4. Includes restricted stock subject

to future service requirements as of
December 2014 and December 2013 of 20,651 and 4,768 shares,
respectively.

In the first quarter of 2015, the firm granted to its
employees 14.0 million year-end RSUs, of which
3.6 million RSUs require future service as a condition of
delivery. These awards are subject to additional conditions
as outlined in the award agreements. Generally, shares
underlying these awards, net of required withholding tax,
deliver over a three-year period but are subject to post-
vesting transfer restrictions through January 2020. These
grants are not included in the table above.

Goldman Sachs 2014 Annual Report 199

Notes to Consolidated Financial Statements

Stock Options
Stock options generally vest as outlined in the applicable
stock option agreement. No options have been granted
since 2010.
In general, options expire on the tenth
anniversary of the grant date, although they may be subject
termination or cancellation under certain
to earlier
circumstances
the
in accordance with the terms of
applicable stock option agreement and the SIP in effect at
the time of grant.

The table below presents the activity related to stock
options.

Weighted
Average
Exercise
Price

Aggregate
Intrinsic
Value
(in millions)

Weighted
Average
Remaining
Life
(years)

Options
Outstanding

42,565,241 $ 99.37
80.81
(22,609,903)

$3,465

4.60

Outstanding,

December 2013

Exercised
Outstanding,

December 2014

19,955,338

120.40

1,516

3.28

Exercisable,

December 2014

19,955,338

120.40

1,516

3.28

The total
intrinsic value of options exercised during
2014, 2013 and 2012 was $2.03 billion, $26 million and
$151 million, respectively.

The table below presents options outstanding.

Exercise Price

$ 75.00 - $ 89.99
90.00 - 119.99
120.00 - 134.99
135.00 - 194.99
195.00 - 209.99

Outstanding,

December 2014

Options
Outstanding

12,236,264
—
1,737,950
—
5,981,124

Weighted
Average
Exercise
Price

$ 78.78
—
131.64
—
202.27

19,955,338

120.40

Weighted
Average
Remaining
Life
(years)

4.00
—
0.92
—
2.48

3.28

As of December 2014, there was $468 million of total
unrecognized compensation cost related to non-vested
is
share-based compensation arrangements. This cost
expected to be recognized over a weighted average period
of 1.53 years.

The table below presents the share-based compensation and
the related excess tax benefit/(provision).

$ in millions

Share-based compensation
Excess net tax benefit related to

options exercised

Excess net tax benefit/(provision)
related to share-based awards 1

Year Ended December

2014

2013

2012

$2,101

$2,039

$1,338

549

788

(11)

1. Represents the net tax benefit/(provision) recognized in additional paid-in
capital on stock options exercised and the delivery of common stock
underlying share-based awards.

200 Goldman Sachs 2014 Annual Report

Notes to Consolidated Financial Statements

Note 30.
Parent Company
Group Inc. — Condensed Statements of Earnings

$ in millions
Revenues
Dividends from subsidiaries

Bank subsidiaries
Nonbank subsidiaries

Undistributed earnings of subsidiaries
Other revenues
Total non-interest revenues
Interest income
Interest expense
Net interest income/(loss)
Net revenues, including net interest income

Operating expenses
Compensation and benefits
Other expenses
Total operating expenses
Pre-tax earnings
Provision/(benefit) for taxes
Net earnings
Preferred stock dividends
Net earnings applicable to common shareholders

Year Ended December

2014

2013

2012

16 $2,000 $ —
3,622
3,682
1,567
8,871
4,751
4,287
464
9,335

4,176
1,086
2,209
9,471
4,048
4,161
(113)
9,358

2,739
5,330
826
8,911
3,769
3,802
(33)
8,878

411
282
693
8,185
(292)
8,477
400

452
448
900
8,435
960
7,475
183
$8,077 $7,726 $7,292

403
424
827
8,531
491
8,040
314

Group Inc. — Condensed Statements of Financial Condition

$ in millions
Assets
Cash and cash equivalents
Loans to and receivables from subsidiaries

Bank subsidiaries
Nonbank subsidiaries 1

Investments in subsidiaries and other affiliates

Bank subsidiaries
Nonbank subsidiaries and other affiliates
Financial instruments owned, at fair value
Other assets
Total assets

Liabilities and shareholders’ equity
Payables to subsidiaries
Financial instruments sold, but not yet purchased, at fair

value

Unsecured short-term borrowings

With third parties 2
With subsidiaries

Unsecured long-term borrowings

With third parties 3
With subsidiaries 4

Other liabilities and accrued expenses
Total liabilities

Commitments, contingencies and guarantees

Shareholders’ equity
Preferred stock
Common stock
Share-based awards
Additional paid-in capital
Retained earnings
Accumulated other comprehensive loss
Stock held in treasury, at cost
Total shareholders’ equity
Total liabilities and shareholders’ equity

42 $

8,222
171,121

5,366
169,653

22,393
57,311
11,812
7,629

20,972
52,422
16,065
7,575
$278,530 $272,070

129 $

489

169

421

31,022
1,955

30,611
4,289

158,613
1,616
2,229
195,733

153,576
1,587
2,630
193,603

9,200
9
3,766
50,049
78,984
(743)
(58,468)
82,797

7,200
8
3,839
48,998
71,961
(524)
(53,015)
78,467
$278,530 $272,070

Group Inc. — Condensed Statements of Cash Flows

$ in millions
Cash flows from operating activities
Net earnings
Adjustments to reconcile net earnings to net

cash provided by operating activities
Undistributed earnings of subsidiaries
Depreciation and amortization
Deferred income taxes
Share-based compensation
Gain on extinguishment of junior

subordinated debt

Changes in operating assets and liabilities

Financial instruments owned, at fair value
Financial instruments sold, but not yet

purchased, at fair value

Other, net

Net cash provided by operating activities
Cash flows from investing activities
Purchase of property, leasehold improvements

Year Ended December

2014

2013

2012

$ 8,477 $ 8,040 $ 7,475

(5,330)
42
(4)
188

(1,086)
15
1,398
194

(3,682)
15
(1,258)
81

(289)

—

6,766

(3,235)

2,197

(252)
(5,793)
3,805

183
586
6,095

(3)
1,888
6,713

and equipment

(15)

(3)

(12)

Repayments/(issuances) of short-term loans by/

(to) subsidiaries, net

Issuance of term loans to subsidiaries
Repayments of term loans by subsidiaries
Capital distributions from/(contributions to)

As of December

subsidiaries, net

2014

2013

Net cash provided by/(used for) investing

activities

Cash flows from financing activities
Unsecured short-term borrowings, net
Proceeds from issuance of long-term

borrowings

(4,099)
(8,803)
3,979

(5,153)
(2,174)
7,063

6,584
(17,414)
18,715

865

655

(298)

(8,073)

388

7,575

963

1,296

(2,647)

37,101

28,458

26,160

Repayment of long-term borrowings, including

the current portion

(27,931)

(29,910)

(35,608)

Purchase of trust preferred securities and

senior guaranteed trust securities

Common stock repurchased
Dividends and dividend equivalents paid on

common stock, preferred stock and
share-based awards

Proceeds from issuance of preferred stock, net

(1,801)
(5,469)

—
(6,175)

—
(4,640)

(1,454)

(1,302)

(1,086)

of issuance costs

1,980

991

3,087

Proceeds from issuance of common stock,
including exercise of share-based awards

Excess tax benefit related to share-based

awards

Cash settlement of share-based awards
Net cash provided by/(used for) financing

activities

Net increase in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year

123

782
(1)

98
(1)

317

130
(1)

4,293
25
17
42 $

(6,480)
3
14
17 $

(14,288)
—
14
14

SUPPLEMENTAL DISCLOSURES:
Cash payments for
third-party interest, net of capitalized interest, were
$4.31 billion, $2.78 billion and $5.11 billion for 2014, 2013 and 2012, respectively.
Cash payments for
refunds, were $2.35 billion,
income taxes, net of
$3.21 billion and $1.59 billion for 2014, 2013 and 2012, respectively.
Non-cash activity:
During 2014, the firm exchanged $1.58 billion of Trust Preferred Securities,
common beneficial interests and senior guaranteed trust securities held by the
firm for $1.87 billion of the firm’s junior subordinated debt held by the issuing
trusts. Following the exchange, this junior subordinated debt was extinguished.
1. Primarily includes overnight loans, the proceeds of which can be used to

satisfy the short-term obligations of Group Inc.

2. Includes $5.88 billion and $5.83 billion at fair value for 2014 and 2013,

respectively.

3. Includes $11.66 billion and $8.67 billion at fair value for 2014 and 2013,

respectively.

4. Unsecured long-term borrowings with subsidiaries by maturity date are
$186 million in 2016, $338 million in 2017, $159 million in 2018, $44 million
in 2019, and $889 million in 2020-thereafter.

Goldman Sachs 2014 Annual Report 201

Supplemental Financial Information

Quarterly Results (unaudited)
The following represents the firm’s unaudited quarterly
results for 2014 and 2013. These quarterly results were
prepared in accordance with U.S. GAAP and reflect all

in millions, except per share data

Non-interest revenues
Interest income
Interest expense
Net interest income
Net revenues, including net interest income
Operating expenses 1
Pre-tax earnings
Provision for taxes
Net earnings
Preferred stock dividends
Net earnings applicable to common shareholders

Earnings per common share

Basic
Diluted

Dividends declared per common share

in millions, except per share data

Earnings per common share

Basic
Diluted

Dividends declared per common share

adjustments that are,
necessary for a fair statement of
adjustments are of a normal, recurring nature.

in the opinion of management,
the results. These

Three Months Ended

December
2014

September
2014

$6,727
2,134
1,173
961
7,688
4,478
3,210
1,044
2,166
134
$2,032

$ 4.50
4.38
0.60

$7,338
2,297
1,248
1,049
8,387
5,082
3,305
1,064
2,241
98
$2,143

$ 4.69
4.57
0.55

June
2014

$8,125
2,579
1,579
1,000
9,125
6,304
2,821
784
2,037
84
$1,953

$ 4.21
4.10
0.55

Three Months Ended

December
2013

September
2013

$7,981
2,391
1,590
801
8,782
5,230
3,552
1,220
2,332
84
$2,248

$ 4.80
4.60
0.55

$5,882
2,398
1,558
840
6,722
4,555
2,167
650
1,517
88
$1,429

$ 3.07
2.88
0.50

June
2013

$7,786
2,663
1,837
826
8,612
5,967
2,645
714
1,931
70
$1,861

$ 3.92
3.70
0.50

March
2014

$8,291
2,594
1,557
1,037
9,328
6,307
3,021
988
2,033
84
$1,949

$ 4.15
4.02
0.55

March
2013

$9,165
2,608
1,683
925
10,090
6,717
3,373
1,113
2,260
72
$2,188

$ 4.53
4.29
0.50

1. The timing and magnitude of changes in the firm’s discretionary compensation accruals can have a significant effect on results in a given quarter.

202 Goldman Sachs 2014 Annual Report

Supplemental Financial Information

Common Stock Price Range
The table below presents the high and low sales prices per share of the firm’s common stock.

First quarter
Second quarter
Third quarter
Fourth quarter

Year Ended December

2014

2013

2012

High

$181.13
171.08
188.58
198.06

Low

High

Low

High

$159.77
151.65
161.53
171.26

$159.00
168.20
170.00
177.44

$129.62
137.29
149.28
152.83

$128.72
125.54
122.60
129.72

Low

$ 92.42
90.43
91.15
113.84

As of February 6, 2015, there were 10,230 holders of
record of the firm’s common stock.

On February 6, 2015, the last reported sales price for the
firm’s common stock on the New York Stock Exchange
was $183.43 per share.

