Goldman Sachs Annual Report 2018

FY2018 Annual Report · Goldman Sachs

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The Goldman Sachs Group, Inc.

Annual
Report

2018

Fellow Shareholders:

The opportunity to lead Goldman Sachs is extraordinarily humbling
and exciting, made even more so as this year is the ﬁrm’s 150th
anniversary. Like each of my predecessors, my responsibility is to
preserve the legacy of Goldman Sachs, while remaining open to the
change and innovation that best meets the needs of our clients.

I am privileged to be surrounded by exceptionally talented people at all levels of our ﬁrm, including
John Waldron, our President and Chief Operating Ofﬁcer, and Stephen Scherr, our Chief Financial
Ofﬁcer, who are also intensely focused on ensuring that clients are at the center of everything we do —
and in doing so, creating long-term value for our shareholders.

While much has changed over the course of our 150-year history, teamwork, integrity, adaptability and
client service remain at the core of our culture.

The strength of our culture and client franchise was at the heart of our ﬁnancial performance in 2018.
We achieved record diluted earnings per common share, and attained our highest annual return on
average common shareholders’ equity and return on average tangible common shareholders’ equity since
2009. Net revenues of $36.62 billion and pre-tax earnings of $12.48 billion were both 12 percent higher
compared with 2017 and the highest since 2010. Book value per common share and tangible book value
per common share increased by 15 percent during the year to $207.36 and $196.64, respectively.

2018 Financial Performance

13.3%

14.1%

$36.6B

15%

R O E

R O T E

N E T R E V E N U E S

B V P S G R O W T H

Goldman Sachs 2018 Annual Report

(from left to right)

Stephen M. Scherr
Chief Financial Officer

David M. Solomon
Chairman and
Chief Executive Officer

John E. Waldron
President and
Chief Operating Officer

Our Strategy

This performance, alongside our strong levels of capital
and liquidity, put Goldman Sachs on a solid foundation.
As we look ahead, our focus is on delivering sustainable,
long-term returns for our shareholders through a strategy
that revolves around our clients.

Our strategy comprises three core priorities:

• Growing and strengthening our existing businesses by
deepening our relationships with existing clients, and
expanding our capabilities to serve new clients;

• Diversifying our business mix by increasing our

fee-based or more recurring revenues, including by
launching new products and services; and,

• Achieving greater operating efficiency across all areas
of the firm, including expenses, funding costs and
capital, without compromising the long-standing
strength of our control and risk management functions.

Our strategy reflects the need to anticipate and adapt to
the structural forces that shape economies and industries
and how our clients operate within them. Markets,
financial instruments and products and different client
segments are converging and competing with one another
at an unprecedented pace.

This requires us to simultaneously invest for growth and
to create better efficiencies in the way we run certain
businesses. I have advised companies for over three

Goldman Sachs 2018 Annual Report

Letter to Shareholdersdecades and the ones I have admired most are those that
have managed their resources to allow for both investment
and shareholder return. This is particularly critical when
you consider how technology is inﬂuencing the way
institutions and consumers alike are transacting in various
markets and products, including in our industry.

In that context, across a number of our businesses,
particularly our market-making businesses, we have to
achieve the scale necessary to execute transactions in the
most effective way for our clients. That means investing
in platforms and empowering those who build them. It
means encouraging the innovative ideas of our people
that take good products and make them great. And it
means looking at the revenues and expenses of businesses
“front-to-back” so that we have a clear-eyed view of
where technology investments, the allocation of capital
and other resources will be most critical to best delivering
our advice, execution and risk management to our clients.

Since last fall, we have undertaken a review of each
of our major businesses and the core activities within
them. Each review has reinforced the fact that we
beneﬁt enormously from a strong client franchise
around the world. At the same time, we see tremendous
opportunities to expand our addressable market and
grow new businesses. As we pursue these opportunities,
our focus on strong risk management and controls will
be central to our ability to meet the expectations of
our clients and our shareholders.

Over the course of the year, I look forward to
communicating more details on our strategic direction
and priorities, which will include sharing certain ﬁnancial
metrics and targets to which my colleagues and I will be
held accountable. I feel a sense of urgency and excitement
about the opportunities we have identiﬁed, but, it is
also important to be diligent and deliberate and not
rush into long-term decision making.

While not exhaustive, I want to spend the bulk of this
letter providing you with a sense of the opportunities
and priorities we will be focused on in the months
and years ahead.

Grow and Strengthen Our Existing Businesses
Our ﬁrst strategic priority is to expand our existing
businesses and we are executing on a variety of growth
initiatives to that end.

In Investment Banking, for example, we have embarked
on a broad footprint expansion strategy that includes
hiring new senior bankers, adding coverage for more
than 1,000 new companies, and creating opportunities
to help more clients access equity capital and debt
ﬁnancing. As of year end, we have made signiﬁcant
progress, having assigned coverage on approximately
95 percent of our targeted universe of new clients
across the Americas and EMEA.