Common Stock Performance
The following graph and table compare the performance of
an investment
common stock from
firm’s
December 31, 2009 (the last trading day before the firm’s
2010 fiscal year) through December 31, 2014, with the
S&P 500 Index and the S&P 500 Financials Index. The
invested on
graph and table

assume $100 was

in the

December 31, 2009 in each of the firm’s common stock, the
S&P 500 Index and the S&P 500 Financials Index, and the
dividends were reinvested on the date of payment without
payment of any commissions. The performance shown
represents past performance and should not be considered
an indication of future performance.

Common Stock Performance

$300

$250

$200

$150

$100

$50

Dec-09

Dec-10

Dec-11

Dec-12

Dec-13

Dec-14

The Goldman Sachs Group, Inc.

S&P 500 Index

S&P 500 Financials Index

The Goldman Sachs Group, Inc.
S&P 500 Index
S&P 500 Financials Index

2009

$100.00
100.00
100.00

2010

$100.54
115.06
112.13

As of December

2011

$ 54.69
117.49
93.00

2012

$ 78.41
136.27
119.73

2013

$110.39
180.40
162.34

2014

$122.29
205.08
186.98

Goldman Sachs 2014 Annual Report 203

Supplemental Financial Information

Selected Financial Data

Income statement data ($ in millions)
Non-interest revenues
Interest income
Interest expense
Net interest income
Net revenues, including net interest income
Compensation and benefits
U.K. bank payroll tax
Non-compensation expenses
Pre-tax earnings
Balance sheet data ($ in millions)
Total assets
Other secured financings (long-term)
Unsecured long-term borrowings
Total liabilities
Total shareholders’ equity
Common share data (in millions, except per share amounts)
Earnings per common share

Basic
Diluted

Dividends declared per common share
Book value per common share 1
Average common shares outstanding

Basic
Diluted

Selected data (unaudited)
Total staff
Americas
Non-Americas

Total staff
Assets under supervision ($ in billions)
Asset class

Alternative investments
Equity
Fixed income

Long-term assets under supervision
Liquidity products
Total assets under supervision

Year Ended or as of December

2014

2013

2012

2011

2010

$ 30,481
9,604
5,557
4,047
34,528
12,691
—
9,480
$ 12,357

$856,240
7,249
167,571
773,443
82,797

$ 30,814
10,060
6,668
3,392
34,206
12,613
—
9,856
$ 11,737

$911,507
7,524
160,965
833,040
78,467

$ 30,283
11,381
7,501
3,880
34,163
12,944
—
10,012
$ 11,207

$938,555
8,965
167,305
862,839
75,716

$ 23,619
13,174
7,982
5,192
28,811
12,223
—
10,419
6,169

$923,225
8,179
173,545
852,846
70,379

$ 33,658
12,309
6,806
5,503
39,161
15,376
465
10,428
$ 12,892

$911,332
13,848
174,399
833,976
77,356

17.55
17.07
2.25
163.01

16.34
15.46
2.05
152.48

14.63
14.13
1.77
144.67

4.71
4.51
1.40
130.31

14.15
13.18
1.40
128.72

458.9
473.2

471.3
499.6

496.2
516.1

524.6
556.9

542.0
585.3

17,400
16,600
34,000

16,600
16,300
32,900

16,400
16,000
32,400

17,200
16,100
33,300

19,900
15,800
35,700

143
236
516
895
283
1,178

142
208
446
796
246
1,042

151
153
411
715
250
965

148
147
353
648
247
895

150
162
346
658
259
917

1. Book value per common share is based on common shares outstanding, including RSUs granted to employees with no future service requirements, of 451.5 million,
467.4 million, 480.5 million, 516.3 million and 546.9 million as of December 2014, December 2013, December 2012, December 2011 and December 2010,
respectively.

204 Goldman Sachs 2014 Annual Report

Supplemental Financial Information
Statistical Disclosures

Distribution of Assets, Liabilities and Shareholders’
Equity
The table below presents a summary of consolidated average
balances and interest rates. Assets, liabilities and interest are

classified as U.S. and non-U.S.-based on the location of the
legal entity in which the assets and liabilities are held.

Average
rate

0.30%
0.27%
0.71%

(0.02)%
(0.23)%
0.25%
3.16%
3.44%
2.71%
2.67%
2.68%
2.20%
1.02%
0.98%
1.10%
1.37%

0.71%
0.74%
0.48%

0.46%
0.31%
0.78%
2.57%
2.06%
2.98%
0.83%
1.01%
0.45%
2.11%
2.11%
2.36%
(0.23)%
(0.65)%
0.92%
0.96%

$ in millions
Assets
Deposits with banks

U.S.
Non-U.S.

Securities borrowed, securities purchased under agreements

to resell and federal funds sold
U.S.
Non-U.S.

Financial instruments owned, at fair value 1

U.S.
Non-U.S.

Loans receivable

U.S.
Non-U.S.

Other interest-earning assets 2

U.S.
Non-U.S.

Total interest-earning assets
Cash and due from banks
Other non-interest-earning assets 1
Total assets
Liabilities
Interest-bearing deposits

U.S.
Non-U.S.

2014

Average
balance

Interest

Average
rate

Average
balance

2013

Interest

Average
rate

Average
balance

2012

Interest

Year Ended December

$ 59,135
53,606
5,529

164
144
20

0.28% $ 61,921
56,848
0.27%
5,073
0.36%

186
167
19

0.30% $ 52,500
49,123
0.29%
3,377
0.37%

156
132
24

302,321
193,555
108,766
271,810
170,647
101,163
22,425
21,459
966
140,733
85,811
54,922
796,424
5,237
93,002
$894,663

(81)
(514)
433
7,452
5,045
2,407
708
650
58
1,361
813
548
9,604

(0.03)%
(0.27)%
0.40%
2.74%
2.96%
2.38%
3.16%
3.03%
6.00%
0.97%
0.95%
1.00%
1.21%

327,748
198,677
129,071
292,965
182,158
110,807
10,296
9,736
560
138,775
81,759
57,016
831,705
6,212
106,095
$944,012

43
(289)
332
8,159
5,353
2,806
296
268
28
1,376
796
580
10,060

0.01% 331,828
(0.15)% 191,166
0.26% 140,662
2.78% 310,982
2.94% 190,490
2.53% 120,492
5,617
2.87%
5,526
2.75%
5.00%
91
0.99% 130,810
84,545
0.97%
1.02%
46,265
1.21% 831,737
7,357
107,702
$946,796

(77)
(431)
354
9,817
6,548
3,269
150
148
2
1,335
826
509
11,381

$ 73,286
62,717
10,569

333
286
47

0.45% $ 69,707
60,824
0.46%
8,883
0.44%

387
352
35

0.56% $ 56,399
48,668
0.58%
7,731
0.39%

399
362
37

Securities loaned and securities sold under agreements to

repurchase
U.S.
Non-U.S.

Financial instruments sold, but not yet purchased, at fair value 1

U.S.
Non-U.S.

Short-term borrowings 3

U.S.
Non-U.S.

Long-term borrowings 3

U.S.
Non-U.S.

Other interest-bearing liabilities 4

U.S.
Non-U.S.

Total interest-bearing liabilities
Non-interest-bearing deposits
Other non-interest-bearing liabilities 1
Total liabilities
Shareholders’ equity
Preferred stock
Common stock
Total shareholders’ equity
Total liabilities and shareholders’ equity
Interest rate spread
Net interest income and net yield on interest-earning assets

U.S.
Non-U.S.

131,911
79,517
52,394
82,219
39,708
42,511
64,594
45,843
18,751
172,047
164,844
7,203
215,911
153,600
62,311
739,968
799
73,057
813,824

8,585
72,254
80,839
$894,663

431
206
225
1,741
828
913
447
413
34
3,460
3,327
133
(855)
(1,222)
367
5,557

0.33%
0.26%
0.43%
2.12%
2.09%
2.15%
0.69%
0.90%
0.18%
2.01%
2.02%
1.85%
(0.40)%
(0.80)%
0.59%
0.75%

$ 4,047
2,300
1,747

0.46%
0.51%
0.44%
0.64%

822
380
442
2,438
852
1,586
581
479
102
3,736
3,582
154
(475)
(988)
513
7,501

178,686
114,884
63,802
92,913
37,923
54,990
60,926
40,511
20,415
174,195
168,106
6,089
203,482
144,888
58,594
779,909
655
86,095
866,659

6,892
70,461
77,353
$944,012

576
242
334
2,054
671
1,383
394
365
29
3,752
3,635
117
(495)
(904)
409
6,668

0.32% 177,550
0.21% 121,145
56,405
0.52%
94,740
2.21%
41,436
1.77%
53,304
2.52%
70,359
0.65%
47,614
0.90%
0.14%
22,745
2.15% 176,698
2.16% 170,163
6,535
1.92%
(0.24)% 206,790
(0.62)% 150,986
0.70%
55,804
0.85% 782,536
324
91,406
874,266

4,392
68,138
72,530
$946,796

Percentage of interest-earning assets and interest-bearing liabilities attributable to non-U.S. operations

Assets
Liabilities

34.07%
26.18%

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

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

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

4. Substantially all consists of certain payables to customers and counterparties.

Goldman Sachs 2014 Annual Report 205

$ 3,392
1,934
1,458

0.36%
0.41%
0.37%
0.48%

36.37%
27.28%

$ 3,880
2,556
1,324

0.41%
0.47%
0.49%
0.43%

37.38%
25.88%

Supplemental Financial Information

Changes in Net Interest Income, Volume and Rate
Analysis
The table below presents an analysis of the effect on net
interest income of volume and rate changes. In this analysis,

changes due to volume/rate variance have been allocated to
volume.

December 2014 versus December 2013

December 2013 versus December 2012

Year Ended

Increase (decrease)
due to change in:

Increase (decrease) due
to change in:

Volume

Rate

Net
Change

Volume

Rate

(7)
(9)
2

$ (15)
(14)
(1)

(22)
(23)
1

(124)
(225)
101
(707)
(308)
(399)
412
382
30
(15)
17
(32)
(456)

(54)
(66)
12
(145)
(36)
(109)
(313)
157
(470)
53
48
5
(292)
(308)
16
(360)
(318)
(42)
(1,111)
655

$ 29
23
6

1
12
(11)

(41)
(11)
(30)
(490)
(245)
(245)
139
116
23
82
(27)
109
(281)

75
70
5
26
(13)
39
(20)
(62)
42
(67)
(64)
(3)
(53)
(44)
(9)
57
38
19
18
$(299)

161
153
8
(1,168)
(950)
(218)
7
4
3
(41)
(3)
(38)
(1,040)

(87)
(80)
(7)
(272)
(125)
(147)
(364)
(119)
(245)
(120)
(50)
(70)
69
97
(28)
(77)
46
(123)
(851)
$ (189)

(67)
14
(81)
(569)
(340)
(229)
379
355
24
17
38
(21)
(247)

16
9
7
(141)
(92)
(49)
(231)
37
(268)
45
48
(3)
(45)
(66)
21
(47)
(69)
22
(403)
$ 156

(57)
(239)
182
(138)
32
(170)
33
27
6
(32)
(21)
(11)
(209)

(70)
(75)
5
(4)
56
(60)
(82)
120
(202)
8
—
8
(247)
(242)
(5)
(313)
(249)
(64)
(708)
$ 499

Net
Change

30
35
(5)

120
142
(22)
(1,658)
(1,195)
(463)
146
120
26
41
(30)
71
(1,321)

(12)
(10)
(2)
(246)
(138)
(108)
(384)
(181)
(203)
(187)
(114)
(73)
16
53
(37)
(20)
84
(104)
(833)
$ (488)

$ in millions

Interest-earning assets
Deposits with banks

U.S.
Non-U.S.

Securities borrowed, securities purchased under agreements to

resell and federal funds sold
U.S.
Non-U.S.

Financial instruments owned, at fair value

U.S.
Non-U.S.

Loans receivable

U.S.
Non-U.S.

Other interest-earning assets

U.S.
Non-U.S.

Change in interest income
Interest-bearing liabilities
Interest-bearing deposits

U.S.
Non-U.S.

Securities loaned and securities sold under agreements to repurchase

U.S.
Non-U.S.

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

U.S.
Non-U.S.

Short-term borrowings

U.S.
Non-U.S.

Long-term borrowings

U.S.
Non-U.S.

Other interest-bearing liabilities

U.S.
Non-U.S.

Change in interest expense
Change in net interest income

206 Goldman Sachs 2014 Annual Report

Supplemental Financial Information

Deposits
The tables below present a summary of the firm’s interest-
bearing deposits.

$ in millions

U.S.:
Savings 1
Time
Total U.S. deposits
Non-U.S.:
Demand
Time
Total Non-U.S. deposits
Total deposits

Average Balances for the
Year Ended December

2014

2013

2012

$41,785
20,932
62,717

4,571
5,998
10,569
$73,286

$39,411
21,413
60,824

4,613
4,270
8,883
$69,707

$32,235
16,433
48,668

5,318
2,413
7,731
$56,399

1. Amounts are available for withdrawal upon short notice, generally within

seven days.

U.S.:
Savings
Time
Total U.S. deposits
Non-U.S.:
Demand
Time
Total Non-U.S. deposits
Total deposits

Average Interest Rates for the
Year Ended December

2014

2013

2012

0.23%
0.91%
0.46%

0.18%
0.65%
0.44%
0.45%

0.30%
1.09%
0.58%

0.22%
0.59%
0.39%
0.56%

0.42%
1.38%
0.74%

0.30%
0.87%
0.48%
0.71%

Short-term and Other Borrowed Funds
The tables below present a summary of the firm’s securities
loaned and securities sold under agreements to repurchase,
and short-term borrowings. These borrowings generally
mature within one year of the financial statement date and
include borrowings that are redeemable at the option of the
holder within one year of the financial statement date.

Securities Loaned and Securities Sold
Under Agreements to Repurchase
as of December

$ in millions

2014

2013

2012

Amounts outstanding at year-end $ 93,785
Average outstanding during

$183,527

$185,572

the year

131,911
Maximum month-end outstanding 178,049
Weighted average interest rate
During the year
At year-end

0.33%
0.31%

178,686
196,393

177,550
198,456

0.32%
0.28%

0.46%
0.44%

Short-Term Borrowings
as of December

$ in millions

2014

2013

2012

Amounts outstanding at year-end 1 $ 60,100
Average outstanding during

$ 61,982

$ 67,349

the year

Maximum month-end outstanding
Weighted average interest rate 2
During the year
At year-end

64,594
68,572

0.69%
0.68%

60,926
66,978

0.65%
0.89%

70,359
75,280

0.83%
0.79%

1. Includes short-term secured financings of $15.56 billion, $17.29 billion and
$23.05 billion as of December 2014, December 2013 and December 2012,
respectively.

2. The weighted average interest rates for these borrowings include the effect

of hedging activities.

Goldman Sachs 2014 Annual Report 207

Supplemental Financial Information

Cross-border Outstandings
Cross-border outstandings are based on the Federal
Financial
(FFIEC)
Institutions Examination Council’s
guidelines for reporting cross-border information and
represent the amounts that the firm may not be able to
obtain from a foreign country due to country-specific
events,
including unfavorable economic and political
conditions, economic and social instability, and changes in
government policies.

Credit exposure represents the potential for loss due to the
default or deterioration in credit quality of a counterparty
or an issuer of securities or other instruments the firm holds
and is measured based on the potential loss in an event of
non-payment by a counterparty. Credit exposure is reduced
through the effect of risk mitigants, such as netting
agreements with counterparties that permit the firm to
offset receivables and payables with such counterparties or
obtaining collateral from counterparties. The tables below
do not include all the effects of such risk mitigants and do
not represent the firm’s credit exposure.

The tables below present cross-border outstandings and
commitments for each country in which cross-border
outstandings exceed 0.75% of consolidated assets in
accordance with the FFIEC guidelines and include cash,
receivables, securities purchased under agreements to resell,
securities borrowed and cash financial instruments, but
exclude derivative instruments. Securities purchased under
agreements to resell and securities borrowed are presented
gross, without reduction for related securities collateral
held. Margin loans (included in receivables) are presented
based on the amount of collateral advanced by the
counterparty. Substantially all commitments in the table
below consist of commitments to extend credit and forward
starting resale and securities borrowing agreements.

$ in millions
Country

Cayman Islands
France
Japan
Germany
United Kingdom
Italy
China

$ in millions
Country

Cayman Islands
Japan
France
Germany
Spain
United Kingdom
Netherlands

$ in millions
Country

Cayman Islands
France
Japan
Germany
Spain
Ireland
United Kingdom
China
Brazil
Switzerland

2
4,730
13,862
5,362
1,870
3,331
2,474

Banks

12
23,026
12,427
5,148
7,002
2,688
1,785

Banks

Governments

As of December 2014

Other

$35,829

18,261 1
10,763
10,629
8,821
2,215
4,984

Total

Commitments

$35,831
27,923
24,998
20,470
10,973
9,719
9,410

$ 2,658
12,214
11,413
4,631
11,755
783
6

—
4,932
373
4,479
282
4,173
1,952

As of December 2013

Governments

Other

Total

Commitments

1
123
2,871
4,336
2,281
217
540

$35,969
11,981
16,567 1
7,793
2,491
7,321
5,786

$35,982
35,130
31,865
17,277
11,774
10,226
8,111

As of December 2012

$ 1,671
5,086
12,060
4,716
1,069
19,014
1,962

Banks

Governments

$ —
6,991
16,679
4,012
3,790
438
1,422
2,564
1,383
3,706

$ —
2,370
19
10,976
4,237
68
237
1,265
3,704
230

Other

$39,283

23,161 1
8,908
7,912
1,816
7,057
5,874
3,564
2,280
3,133

Total

Commitments

$39,283
32,522
25,606
22,900
9,843
7,563 2
7,533
7,393
7,367
7,069

$ 1,088
18,846
9,635
4,887
473
176
20,327
—
865
1,305

1. Primarily comprised of secured lending transactions with a clearing house.
2. Primarily comprised of interests in and receivables from funds domiciled in Ireland, but whose underlying investments are primarily located outside of Ireland, and

secured lending transactions.

208 Goldman Sachs 2014 Annual Report

Board Members, Ofﬁcers and Directors
as of March 5, 2015

Management
Committee

Lloyd C. Blankfein
Chairman and Chief
Executive Ofﬁcer

Gary D. Cohn
President and Chief
Operating Ofﬁcer

John S. Weinberg
Michael S. Sherwood
Mark Schwartz
Vice Chairmen

Craig W. Broderick
R. Martin Chavez
Christopher A. Cole
Edith W. Cooper*
Michael D. Daffey
Gordon E. Dyal
Isabelle Ealet
Richard A. Friedman
Justin G. Gmelich
Richard J. Gnodde
Ken W. Hitchner
Eric S. Lane
Gwen R. Libstag
Masanori Mochida
Timothy J. O’Neill
John F.W. Rogers
Paul M. Russo
Pablo J. Salame*
Stephen M. Scherr
Jeffrey W. Schroeder
Harvey M. Schwartz
Sarah E. Smith
David M. Solomon
Esta E. Stecher
Steven H. Strongin
Gene T. Sykes
Ashok Varadhan
John E. Waldron

Gregory K. Palm
General Counsel

Alan M. Cohen
Global Head of Compliance

Board of
Directors

Lloyd C. Blankfein
Chairman and Chief
Executive Ofﬁcer

Gary D. Cohn
President and Chief
Operating Ofﬁcer

M. Michele Burns
Former Chairman and CEO,
Mercer LLC

Claes Dahlbäck
Senior Advisor to Investor AB and
Foundation Asset Management

Mark A. Flaherty
Former Vice Chairman,
Wellington Management Company

William W. George
Senior Fellow
at Harvard Business School

James A. Johnson
Chairman of Johnson Capital
Partners

Lakshmi N. Mittal
Chairman and Chief Executive
Ofﬁcer of ArcelorMittal S.A.

Adebayo O. Ogunlesi, Lead Director
Chairman and Managing Partner of
Global Infrastructure Partners, LLC

Peter Oppenheimer
Former Senior Vice President
and Chief Financial Ofﬁcer of
Apple, Inc.

Debora L. Spar
President of Barnard College

Mark E. Tucker
Executive Director, Group Chief
Executive and President of AIA
Group Limited

David A. Viniar
Former Chief Financial Ofﬁcer of
The Goldman Sachs Group, Inc.

Mark O. Winkelman
Private Investor

John F.W. Rogers
Secretary to the Board

*Partnership Committee Member

Managing Directors
Managing Directors are organized by Managing Director class

Lloyd C. Blankfein
Mark Schwartz
Richard A. Friedman
Timothy J. O’Neill
Gregory K. Palm
Masanori Mochida
Gene T. Sykes
John S. Weinberg
Sharmin Mossavar-Rahmani
Armen A. Avanessians
Gary D. Cohn
Christopher A. Cole
Michael S. Sherwood
Esta E. Stecher
Thomas C. Brasco
Peter D. Brundage
Abby Joseph Cohen
E. Gerald Corrigan
Charles P. Eve
Christopher G. French
C. Douglas Fuge
Richard J. Gnodde
Jeffrey B. Goldenberg
Timothy J. Ingrassia
Bruce M. Larson
Gwen R. Libstag
Victor M. Lopez-Balboa
Sanjeev K. Mehra
John P. Shaughnessy
Theodore T. Sotir
W. Thomas York, Jr.*
Jonathan A. Beinner
Steven M. Bunson
Matthew S. Darnall
Alexander C. Dibelius
Karlo J. Duvnjak
Isabelle Ealet
Elizabeth C. Fascitelli
Oliver L. Frankel
Celeste A. Guth
Gregory T. Hoogkamp
William L. Jacob, III
Andrew J. Kaiser
Robert C. King, Jr.
John A. Mahoney
J. William McMahon
Stephen R. Pierce
John J. Rafter
John F.W. Rogers
Michael M. Smith
Haruko Watanuki
Paolo Zannoni
Frances R. Bermanzohn*
Robert A. Berry
Craig W. Broderick

Richard M. Campbell-Breeden
Anthony H. Carpet
Michael J. Carr
Kent A. Clark
Edith W. Cooper*
John S. Daly
Gordon E. Dyal
Michael P. Esposito
Matthew T. Fremont-Smith
Andrew M. Gordon*
Walter H. Haydock
James A. Hudis
David J. Kostin
Paulo C. Leme
Kathy M. Matsui
Paul M. Russo
Sarah E. Smith
Steven H. Strongin
John J. Vaske
David M. Solomon
Karen R. Cook
Gregory A. Agran
Raanan A. Agus
Dean C. Backer
Stuart N. Bernstein
Thomas G. Connolly
James Del Favero
Michele I. Docharty
Thomas M. Dowling
Daniel E. Holland, III
Michael R. Housden
Paul J. Huchro
Andrew J. Jonas
James M. Karp
Matthew Lavicka
Ronald S. Levin
Richard P. McNeil
Michael R. Miele
Suok J. Noh
David B. Philip
Ellen R. Porges
Pablo J. Salame*
Jeffrey W. Schroeder
Harvey M. Schwartz
Donald J. Truesdale
John S. Willian
Andrew F. Wilson*
Paul M. Young*
Jack Levy
Mark F. Dehnert
Michael H. Siegel
Matthew C. Westerman
Jason H. Ekaireb
Seaborn S. Eastland
Alan J. Brazil