Across FICC and Equities, we have strong institutional
wallet share, which has improved by 65 and 110 basis
points, respectively, since 2016.1 When I talk with many
of our clients, it is clear that they value FICC’s deep risk
intermediation capabilities and expertise. In addition
to that focus, we continue to leverage platforms that
integrate execution, analytics and content for our clients.
In Equities, we are growing our electronic execution
business through the development of low-touch
platforms. And, we are working with more corporate
clients in EMEA and Asia, particularly as it relates to our
ability to deliver risk management solutions to them.

Over the past ﬁve years, Investment Management has
generated organic, long-term fee-based net inﬂows of
approximately $215 billion. We see further potential in
this business by growing our advisory and outsourced CIO
services, as well as by expanding our product offering —
notably, our Alternatives platform and ETFs. We are also
expanding our world-class private wealth management
business by adding new private wealth advisors and
increasing our collateralized lending to clients.

Within Investing & Lending, our Merchant Banking
business comprises a diversiﬁed portfolio across
Corporate Private Equity and global Real Estate that
is managed by hundreds of investment professionals
and led by tenured senior leadership. Our strong track
record, built over the course of several decades, positions
us well to provide clients with additional attractive
investing opportunities.

1 Wallet share through ﬁrst nine months of 2018

as full-year data not yet available. Source: Coalition

Goldman Sachs 2018 Annual Report

Letter to Shareholders

These various initiatives to strengthen and grow our
existing businesses will be underscored by an emphasis
on delivering the full value of One Goldman Sachs to
our clients. An increasing number of institutions and
companies interact with different parts of our ﬁrm.
They don’t view their relationship with Goldman Sachs
through the prism of a product or division. Historically,
we have tended to manage our client relationships
through more of a divisional lens, which can sometimes
limit a more holistic view of how best to identify and
meet the needs of these clients who are global,
complex and multifaceted.

One of my ﬁrst priorities as CEO has been to ensure
that the full range of our services and skill set is more
accessible, comprehensive and efﬁciently delivered.
In that vein, we have formed a cross-divisional client
initiative, led by senior leaders in our Institutional
Client Services, Investment Management and Investment
Banking businesses to work with a pilot group of
clients with multidimensional business needs.

Even at this early stage, I am encouraged by the feedback
from our clients and what we have learned from them.
Over time, we plan to expand this initiative to a broader
group of clients with the simple goal of ensuring that
we are orienting our client coverage around what is
most important to our clients regardless of division
or product area focus.

Diversify Our Business Mix
with New Products and Services
A second element of our strategy is a focus on more
durable revenues through lending and deposit activities,
cash management and wealth management. We have
made considerable progress over the past ﬁve years,
but there is more we can do in the years ahead.

In 2016, we established Marcus: by Goldman Sachs,
our digital consumer ﬁnancial services business. We
are working to connect our growing customer base —
and their growing wealth — to our broader suite of
services as we develop a multitiered digital wealth

management offering. Over time, we expect this will
grow to be another core capability of our client-centric
multiproduct Marcus platform.

We are pleased with our early progress: we have
more than 3 million total customers, $36 billion in
consumer deposits in the U.S. and the U.K., and nearly
$5 billion of consumer loans. We are cognizant of the
risk proﬁle of our nascent consumer lending business
and will remain attentive to where we are in the cycle
as we grow our business for the long term.

We are also developing a dynamic, digital cash
management and payments platform for corporate clients.
And, the potential for Goldman Sachs in this space is
signiﬁcant. The industry cash management wallet is larger
than the global investment banking wallet we compete
for today.

As the leading M&A advisor globally, companies already
trust us to provide advice on their most signiﬁcant
transactions. We will build on these strong relationships
and forge new ones by delivering new solutions that solve
customer frustrations around outdated technology and
limited customization and analytics.

We see a real opportunity to provide clients with a modern,
global cash management platform that is both secure
and ﬂexible. We expect this business to be accretive to
our return proﬁle and to provide a number of beneﬁts
to adjacent businesses, including growing deposits and
generating more client ﬂows for our currencies franchise.

We are making tangible progress in building this platform
and I expect that we will launch a cash management
offering to clients next year.

Achieve Greater Operating Efﬁciency
Our third strategic priority is to ensure we are maximizing
operating efﬁciency by investing in automation and
technology that will improve the client experience and
drive expense savings across our businesses.

For instance, in FICC, we are a top-2 institutional
provider and gained share in six of eight asset classes

Goldman Sachs 2018 Annual Report

O U R S T R AT E G Y

O B J E C T I V E S

G R O W A N D S T R E N G T H E N

D I V E R S I F Y O U R B U S I N E S S

A C H I E V E

O U R E X I S T I N G

B U S I N E S S E S

M I X W I T H N E W P R O D U C T S

G R E AT E R O P E R AT I N G

A N D S E R V I C E S

E F F I C I E N C Y

K E Y T E N E T S

Delivering
“One Firm”
to Our Clients

Pursuing
Adjacencies
for Growth

Expanding
Addressable
Market

Investing in
Technology and
Platforms

Enhancing
Market
Transparency

S U P E R I O R L O N G - T E R M T O TA L S H A R E H O L D E R R E T U R N S

Goldman Sachs 2018 Annual Report

Letter to Shareholders

in 2018,2 but the opportunity set and the global FICC
wallet has declined signiﬁcantly over the past decade. To
adapt, we have made important improvements in FICC’s
efﬁciency, reducing standardized risk-weighted assets by
40 percent and expenses by more than 20 percent, each
compared to 2013. FICC will continue to be a valuable
offering for our clients and we see attractive opportunities
to build scale within FICC as the market structure continues
to evolve. Part of building scale is through improving the
client experience and that means operating more efﬁciently.