Goldman Sachs 2014 Annual Report

209

Board Members, Ofﬁcers and Directors
as of March 5, 2015

W. Reed Chisholm II
Michael D. Daffey
Joseph P. DiSabato
James H. Donovan
Donald J. Duet
Earl S. Enzer
Norman Feit
Robert K. Frumkes
Gary T. Giglio
Michael J. Graziano
Peter Gross
Douglas C. Heidt
Kenneth W. Hitchner
Walter A. Jackson
Roy R. Joseph
James C. Katzman
Shigeki Kiritani
Todd W. Leland
Bonnie S. Litt
John V. Mallory
John J. McCabe
James A. McNamara
Fergal J. O’Driscoll
James R. Paradise*
Philip A. Raper
Michael J. Richman
Elizabeth E. Robinson*
Thomas M. Schwartz
Ralph J. Silva
Johannes R. Sulzberger
Eiji Ueda
Ashok Varadhan
Martin M. Werner
Wassim G. Younan
Alison J. Mass*
Ben I. Adler
Philip S. Armstrong
William J. Bannon
Steven M. Barry
Jordan M. Bender
Valentino D. Carlotti
Linda S. Daines
Stephen Davies
Daniel L. Dees
Kenneth M. Eberts, III
David A. Fishman
Naosuke Fujita
Mary L. Harmon
Edward A. Hazel
Sean C. Hoover
Kenneth L. Josselyn
Eric S. Lane
Gregg R. Lemkau*
Ryan D. Limaye
Robert A. Mass
J. Ronald Morgan, III
Jeffrey P. Nedelman
Gavin G. O’Connor

Helen Paleno
Archie W. Parnell
Alan M. Rapfogel
Sara E. Recktenwald
Thomas S. Riggs, III
Susan J. Scher
Stephen M. Scherr
Abraham Shua
John E. Waldron
David D. Wildermuth
Kevin L. Willens
Edward R. Wilkinson
Timothy H. Moe
Charles Baillie
Stacy Bash-Polley
Susan M. Benz
Johannes M. Boomaars
J. Theodore Borter
Timothy J. Bridges
Colin Coleman
Kenneth W. Coquillette
Michael J. Crinieri
Craig W. Crossman
Jeffrey R. Currie
Bradley S. DeFoor
Alvaro del Castano
Robert K. Ehudin
Kathy G. Elsesser
Peter C. Enns
Katherine B. Enquist
James P. Esposito
Douglas L. Feagin
Timothy T. Furey
Gonzalo R. Garcia
Justin G. Gmelich
Simon N. Holden
Shin Horie
Adrian M. Jones
Alan S. Kava
Andreas Koernlein
J. Christopher A. Kojima*
Takahiro Komatsu
Rudolf N. Lang
Brian J. Lee
George C. Lee, II
Tim Leissner*
Brian T. Levine
Paula B. Madoff
Puneet Malhi
Bruce H. Mendelsohn
Michael J. Millette
Milton R. Millman
Philip J. Mofﬁtt
Simon P. Morris
Thomas C. Morrow*
Marc O. Nachmann
Steven M. Pinkos
Richard J. Revell

Marc A. Rothenberg
Christoph W. Stanger
Robin A. Vince
Andrea A. Vittorelli
Elisha Wiesel
Denise A. Wyllie
Sheila H. Patel
Mark E. Agne
Gareth W. Bater
Sally A. Boyle*
Philippe L. Camu
John W. Cembrook
William J. Conley, Jr.
Thomas W. Cornacchia*
David H. Dase
François-Xavier de Mallmann
Elisabeth Fontenelli*
Colleen A. Foster
Kieu L. Frisby
Timur F. Galen
Rachel C. Golder
Kevin J. Guidotti
Elizabeth M. Hammack
Kenneth L. Hirsch
James P. Kenney
Steven E. Kent
Robert A. Koort
Brian J. Lahey
Hugh J. Lawson
Ronald Lee
Deborah R. Leone
Thomas R. Lynch
Peter J. Lyon
James P. McCarthy
Dermot W. McDonogh
Craig J. Nossel
Peter C. Oppenheimer
Gilberto Pozzi*
Lisa A. Rotenberg
Pamela S. Ryan
Clare R. Scherrer
John A. Sebastian
Peter A. Seccia
Peter D. Selman
Heather K. Shemilt
Gavin Simms
Alec P. Stais
Laurence Stein
Patrick M. Street
Thomas D. Teles
Frederick Towﬁgh
Philip J. Venables
Alejandro Vollbrechthausen
Eileen M. Dillon
Deborah B. Wilkens
Shinichi Yokote
Alan M. Cohen
Helena Koo

Stefan R. Bollinger
Gregory B. Carey
Paul R. Aaron
Andrew W. Alford
Fareed T. Ali
William D. Anderson, Jr.
Rachel Ascher
Dolores S. Bamford
Benjamin C. Barber
Slim C. Bentami
Michael J. Brandmeyer
Andrew I. Braun
Anne F. Brennan
Tony M. Briney
Nancy D. Browne
Elizabeth M. Burban
Anthony Cammarata, Jr.
David C. Carlebach
Donald J. Casturo
James R. Charnley
Jeffrey F. Daly
Michael C. Dawley
Ahmad B. Deek
Aidan P. Dunn
Mark Evans
William J. Fallon
Matthew J. Fassler
Wolfgang Fink
Dino Fusco
James R. Garman
Sarah J. Gray
Jan Hatzius
Jens D. Hofmann
Laura A. Holleman
Dane E. Holmes
Leonid Ioffe
Christopher M. Keogh
Eugene H. Leouzon
Iain Lindsay
Hugo P. MacNeill
Kevin T. McGuire
Avinash Mehrotra
Jonathan M. Meltzer
Christopher Milner
Christina P. Minnis
Ted K. Neely, II
Michael L. November
Konstantinos N. Pantazopoulos*
Robert D. Patch
Kenneth A. Pontarelli*
Lora J. Robertson
Lorin P. Radtke
J. Timothy Romer
John R. Sawtell
Harvey S. Shapiro
Suhail A. Sikhtian
David Z. Solomon
Joseph J. Struzziery, III

*Partnership Committee Member

210 Goldman Sachs 2014 Annual Report

Board Members, Ofﬁcers and Directors
as of March 5, 2015

Etsuko Kanayama
C. Annette Kelton
John J. Kim
Hideki Kinuhata
Michael E. Koester
Geoffrey C. Lee
Laurent Lellouche
John R. Levene
David M. Marcinek
Marvin Markus
Thomas F. Matthias
F. Scott McDermott
John J. McGuire, Jr.
Sean T. McHugh
David R. Mittelbusher
Bryan P. Mix
Junko Mori
Takashi Murata
Amol S. Naik
Nicholas W. Phillips
Louis Piliego
Michelle H. Pinggera
M. Louise Pitt
James F. Radecki
Richard N. Ramsden
Scott A. Romanoff
Michael J. Rost
David T. Rusoff
Ankur A. Sahu
Guy E. Saidenberg
Julian Salisbury*
David A. Schwimmer
Rebecca M. Shaghalian
Julian F. Simon
Michael L. Simpson
Barry Sklar
Mark R. Sorrell
John D. Storey
Ram K. Sundaram
Tatsuya Suzuki
Michael J. Swenson
Joseph D. Swift
Teresa Teague
Klaus B. Toft
Leo J. Van Der Linden
Simone Verri
Toby C. Watson
Oliver C. Will
Andrew E. Wolff*
Jennifer O. Youde
Thomas G. Young
Han Song Zhu
Steven A. Mayer
Michael T. Smith
Thomas G. Fruge
Clifford D. Schlesinger
Krishnamurthy Sudarshan
Maziar Minovi

Tuan Lam
Todd E. Eagle
Jess T. Fardella
Robin Rousseau
Adam S. Clayton
Jonathan M. Penkin
Mark R. Etherington
Craig W. Packer
Michael Rimland
Carlos Pertejo
Massimo Della Ragione
Iain N. Drayton
Fadi Abuali
David Z. Alter
Vincent L. Amatulli
Ramaz A. Ashurov
Andrew J. Bagley
Susan E. Balogh
Jennifer A. Barbetta
Gerard M. Beatty
Roger S. Begelman
Oliver B. Benkert
Avanish R. Bhavsar*
Christopher E. Blume
Shane M. Bolton
William C. Bousquette, Jr.
Janet A. Broeckel
Jon Butler
Joseph A. Camarda
John H. Chartres
Alex S. Chi
Kasper Christoffersen
Gary W. Chropuvka
Jesse H. Cole
Brian M. Coleman
Cyril Cottu
Kyle R. Czepiel
Manda J. D’Agata
John F. Daly
Michael J. Daum
Craig M. Delizia
Stacey Ann DeMatteis
Christina Drews
Steven T. Elia
Harry Eliades
Suzanne Escousse
Steven A. Ferjentsik
Carlos Fernandez-Aller
Gregory C. Ferrero
David A. Friedland
Juan D. Gomez-Villalba
Philip W. Grovit
Magnus C. Hardeberg
Harold P. Hope, III
Gregory P. Hopper
Ericka T. Horan
Stephanie Hui
Irfan S. Hussain

Tsuyoshi Inoue
Makoto Ito
Kathleen Jack
Matthew A. Jaume
Tanweer Kabir
Herman R. Klein Wassink
Edward C. Knight
Akiko Koda
Ravi G. Krishnan
Jorg H. Kukies
Edwin Wing-Tang Kwok
David W. Lang
Nyron Z. Latif
Matthew D. Leavitt
David A. Lehman
David B. Ludwig
Raghav Maliah
Matthew F. Mallgrave
Karim H. Manji
Scott D. Marchakitus
Fabio N. Mariani
Shogo Matsuzawa
Thomas C. Mazarakis
Penny A. McSpadden
Celine-Marie G. Mechain
Simon H. Moseley
Jeff Mullen
Edward T. Naylor
Graham H. Ofﬁcer
Lisa Opoku
Gerald B. Ouderkirk, III
Charles L. Park
Jae Hyuk Park
Francesco Pascuzzi
Ante Razmilovic
Lawrence J. Restieri, Jr.
Michael E. Ronen
Ricardo Salaman
Thierry Sancier
Kara Saxon
Ian M. Schmidek
Steven M. Schwartz
Stephen B. Scobie
Judith L. Shandling
Graham P. Shaw
Hazem A. Shawki
Radford Small
Ramsey D. Smith
Kevin M. Sterling
Daiki Takayama
Tin Hsien Tan
Megan M. Taylor
Richard J. Taylor
Oliver Thym
Ingrid C. Tierens
Joseph K. Todd
Hiroyuki Tomokiyo
Jill L. Toporek

Damian E. Sutcliffe
Robert J. Sweeney
Pawan Tewari
Paul Walker*
Dominic A. Wilson
Steve Windsor
Martin Wiwen-Nilsson
Yoshihiko Yano
Xing Zhang
R. Martin Chavez
Atosa Moini
Stephen J. O’Flaherty
Court E. Golumbic
Alasdair J. Warren
Andy Fisher
Marshall Smith
Charles F. Adams
Farid Pasha
Hidehiro Imatsu
Nick S. Advani
Analisa M. Allen
Ichiro Amano
Tracey E. Benford
Gaurav Bhandari
Marc O. Boheim
V. Bunty Bohra*
Ralane F. Bonn
John E. Bowman, III
Oonagh T. Bradley
Samuel S. Britton
Torrey J. Browder
Derek T. Brown
Samantha R. Brown
Steve M. Bunkin
Charles E. Burrows
Shawn P. Byron
Marguarite A. Carmody
Stuart A. Cash
Denis P. Coleman, III
Richard N. Cormack
James V. Covello
Christian P. de Haaij
Olaf Diaz-Pintado
David P. Eisman
Carl Faker
Stephan J. Feldgoise
Patrick J. Fels
Benjamin W. Ferguson
Samuel W. Finkelstein
Peter E. Finn
Sean J. Gallagher
Francesco U. Garzarelli
Michelle Gill
Jason A. Gottlieb
Martin Hintze
Todd Hohman
James P. Houghton
Christopher E. Hussey

*Partnership Committee Member

Goldman Sachs 2014 Annual Report

211

Board Members, Ofﬁcers and Directors
as of March 5, 2015

David Townshend
Patrick M. Tribolet
Richard J. Tufft
Toshihiko Umetani
John P. Underwood
Richard C. Vanecek
Kurt J. Von Holzhausen
Philippa A. Vizzone
Daniel S. Weiner
Owen O. West
Alan S. Wilmit
David T. Wilson
Edward C. Wilson
Christopher D. Woolley
Brendan Wootten
Salvatore T. Lentini
Brendan M. McGovern
Shigemitsu Sugisaki
Takashi Yoshimura
Matthew C. Schwab
Julie A. Harris
Michael S. Swell
William F. Spoor
Erich Bluhm
David G. McDonald
Ezra Nahum
Dina H. Powell
Anthony Gutman*
Peter C. Russell
Celeste J. Tambaro
Michael M. Furth
Gregory P. Lee
Robert M. Pulford
Maximillian C. Justicz
Edward B. Droesch
Timothy J. Talkington
Daniel J. Bingham
Sergei S. Stankovski
Gerald Messier
Andrea Vella
Timothy Callahan
Julian C. Allen
Joanne L. Alma
Quentin Andre
Sergei Arsenyev
Aaron M. Arth
Ian T. Bailey
Vivek J. Bantwal
Michael H. Bartsch
Philip R. Berlinski
Brian W. Bolster
C. Kane Brenan
Michael A. Cagnassola
Jimmy R. Carlberg
Christian Channell
Eva Chau
David Chou
Thalia Chryssikou

Michael J. Civitella
Kathleen A. Connolly
Cecile Crochu
Anne Marie B. Darling
Paul S. Davies
Bruno P. De Kegel
Matthew P. DeFusco
Jonathan G. Donne
William P. Douglas
Alessandro Dusi
Mark S. Edwards
Akishige Eguchi
Halil Emecen
Jonathan H. Fine
David A. Fox
Jay A. Friedman
Huntley Garriott
Maksim Gelfer
Gabe E. Gelman
Tamilla F. Ghodsi
Federico J. Gilly
Marc C. Gilly
John L. Glover, III
Richard C. Govers
Bradley J. Gross
Michael L. Hensch
Ning Hong
Pierre Hudry
Jonathan O. Hughes
Brian J. Jacoby
Andrius Jankunas
Dominique M. Jooris
Rajiv K. Kamilla
Vijay M. Karnani
Noriko Kawamura
Dirk-Jan J. Keijer
William P. Keirstead
Prashant R. Khemka
Vivien Khoo
Tammy A. Kiely
Jisuk Kim
Masafumi Koike
Satoshi Kubo
Kim M. Lazaroo
Scott L. Lebovitz
David A. Levy
Dirk L. Lievens
David B. Lischer
Patrick O. Luthi
Christina Ma
Whitney C. Magruder
Suneil Mahindru
Monica M. Mandelli
Richard M. Manley
Joseph S. Mauro
Matthew B. McClure
Jack Mendelson
Xavier C. Menguy

*Partnership Committee Member

212 Goldman Sachs 2014 Annual Report

Jason Moo
Grant R. Moyer
Gersoni A. Munhoz
Michael Nachmani
Allison F. Nathan
Chris Oberoi
Jun Ohama
Gregory G. Olafson
Beverly L. O’Toole
Edward S. Pallesen
Dave S. Park
Anthony W. Pasquariello
Jignesh Patel
Nirubhan Pathmanabhan
Richard A. Peacock
Antonio R. Pereira
James R. Peters
Luis Puchol-Plaza
Sumit Rajpal
Peggy D. Rawitt
James H. Reynolds
Sean D. Rice
Robert E. Ritchie
Scott M. Rofey
Jeroen Rombouts
Douglas L. Sacks
Yann Samuelides
Laura D. Sanchez
Luke A. Sarsﬁeld, III
Richard A. Schafrann
Oliver Schiller
Martin A. Schneider
Michael T. Seigne
Konstantin A. Shakhnovich
Daniel A. Sharfman
Faryar Shirzad
Connie J. Shoemaker
Anna K. Skoglund
Andrew J. Smith
Bing Song
Aurora J. Swithenbank
Mark J. Taylor
Ryan J. Thall
Robert B. Thompson
Terence Ting
Jacquelyn G. Titus
Mark C. Toomey
Kenneth A. Topping
Pamela C. Torres
Padideh N. Trojanow
Kenro Tsutsumi
Peter van der Goes, Jr.
Damien R. Vanderwilt
Sherif J. Wahba
Zhixue Josh Wang
Michael L. Warren
Simon R. Watson
Peter A. Weidman

Karl D. Wianecki
Gavin A. Wills
Stephen T.C. Wong
Shunichi Yamada
Ka Yan Wilfred Yiu
Hsin Yue Yong
Rafael I. de Fex
Andre Laport Ribeiro
Beatriz Sanchez
Ricardo Mora
Joseph A. Stern
Jeffrey L. Verschleiser
Jeffrey B. Andreski
Albert J. Cass, III
Hidefumi Fukuda
Rondy Jennings
Peeyush Misra
Neil C. Kearns
Jeffrey M. Scruggs
Antonio F. Esteves
Caglayan Cetin
Aya Stark Hamilton
Alan Zagury
Mary Anne Choo
Daniel J. Rothman
Jami Rubin
Philippe Challande
Marc d’Andlau
Lancelot M. Braunstein
Eric L. Hirschﬁeld
Charles A. Irwin
Robert D. Boroujerdi
Christopher Pilot
Arthur Ambrose
Graham N. Ambrose
David J. Atkinson
Heather L. Beckman
Shomick D. Bhattacharya
David C. Bicarregui
Miguel A. Bilbao
Matthias B. Bock
Jason H. Brauth
Justin M. Brickwood
Michael G. Broadbery
Michael R. Brooke
Shoqat Bunglawala
David Castelblanco
Michael L. Chandler
Toby J. Chapman
Omar J. Chaudhary
Hyung-Jin Chung
Giacomo Ciampolini
Stephanie E. Cohen*
Richard Cohn
James M. Conti
David Coulson
Robert Crane
Nicholas T. Cullen, III

Board Members, Ofﬁcers and Directors
as of March 5, 2015

William T. McIntire
Paul J. Miller
Yutaka Miura
Joseph Montesano
Jennifer L. Moyer
David J. Mullane
Eric D. Muller
T. Clark Munnell, Jr.
Guy A. Nachtomi
Jyothsna G. Natauri
Jeffrey R. Nazzaro
Carey Nemeth
John M. O’Connell
Kristin A. Olson
Kevin W. Pamensky
Nash Panchal
Tracey A. Perini
Jonathan G. Pierce
Dmitri Potishko
Francois J. Rigou
Stuart Riley
Santiago J. Rubin
Howard H. Russell
Natasha P. Sai
Christian D. Salomone
Krishnan P. Sankaran
Timothy K. Saunders, Jr.
Peter Scheman
Pedro E. Scherer
Stephanie R. Schueppert
Hugo P. Scott-Gall
Gaurav Seth
Kiran V. Shah
Roopesh K. Shah
Takehisa Shimada
Tomoya Shimizu
Nameer A. Siddiqui
David A. Sievers
Brigit L. Simler
Jason E. Singer
Michael H. Stanley
Matthew F. Stanton
Umesh Subramanian
Kathryn E. Sweeney
Teppei Takanabe
Troy S. Thornton
Ben W. Thorpe
Matthew E. Tropp
Charles-Eduard van Rossum
Mark A. Van Wyk
Jonathan R. Vanica
Rajesh Venkataramani
John R. Vitha, II
Katherine M. Walker
Brent D. Watson
Nicole A. Weeldreyer
John A. Weir
Noah Y. Weisberger

Ellis Whipple
Pansy Piao Wong
Yat Wai Wu
Andrew P. Wyke
Seigo Yamasaki
Xi Ye
Susan Yung
Xiaoyin Zhang
Matthew T. Kaiser
Kenneth Damstrom
Tareq Islam
Michael Paese
Asad Haider
Hector Chan
Toshiya Saito
Una M. Neary
Shantanu Shete
Steve L. Bossi
Bobby Vedral
Etienne Comon
Li Hui Suo
Dalinc Ariburnu*
John D. Melvin
Tabassum A. Inamdar
Benny Adler
Bruce A. Albert
Umit Alptuna
Matthew T. Arnold
Divyata Ashiya
Taraneh Azad
Vishal Bakshi
David C. Bear
Deborah Beckmann
Gary K. Beggerow
Andrea Berni
Roop Bhullar
John D. Blondel
Jill A. Borst
James W. Briggs
Heather L. Brownlie
Richard M. Buckingham
Robert Buff
Paul J. Burgess
Jonathan P. Bury
Thomas J. Carella
Doris Cheung
Alina Chiew
Getty Chin
Paul Christensen
Andrew Chung
Alberto Cirillo
Nigel C. Cobb
Martin A. Cosgrove
Patrick C. Cunningham
Canute H. Dalmasse
Stephen J. DeAngelis
Michele della Vigna
Brian R. Doyle

Orla Dunne
Karey D. Dye
Sarel Eldor
Sanja Erceg
Alexander E. Evis
Robert A. Falzon
Danielle Ferreira
Allan W. Forrest
Mark Freeman
Boris Funke
Udhay Furtado
Jian Mei Gan
Mark E. Giancola
Cyril J. Goddeeris
Brian S. Goldman
Lars A. Gronning
Carey Baker Halio
Michael J. Hayes
Edouard Hervey
Timothy S. Hill
Jeffrey J. Huffman
Corey M. Jassem
Aynesh L. Johnson
Eri Kakuta
John D. Kast
Kevin G. Kelly
Jane M. Kelsey
Anita K. Kerr
Marie Louise Kirk
Katharina Koenig
Tatiana A. Kotchoubey
Dennis M. Lafferty
Raymond Lam
John V. Lanza
Craig A. Lee
Rose S. Lee
José Pedro Leite da Costa
Luca M. Lombardi
Joseph W. Long
Todd D. Lopez
Galia V. Loya
Peter R. Lyneham
Gregory P. Lyons
Paget R. MacColl
Lisa S. Mantil
Clifton C. Marriott
Daniel G. Martin
Elizabeth G. Martin
Jason L. Mathews
Alexander M. Mayer
John P. McLaughlin
Jean-Pascal Meyre
Arthur M. Miller
Heather K. Miner
Gregory P. Minson
Hironobu Moriyama
Edward G. Morse
Teodoro Moscoso

Thomas J. Davis
Ann M. Dennison
Michael J. DesMarais
Robert Drake-Brockman
Yuichiro Eda
Eric Elbaz
Edward A. Emerson
Andrew B. Fontein
Salvatore Fortunato
Sheara J. Fredman
Jacques Gabillon
Dean M. Galligan
Matthew R. Gibson
Jeffrey M. Gido
Nick V. Giovanni
Boon Leng Goh
Alexander S. Golten
Ralf Hafner
Jeffrey D. Hamilton
Joanne Hannaford
Nicholas M. Harper
Honora M. Harvey
Takashi Hatanaka
Charles P. Himmelberg
Timothy R. Hodge
Russell W. Horwitz
Russell E. Hutchinson
Tetsuji Ichimori
Elena Ivanova
Maria S. Jelescu
Steve Jeneste
Thomas F. Jessop
Kara R. Johnston
Denis Joly
Eric S. Jordan
Anil C. Karpal
Aasem G. Khalil
Donough Kilmurray
Tobias Koester
Adam M. Korn
Ulrich R. Kratz
Florence Kui
Glen M. Kujawski
Michael E. Kurlander
Cory H. Laing
Meena K. Lakdawala
Richard N. Lamming
Sarah C. Lawlor
Benjamin Leahy
Timothy M. Leahy
Dominic J. Lee
Edward K. Leh
Philippe H. Lenoble
Eugeny Levinzon
Ning Ma
John G. Madsen
Brian M. Margulies
Michael C. Marsh

*Partnership Committee Member

Goldman Sachs 2014 Annual Report

213

Board Members, Ofﬁcers and Directors
as of March 5, 2015

Robert T. Naccarella
Olga A. Naumovich
Brett J. Nelson
Victor K. Ng
Stephen J. Nundy
Jernej Omahen
Daniel S. Oneglia
Anna Ostrovsky
Marco Pagliara
Gena Palumbo
Jonathan E. Perry
Gerald J. Peterson
Julien D. Petit
Charlotte L. Pissaridou
David S. Plutzer
Ian E. Pollington
Alexander E. Potter
Alberto Ramos
Marko J. Ratesic
Joanna Redgrave
Ryan E. Roderick
Philip J. Salem
Jason M. Savarese
Joshua S. Schiffrin
Johan F. Schulten
Gaik Khin Nancy Seah
Oliver R.C. Sedgwick
David Sismey
Bryan Slotkin
Timothy A. Smith
Warren E. Smith
Thomas E. Speight
Chandra K. Sunkara
Kengo Taguchi
Kristi A. Tange
Jonathan E.A. ten Oever
David S. Thomas
Jonathan S. Thomas
Andrew Tilton
Frank T. Tota
Hiroshi Ueki
Naohide Une
Fernando P. Vallada
Samuel Villegas
Christian von Schimmelmann
Martin Weber
Ronnie A. Wexler
David A. Whitehead
David Williams
Julian Wills
William Wong
Nick Yim
Albert E. Youssef
Adam J. Zotkow
Robert J. Liberty
Sonjoy Chatterjee
Asita Anche
Bernard Thye Peng Teo

Boris M. Baroudel
Johan M.D. Den Hoedt
Johannes P. Fritze
Jeffrey S. Isaacs
William Shope, Jr.
Steven K. Barg
Guido Filippa
Kathleen Hughes
Michael Zeier
David Wells
Philip A. May
Alastair Maxwell
Jiming Ha
Sara Strang
Julian Zhu
Michael Wise
Pierre-Emmanuel Y. Juillard
Clemens Grafe
Gary Suen
Jeffrey A. Barclay
David K. Gallagher
Frederique Gilain-Huneeus
Theodore Lubke
Patrick J. Moran
Ronald Arons
Michael S. Goldstein
John P. Killian
Brett A. Olsher
Geoffrey P. Adamson
Yashar Aghababaie
Nicole Agnew
Ahmet Akarli
Ali A. Al-Ali
Jorge Alcover
Moazzam Ali
Gina M. Angelico
John J. Arege
Paula G. Arrojo
Richard J. Asbery
Naohiko Baba
Gargi Banerjee
Thomas J. Barrett, III
Roger K. Bartlett
Stephen E. Becker
Ron Bezoza
David R. Binnion
Michael Bogdan
Charles P. Bouckaert
Marco Branca
Didier Breant
Kelly Reed Brennan
Craig T. Bricker
Nellie A. Bronner
Sara Burigo
James M. Busby
Elizabeth A. Byrnes
Alvaro Camara
Tavis C. Cannell

214 Goldman Sachs 2014 Annual Report

Michael J. Casabianca
Jacqueline M. Cassidy
Leor Ceder
Eli W. Chamberlain
Gilbert Chan
Kevin M. Chan
Francis S. Chlapowski
Dongsuk Choi
Stephen L. Christian
Peter I. Chu
Vania H. Chu
Emmanuel D. Clair
Bracha Cohen
Darren W. Cohen
Christopher J. Creed
Helen A. Crowley
Matthew J. Curtis
Jason S. Cuttler
Sterling D. Daines
Kevin J. Daly
Rajashree Datta
Samantha S. Davidson
Adam E. Davis
Sally Pope Davis
George J. Dennis
Sara V. Devereux
Diana R. Dieckman
Avi Dimor
Lisa A. Donnelly
Mark T. Drabkin
Tilo A. Dresig
Thomas K. Dunlap
Steven M. Durham
Michael S. DuVally
Masahiro Ehara
Grant M. Eldred
Manal I. Eldumiati
Charles W. Evans
Anne M. Fairchild
Craig R. Farber
John W. Fathers
Lev Finkelstein
Warren P. Finnerty
Elizabeth O. Fischer
John J. Flynn
Veronica Foo
Francesca Fornasari
Andrew J. Fry
Charles M. Fuller
Ruth Gao
David M. Garofalo
Luke F. Gillam
Lisa M. Giuffra de Diaz
Matthew J. Glickman
Parameswaran Gopikrishnan
Luke G. Gordon
Pooja Grover
Patricia R. Hall

Anna Hardwick
Caroline Heller
Richard I. Hempsell
Isabelle Hennebelle-Warner
Jeremy P. Herman
Matthias Hieber
Amanda S. Hindlian
Darren S. Hodges
Simon Hurst
Edward McKay Hyde
Nagisa Inoue
Shintaro Isono
Ronald Jansen
Mikhail Jirnov
Benjamin R. Johnson
Mariam Kamshad
Makiko Kawamura
Christina Kelerchian
Andre H. Kelleners
Sven H. Khatri
Sandip S. Khosla
David A. Killian
Melinda Kleehamer
Maxim B. Klimov
Goohoon Kwon
Laurent-Olivier Labeis
Lambert M. Lau
Sandra G. Lawson
Deborah A. Lento
Gavin J. Leo-Rhynie
Leon Leung
Ke Li
Xing Li
Jason R. Lilien
Amy M. Liu
Bernard C. Liu
Nelson Lo
Kyri Loupis
Yvonne Low
Joshua Lu
Yvonne Lung
Uday Malhotra
Upacala Mapatuna
Kristerfor T. Mastronardi
Ikuo Matsuhashi
Francois Mauran
Brendan M. McCarthy
Michael J. McCreesh
Mathew R. McDermott
Charles M. McGarraugh
Matthew R. Mitchell
Ryan C. Mitchell
Christine Miyagishima
Igor Modlin
Michael Moizant
Petra Monteiro
Heather L. Mulahasani
Eric Murciano

Board Members, Ofﬁcers and Directors
as of March 5, 2015

Colin D. Murphy
Paul M. Mutter
Arvind Narayanan
Mani Natarajan
Antti K. Niini
Daniel Nissenbaum
Kevin Ohn
James Park
Katherine J. Park
Kyung-Ah Park
Ian L. Parker
Benjamin R. Payne
Thomas G. Pease
Andrew J. Pena
Ricardo H. Penfold
Andrew Philipp
Sasa Pilipovic
Asahi Pompey
Ling C. Pong
Raya Prabhu
Macario Prieto
Joshua Purvis
Xiao Qin
J Ram
Rajiv Ramachandran
Maximiliano Ramirez
Gary M. Rapp
Felicia J. Rector
Christopher C. Rollins
Colin J. Ryan
Maheshwar R. Saireddy
Ian P. Savage
Bennett J. Schachter
Martin L. Schmelkin
Laurie E. Schmidt
Dirk Schumacher
Carsten Schwarting
Thomas Schweppe
Dmitri Sedov
Stacy D. Selig
Kunal Shah
Tejas A. Shah
Alasdair G. Share
Jason E. Silvers
Ales Sladic
Howard D. Sloan
Michelle D. Smith
Stephanie P. Smith
Thomas J. Smith
Robert A. Spencer
Thomas G. Stelmach
Sinead M. Strain
Phillip B. Suh
Jamie Sutherland
Anton Sychev
Hideaki Takada
Konnin Tam
Yasuko Taniguchi

Daniel W. Tapson
Richard M. Thomas
Francis S. Todd
Christos Tomaras
Lale Topcuoglu
Thomas A. Tormey
Chi Keung Tse
Weidong Tu
Reha Tutuncu
Mei Ling Tye
Nicholas J. van den Arend
Alexandra S. Vargas
Peter G. Vermette
Matthew P. Verrochi
Sindy Wan
Freda Wang
Yi Wang
Mitchell S. Weiss
Greg R. Wilson
Mark J. Wilson
Gudrun Wolff
Isaac W. Wong
Stuart J. Wrigley
Jerry Wu
Jihong Xiang
Ying Xu
Lan Xue
Angel Young
Daniel M. Young
David A. Markowitz
Kent Wosepka
Terri M. Messina
Michele Cortese
Kamal S. Hamdan
Max I. Coreth
Sanjiv Nathwani
Ramez Attieh
Joe Raia
Erwin W. Shilling
Soares R. Rodolfo
Julian M. Trott
Aaron J. Peyton
Jayne Lerman
Eduard E. van Wyk
David A. Youngberg
Heather Bellini
Royal I. Hansen
Andrew Armstrong
David John Acton
Kate A. Aitken
Chris Baohm
Andrew Barclay
Timothy M. Burroughs
Chris D. Champion
Nicholas J. Fay
Joseph A. Fayyad
Ryan S. Fisher
Zac Fletcher

David Goatley
Christian J. Guerra
Dion Hershan
Nell C. Hutton
Nick S. Jacobson
Christian W. Johnston
Gordon Livingstone
Brendan R. Lyons
Steven Maartensz
Matthew J. McNee
Anthony I. J. Miller
Craig R. Murray
Andrew K. Rennie
Matthew G. Ross
Simon A. Rothery
Duncan Rutherford
Nick D. Sims
Conor J. Smyth
Ashley K. Spencer
Andrew R. A. Sutherland
Andrew R. Tanner
Kate A. Temby
Tim F. Toohey
Paul S. J. Uren
Sean Walsh
David Watts
Jeremy Williams
Vaishali Kasture
Robert G. Burke
Charles Cheng
Jia Ming Hu
Sanjiv Shah
John Clappier
Huw R. Pill
PV Krishna
Suk Yoon Choi
Richard J. Quigley
Alex Andrew A. von Moll
Antoine de Guillenchmidt
Tunde J. Reddy
Paul Ockene
Andrew Robin
Ronald Hua
Darrick Geant
Houston Huang
Felipe F. Mattar
Heath Terry
Jonathan H. Xiong
Jeremy W. Cave
Jose C. Labate
Michael Clarke
Ryad Yousuf
Jeff A. Psaki
Hiroko Adachi
Sajid Ahmed
Flavio Aidar
Lee M. Alexander
Osman Ali

Ilana D. Ash
Dominic Ashcroft
Farshid M. Asl
Vladislav E. Avsievich
Lucy Baldwin
Jonathan K. Barry
Yasmine Bassili
Jonathan Bayliss
Omar L. Beer
Mark W. Bigley
Timothy C. Bishop
James Blackham
Jacki Bond
Jonathan E. Breckenridge
John Brennan
Brian R. Broadbent
Jerome Brochard
Jason R. Broder
Robin Brooks
Amy C. Brown
Stefan Burgstaller
Christopher Henry Bush
Michael J. Butkiewicz
Eoghainn L. Calder
Scott S. Calidas
Katrien Carbonez
Sean V. Carroll
John B. Carron
David E. Casner
Kenneth G. Castelino
Winston Chan
Gary A. Chandler
Christopher H. Chattaway
Jonathan L. Cheatle
Simon Cheung
Pierre Chu
Jean-Paul Churchouse
Gregory Chwatko
Massimiliano Ciardi
Simon M. Collier
Kenneth Connolly
Frederic J.F. Crosnier
Robert G. Crystal
David J. Curtis
Keith L. Cynar
Simon Dangoor
Jennifer L. Davis
Thomas Degn-Petersen
Kevin M. Dommenge
Benjamin J. Dyer
Christopher M. Dyer
Mariano Echeguren
Charles P. Edwards
Katherine A. El-Hillow
Jenniffer Emanuel
Sean Fan
Richard M. Fearn
Michael A. Fisher

Goldman Sachs 2014 Annual Report

215

Board Members, Ofﬁcers and Directors
as of March 5, 2015

Nick Forster
Jennifer A. Fortner
Nanssia Fragoudaki
Grady C. Frank
Michael C. Freedman
Thomas Gasson
Antonio Gatti
Frank S. Ghali
Jason A. Ginsburg
Joshua Glassman
Gary M. Godshaw
Albert Goh
Ernest Gong
Jonathan J. Goodfellow
Michael Goosay
Poppy Gozal
Genevieve Gregor
Krag (Buzz) Gregory
Nick E. Guano
Nicholas Halaby
Sanjay A. Harji
Corey R. Harris
Thomas J. Harrop
Brian M. Haufrect
Adam T. Hayes
Robert Hinch
Ida Hoghooghi
Michael P. Huber
Jonathan S. Hunt
Aytac Ilhan
Omar Iqbal
Gurjit S. Jagpal
Simona Jankowski
Arbind K. Jha
Xiangrong Jin
Danielle G. Johnson
Michael G. Johnson
Jean Joseph
Edina Jung
Philipp O. Kahre
Abhishek Kapur
Sho Kawano
Jeremiah E. Keefe
Ryan J. Kelly
Brian J. Kennedy
Nimesh Khiroya
Jeff Kim
Phillip Kimber
Kathryn A. Koch
Fiona Laffan
James Lamanna
Kerry C. Landreth
Peter B. Lardner
Alison W. Lau
Arden Lee
Hung Ke Lee
Sang-Jun Lee
Howard Russell Leiner

Rainer Lenhard
Stephen L. Lessar
Daphne Leung
Chad J. Levant
Weigang Li
Gloria W. Lio
Chang Lee Liow
Edmund Lo
Justin Lomheim
David A. Mackenzie
Regis Maignan
Sameer R. Maru
Miyuki I. Matsumoto
Antonino Mattarella
Jack McFerran
Aziz McMahon
Jans Meckel
Ali Meli
Vrinda Menon
Raluca Ragab
Milko Milkov
Shinsuke Miyaji
Gabriel Mollerberg
Matthew L. Moore
Robert Mullane
Eric S. Neveux
Dale Nolan
Simon G. Osborn
Hilary Packer
Daniel M. J. Parker
Srivathsan Parthasarathy
Giles R. Pascoe
Rahul Patkar
Robert D. Patton
Deepan Pavendranathan
Alejandro E. Perez
Tushar Poddar
Jeff Pollard
Nicole Pullen-Ross
Ali Raissi
Rosanne Reneo
Paul Rhodes
Jill Rosenberg Jones
Jason T. Rowe
Joshua A. Rubinson
Owi Ruivivar
Jennifer A. Ryan
Andrew S. Rymer
Hiroyoshi Sandaya
Eduardo Sayto
Michael Schmitz
Mike Schmitz
Michael Schramm
Beesham A. Seecharan
Peter Sheridan
Seung Shin
Andrea Skarbek
Spencer Sloan

William Smiley
Taylor Smisson
Gary Smolyanskiy
Nishi Somaiya
Michael R. Sottile, Jr.
Andre Souza
Christopher W. Taendler
Winnie Tam
Trevor Tam
Luke D. Taylor
Vipul Thakore
Michael D. Thompson
Artur Tomala
John B. Tousley
Alexandre Traub
Eddie Tse
Hidetoshi Uriu
Dirk Urmoneit
Michael Voris
Steve Weddell
Paul Weitzkorn
Andrew M. Whyte
Ed Wittig
Jon J. Wondrack
Yvonne Y. Woo
Takashi Yamada
Xiaohong Lilly Yang
Wai Yip
Yusuke Yoshizawa
Kota Yuzawa
Richard Zhu
Mikhail Zlotnik
Richard Phillips
Jake Siewert
Tom Ferguson
Jeffrey Burch
Daniel Zarkowsky
Matthew Gleason
Joshua Kruk
Robert L. Goodman
Claude Schmidt
Paul V. Jensen
Scott Ackerman
Michael Dalton
John Gajdica
Todd Giannoble
John Gibson
Brenda Grubbs
Stephen Hipp
Tim Johnson
Hiroyasu Kaizuka
Klaus Kraegel
David Miller
Wes Moffett
Chance Monroe
Chris Nelson
Barry Olson
Mike Schaffer

Ken Sugimoto
Scott Toornburg
Berthold von Thermann
Michelle Khalili
Jasdeep Maghera
Yongzhi Jiang
Rafael Borja
Craig Sainsbury
Andrew Donohue
Nicholas T. Pappas
Zachary T. Ablon
Reyhaan Aboo
Shahzad Ali
David E. Alvillar
Timothy Amman
Lucia Arienti
Jacqueline Arthur
Willem Baars
Nilesh Banerjee
Marc Banziger
Yibo Bao
Tanya Barnes
Melissa Barrett
Bruce Berg
Dinkar Bhatia
Meera Bhutta
Matthew G. Bieber
Keith Birch
Kerry Blum
Tim Boddy
Matteo Botto Poala
Ryan Boucher
Joseph Braik
Fernando Bravo
Chris Buddin
Paul H. Burchard
Caroline Carr
Marie-Ange Causse
Daniel Cepeda
Jean-Baptiste Champon
Raymond Chan
Rita Chan
Pierre Chavenon
Gigi Chavez de Arnavat
Angus Cheng
Nikhil Choraria
Adam Clark
Hugo Clark
Colin Convey
Piers Cox
Chris Crampton
Heidi Cruz
Angelo Curreli
Laurianne Curtil
Pol De Win
Anthony Dewell
Joshua A. Dickstein
Kuniaki Doi

216 Goldman Sachs 2014 Annual Report

Board Members, Ofﬁcers and Directors
as of March 5, 2015

Judge Kirby
Jeffrey Klein
John H. Knorring
Marina Koupeeva
Jane Lah
Pierre Lamy
Arthur Leiz
Alex Levy
Alexander S. Lewis
Tim Li
Zheng Li
Stephane Lintner
Ilya Lisansky
Darren Littlejohn
John Liu
Wanlin Liu
Wendy Mahmouzian
Mazen Makarem
Daniel R. Mallinson
Thomas Manetta
Robert C. Mara III
Dunstan Marris
Kristen McDuffy
Victoria McLean
Sean McWeeney, Jr.
Benoit Mercereau
Edouard Metrailler
Samantha Migdal
Jeffrey Miller
Marko Milos
Teruko Miyoshi
Steven Mofﬁtt
Sarah Mook
Michael Moran
Paula P. Moreira
Alister A. Morrison
Peter Mortimer
Chukri Moubarak
Sara Naison-Tarajano
Anthony J. Nardi
Gleb Naumovich
Sean Naylen
Olaf Nordmeyer
Barry O’Brien
Patrick O’Connell
Zahabiya Ofﬁcewala
Keisuke Okuda
Elizabeth Overbay
Robert A. Palazzi
Philip Pallone
Brian A. Pasquinelli
Nita Patel
Douglas Penick
David Perdue
Michael Perloff
Patrick Perreault
Alec Phillips
Noah Poponak

Jessica Douieb
Martine Doyon
Dexter D’Souza
David Dubner
Amy Elliott
Theodore Enders
Alyssa Fanelli
Aidan Farrell
Raymond Filocoma
Andrea Finan
Jeffrey Fine
James A. Fitzsimmons
Matthew Flett
Robert G. Frahm III
Alisdair Fraser
Barry Friedeman
Charlie Gailliot
Renyuan Gao
Suzanne Gauron
Darren T. Gilbert
Jason Gilbert
Eric Goldstein
Jamie Goodman
Betsy Gorton
Pooja Goyal
Jason Granet
David Granson
David Grant
Tim Grayson
Brian Greeff
Marci Green
Stephen Grifﬁn
Kristen Grippi
Dinesh Gupta
Manav Gupta
Yuhei Hara
Toshiya Hari
Todd Haskins
Aime Hendricks
Michael Henry
Peter U. Hermann
James Herring
Jamie Higgins
Peter J. Hirst
Christopher Hogan
Mike Holmes
Jonathan P. Horner
Katie Hudson
Kenneth Hui
Lars Humble
Amer Ikanovic
Stephanie Ivy
Antoine Izard
Gunnar Jakobsson
John C. Joyce
Benjamin D. Kass
Christopher Keller
Simon J. Kingsbury

*Partnership Committee Member

Kim-Thu Posnett
Andrea Raphael
Kareem Raymond
Claudia Reim
Grant Richard
Valentina Riva
Fernando Rivera
Brian Robinson
Javier Rodriguez
David Roman
Katya Rosenblatt
Amanda Rubin
Bryan Rukin
Gunjan Samtani
Philip Saunders
Monika Schaller
Michael Schlee
Jonathan Schorr
Anton Schreider
Peter Schwab
Roy A. Schwartz
Joshua Schwimmer
Kunal Shah
Martin Sharpe
Hao Shen
Mark Siconolﬁ
Vanessa Simonetti
Amit Sinha
Matthew Slater
Ian Spaulding
Richard Spencer
Lesley Steele
Heiko Steinmetz
Michael Strafuss
Takashi Suwabe
Laura Takacs
Maurice Tamman
Eng Guan Tan
Katsunori Tanaka
Bob Tankoos
John R. Thomas
Cullen Thomason
Glenn Thorpe
Michele Titi-Cappelli
Timothy G. Tomalin-Reeves
Carrie Van Syckel
Tammy VanArsdalen
Carmine Venezia
Frank Viola
Heather von Zuben
Monali Vora
Ward Waltemath
Stephen Warren
Luke Wei
Matthew Weir
Chris Wells
Geoffrey M. Williams
Neil Wolitzer

Willie W. Wong
Nicola Wright
Makoto Yamada
Wendy Yun
Genya Zemlyakova
Jing Zhang
Allen Zhao
Anthony Davis
Sarah Rennie
Steve Kron
Saleh Romeih
John G. Childers
Nicholas Jordan
Caroline L. Arnold
Matteo Lorenzini
Douglas R. De Filippi
Kate G. Richdale*
Thomas H. Veit
Simon M. Robertson
Torben Nielsen
Thomas C. Ernst
Qi Li
Ashley R. Woodruff
Stephanie J. Goldstein
Marc O. Getman
Cornelia S. Spiegel
Dimitrios Nikolakopoulos
Henry P. Hilliard
Jack O. Johnston
Yiqian Sun
Jason M. Wingard
John P. Hardt
John D. Axtell
Chris Hsieh
Ian Smith
Kevin A. Zerrusen
Katherine A. Abrat
Afsheen Afshar
Puneet Agarwal
Sergio Akselrad
Philip J. Aldis
Margaret C. Anadu
Vishweshwar Anantharam
Silvia Ardagna
Matthew J. Armas
Anthony M. Arnold
Yacov Arnopolin
Celine Assouline
Roberto Awad
Amin Azmoudeh
Davie M. Baccei
Eric Bai
Taran Bakker
Padmanabhan Balasubramanian
Kevin S. Barker
Lindsay D. Basloe
Peter G. Beckman
Collin E. Bell

Goldman Sachs 2014 Annual Report

217

Board Members, Ofﬁcers and Directors
as of March 5, 2015

Navtej S. Bhullar
Jean Altier Bohm
Francois-Xavier T. Bouillet
Douglas J. Bouquard
Elizabeth C. Bowyer
Sarah J. Brungs
Michael S. Bruun
Beat M. Cabiallavetta
Niharika Cabiallavetta
John R. Cahill
Gregory D. Calnon
Robert A. Camacho
David Campbell
Thomas J. Campbell
Michael Casey
John T. Cassidy
Pascal A. Cerf
Tiffani L. Chambers
Sharmini Chetwode
Patricia Chew
Travis J. Chmelka
Lisa M. Coar
Charles A. Cognata
Dahlia Cohen
Larry R. Colburn
Peter R. Colven
Stuart P. Connolly
Stephen T. Considine
Damien R. Courvalin
Nora Creedon
Alicia A. Crighton
Adam M. Crook
Piers N. Curle
Michael L. D’Addario
Aneesh K. Daga
John M. Dailey
Viktor C. Danielson
Eric R. Dann
Suzanne N. de Verdelon
Michael Deninno
J. Stratford R. Dennis
Anthony DeRose
Arun Dhar
Scott K. Diamond
Rachel Diller
Lin Ding
Rohan N. Doctor
Anthony J. Duggan
Sinead Dunphy
Michael Durso
Michael J. Eakins
Mike E. Ebeling
Kene Ejikeme
Simon B. Ennis
Ashley J. Everett
Amir Fais
Joseph Femenia
Ivan A. Fillon

Andrew H. Fisher
Andrew F. Flahive
Brian K. Fortson
Bridget L. Fraser
Olivier Frendo
Nicolas B. Friedman
James A. Fulton
Roger Gardiner
Matija Gergolet
Philip V. Giuca Jr.
Brian D. Glass
Edward M. Glassmeyer
Nicholas P. Godfrey
Lawrence Grassi
Jett G. Greenberg
David Gribble
Benjamin D. Grizzle
Anil Grover
Fredrik Grunberger
Michael D. Gurney
David Ha
Kirsten Hagen
Digboloy Halder
Phillip J. Han
Sarah J. Harper
Hunter L. Henry
Debra Herschmann
Michael B. Hickey
Michael F. Higgins
Axel K. Hoefer
Judy E. Hong
Timothy Hooley
Erdit F. Hoxha
James W. Huckaby
Michael J. Husson
Maximos M. Iakovlev
Inci Isikli
Omer Ismail
Glade A. Jacobsen
Sumedh Jaiswal
Michael T. Jalkut
Channa W. Jayaweera
Derek V. Jean-Baptiste
Chitranjan Jeyarajah
Jessica V. Jones
Sami N. Kamhawi
Geraldine P. Keefe
Zaid M. Khaldi
Talat Khan
Gautam R. Khanna
Hiroki Kimoto
Banu Kisakurek
Gilbert H. Klemann
Victor Klimchenko
Gordon G. Kluzak
Heidi K. Kniesel
Kimiyasu Kono
Joseph Konzelmann

218 Goldman Sachs 2014 Annual Report

Eric J. Kramer
Pavel Krotkov
Rohit Kumar
Yojiro Kunitomo
David D. LaBianca
Jonathan M. Lamm
Adam S. Lane
Risa Lederhandler
Andrei Legostaev
Matthew J. Leisen
Vincenzo Lento
Xufa Liao
Brian Liloia
Reginaldo Lima
Marcel K. Liplijn
Malcolm M. MacDonald
John L. Marshall
Jonathan D. Matz
Patricia M. McCarthy
Michael McGinn
Alan S. Mclean
Olympia S. McNerney
Scott R. Mehling
Noa A. Meyer
Alexandra Miani
Jung Min
Jerry Minier
Anthony F. Mirabile
Anindya Mohinta
Michael H. Mooney
Sam A. Morgan
William I. Morgan
Peter C. Morreale
Frederick D. Morris
Piyush Mubayi
Kaushik Murali
Mark A. Najarian
Joshua P. Newsome
Logan J. Nicholson
Michael A. Nickols
Sergei Y. Nodelman
Jolie A. Norris
Edward J. Oakley
Timothy A. O’Donovan
Brian D. O’Keeffe
Mark D. Olivier
Stephen K. Orr
Bartosz J. Ostenda
Enrico Ottavian
Hiroshi Ozawa
Matthew C. Papas
Douglas M. Paterson
Cyrille Perard
Christopher A. Perez
Amit Pilowsky
Dominic M. Pomponi
Brandon T. Press
Kenneth S. Prince

Kenneth G. Purtell
Donald E. Raab
Radovan Radman
Mohan Rajagopal
Neema M. Raphael
Michael T. Rendel
Osmin Rivera
Ludovic Rodhain
Javier Rodriguez-Alarcon
Cosmo Roe
Andrew L. Rosivach
Jennifer K. Roth
Jonathan Rousse
John B. Ryan
Yassaman A. Salas
Thomas V. Scarpati
Rachel C. Schnoll
Marc H. Schreiber
Bruce E. Schwartz
Lyle M. Schwartz
Anshul Sehgal
John R. Semczuk
Hideyuki Seo
Jonathan I. Shapiro
Johann W. Shudlick
Andrew R. Silverman
Brian A. Singer
Jeremie Sokolowsky
Simone Song
William Stamatakis
Sven J. Stehn
Jeremy G. Stent
Alan D. Stewart
Daniel R. Strack
Alexandra J. Stubbings
Masato Sunaga
Takaaki Suzuki
Chia Min Tan
Robert Tau
Sujay H. Telang
Baris Temelkuran
Rene J. Theriault
Bart Thomson
Cassandra S. Tok
Alexandros Tomas
Karen T. Trapani
Kamakshya Trivedi
Emma Tsui
Ervin H. Tu
John M. Tully
Thomas Turner
Michael Ungari
Krishnamurthy Vaidyanathan
Ana L. Vazquez-Ubarri
Scott H. Walter
Bryce K. Wan
James Wang
Kent J. Wasson

Board Members, Ofﬁcers and Directors
as of March 5, 2015

Michael M. Watts
Stephen M. Waxman
Connie Wen
Colin M. White
Kyle R. Williams
Stephen E. Withnell
Audrey Woon
Chiharu Yamagami
Suzzanne Yao
Rana Yared
Bervan Y. Yeh
Tony Yip
Emi Yoshibe
Vladimir M. Zakharov
Kalyana Kommineni
Robert M. Cahill
Alice Jane Murphy
Brian C. Rooney
Rupert Mitchell
Jose A. Hernandez
Tushar S. Desai
Neill D. Nuttall
Khalid Ghayur
Javier Macaya
Kayhan Mirza
Andrea Casulli
Garry J. Naughton
Laurence M. Kleinman
Aidan G. Mills
John da Eira Eleoterio
Ying Guo
Paul G. Parker
Jack Levy
Jonathan M. Strain
Evan A. Morris
Takuya Negoro
Joseph L. Libson
Andrei Nelskyla
Christopher Kung Yeong Chan
Srinivasan Varadarajan
Peter Ying
Kumar M. Thakur
Scott D. Craig
Jared D. Baker
Man Kinoshita
Charles Reyl
Muhammad M. Qubbaj
Christiane K. Macedo
Raja A. Mahajan
Stephen Sachs

Goldman Sachs 2014 Annual Report

219

Directors, Advisors and Ofﬁces
as of March 5, 2015

Senior
Directors

Robert M. Conway
Robert N. Downey
John R. Farmer
Eugene V. Fife
Donald R. Gant
James P. Gorter
Robert J. Hurst
Robert S. Kaplan
Robert J. Katz
Stephen B. Kay
William Landreth
Richard L. Menschel
Robert B. Menschel
Eugene Mercy Jr.
Robert E. Mnuchin
Robin Neustein
Willard J. Overlock Jr.
David C. Ryan
Peter G. Sachs
David M. Silfen
Thomas B. Walker Jr.
Roy J. Zuckerberg

Advisory
Directors

Alison L. Bott
Terrence Campbell
Andrew A. Chisholm
Jonathan L. Cohen
Carlos A. Cordeiro
John P. Curtin Jr.
Eric S. Dobkin
Paul S. Efron
Christopher H. Eoyang
Silverio Foresi
Timothy G. Freshwater
H. John Gilbertson Jr.
Joseph H. Gleberman
Jonathan J. Hall
Timothy M. Kingston
Lindsay P. LoBue
Charles Gareth Roe Manby
Robert J. Markwick
John J. Powers
Linnea Kathleen Roberts
Daniel Matthew Shefter
Alan A. Shuch
Paul Sundberg
Peter D. Sutherland
Michael Andrew Troy
Kaysie Uniacke
Jon A. Woodruff
Chang Bo Yang

220 Goldman Sachs 2014 Annual Report

Board of
International Advisors

Offices

Robert B. Zoellick
Chairman, International Advisors

Claudio Aguirre
José Luís Arnaut
Christoph Brand
Efthymios Christodoulou
Juan Claro González
Charles de Croisset
Charles Curran, A.C.
Guillermo de la Dehesa
Vladimír Dlouhý
Walter W. Driver, Jr.
Orit Freedman Weissman
Lord Grifﬁths of Fforestfach
Professor Victor Halberstadt
Professor Otmar Issing
Roberto Junguito
Mario Laborín Gómez
Ian Macfarlane, A.C.
Dr. Axel May
Tito T. Mboweni

Alpharetta
Amsterdam
Atlanta
Auckland
Bengaluru
Beijing
Boston
Burlington
Calgary
Chicago
Dallas
Dubai
Frankfurt
Geneva
Hong Kong
Houston
Irving
Istanbul
Jakarta
Jersey City
Johannesburg
Kuala Lumpur
Lafayette
London
Los Angeles
Madrid
Melbourne
Mexico City
Miami
Milan
Monte Carlo
Moscow
Mumbai
Munich
New York
Paris
Perth
Philadelphia
Riyadh
Salt Lake City
San Francisco
Santiago
São Paulo
Seattle
Seoul
Shanghai
Singapore
Stockholm
Sydney
Taipei
Tel Aviv
Tokyo
Toronto
Warsaw
Washington, D.C.
West Palm Beach
Wilmington
Zurich

Executive Offices

The Goldman Sachs Group, Inc.
200 West Street
New York, New York 10282
1-212-902-1000
www.goldmansachs.com

Common Stock

The common stock of The Goldman Sachs Group, Inc. is
listed on the New York Stock Exchange and trades under
the ticker symbol “GS.”

Shareholder Inquiries

Information about the firm, including all quarterly earnings
releases and financial filings with the U.S. Securities and
Exchange Commission, can be accessed via our Web site
at www.goldmansachs.com.

Shareholder inquiries can also be directed to Investor
Relations via email at gs-investor-relations@gs.com
or by calling 1-212-902-0300.

2014 Annual Report on Form 10-K

Copies of the firm’s 2014 Annual Report on
Form 10-K as filed with the U.S. Securities and Exchange
Commission can be accessed via our Web site at
www.goldmansachs.com/investor-relations.

Copies can also be obtained by
contacting Investor Relations via email at
gs-investor-relations@goldmansachs.com
or by calling 1-212-902-0300.

Transfer Agent and Registrar for Common Stock

Questions from registered shareholders of The Goldman
Sachs Group, Inc. regarding lost or stolen stock certificates,
dividends, changes of address and other issues related to
registered share ownership should be addressed to:

Computershare
480 Washington Boulevard
Jersey City, New Jersey 07310
U.S. and Canada: 1-800-419-2595
International: 1-201-680-6541
www.computershare.com

Independent Registered Public Accounting Firm

PricewaterhouseCoopers LLP
PricewaterhouseCoopers Center
300 Madison Avenue
New York, New York 10017

The papers used in the printing of this Annual Report are certified by
the Forest Stewardship Council™, which promotes environmentally
appropriate, socially beneficial and economically viable management
of the world’s forests. These papers contain a mix of pulp that is derived
from FSC® certified well-managed forests; post-consumer recycled paper
fibers and other controlled sources. Sandy Alexander Inc FSC® “Chain
of Custody” certification is BVQI-C020268.

4350-14-102

Shareholder Informationgoldmansachs.com