Positioning ourselves for growth across our businesses
partially entails funding investments from realized operating
leverage in our core businesses. To help enforce this, we
are looking at our costs holistically and have improved
our ﬁrmwide efﬁciency ratio to 64 percent in 2018, down
nearly 2 percentage points over the past two years.

We also are identifying ways to manage our balance
sheet more efﬁciently. We have identiﬁed deposits as a
strategic focus to diversify our funding mix and lower
our funding costs and have grown our deposit base by
$34 billion over the past two years to $158 billion at
the end of 2018.

A Culture of Risk Management
As we grow and expand our business reach, bringing
Goldman Sachs to more clients and customers, we
are dedicated to maintaining the primacy of the
control function at the ﬁrm and upholding the highest
standards in risk and operational management.

There are always important lessons to be learned from
difﬁcult situations and as it relates to 1MDB, we have
looked back and will continue to reﬂect on anything
else the ﬁrm could have done better. It remains a priority
for me that our culture of integrity, compliance and
escalation only improves from this experience.

Effective risk management is demanding and difﬁcult.
It requires constant vigilance and we won’t always get

it right. But an unwavering cultural commitment to it
lies at the heart of an effective ﬁnancial institution and
we believe it is a core competence that helps deﬁne
Goldman Sachs.

Our People

I have been fortunate to have worked closely with
Lloyd Blankfein over the years, who stepped down as
Chairman and CEO last year. Throughout his 36 years
of dedicated service to the ﬁrm, his keen understanding
of markets and risk have been invaluable to keeping the
ﬁrm both nimble and resolute in the face of constant
change. And amidst the most turbulent days of the global
ﬁnancial crisis, it was Lloyd’s fortitude and leadership
that steadily navigated Goldman Sachs and its people
through one of the most difﬁcult episodes in our history.
He has been a valued partner and colleague, and I am
grateful for his mentorship, judgment and counsel.

In my travels and time with clients, one refrain I hear
time and again is that Goldman Sachs is different because
of the quality of our people. Our success in delivering
for our clients and on our strategic priorities depends
on attracting, retaining and developing talented people.
Professionals want to be constantly learning, working
on important problems that have broad signiﬁcance to
industries, economies and society, and to be surrounded
by diverse colleagues.

In my short time as CEO, I’ve been vocal about the
importance of advancing our ﬁrm’s diversity, including
with respect to gender, race, sexual orientation, disability
or whatever contributes to who we are. Effectively
serving a broad and diverse set of clients means having
an appreciation and understanding of their different
experiences, interests and values, and we are committed
to building a team capable of that critical work. Over
the years, the ﬁrm’s diversity and inclusion efforts have
evolved from raising broader awareness and delivering
an array of programs to a more deliberate, data-driven
and targeted strategy.

Goldman Sachs 2018 Annual Report

2 Wallet share and ranking through ﬁrst nine months of 2018

as full-year data not yet available. Source: Coalition

Goldman Sachs 2018 Annual Report

Letter to Shareholders

We have made progress in recent years and have more
diverse representation on our Board of Directors. In
addition, our most recent partner class had the highest
percentage of women and black partners in our history
and, we are nearly there on the campus analyst hiring
goals we established last year. But, we have a longer path
ahead of us as it relates to our broader diversity ambitions.
We are working with our Global Diversity Committee to
advance speciﬁc goals and objectives. We are undertaking
new initiatives aimed at increasing the representation of
diverse communities at all levels across the ﬁrm. This
includes increasing the representation of our analyst and
entry-level associate new joiners — which represents more
than 70 percent of our annual hiring — to 50 percent
women, 11 percent black professionals and 14 percent
Hispanic/Latino professionals in the Americas, and
9 percent black professionals in the U.K.

Fundamental change takes time, but if we’re rigorous in
our execution of incremental change, we will make it
happen. We simply do not have a choice but to strive to
be one of the most diverse and inclusive institutions in
the world. If we are not creative and do not take the
right measures to embed a more diverse workforce across
every facet of diversity, we put in jeopardy our relevance
to our clients and the markets we serve.

Sustainability

Managing the ﬁrm responsibly is core to our goal
of driving superior long-term shareholder returns.
We cannot be successful over the long term for our
investors unless we think broadly about the impact
we have on society and our communities — and then,
orient ourselves toward ways we can allocate
capital purposefully.

A dedication to service and a commitment to using our
expertise and convening power to help address broader
issues has long been a core element of our culture. Over
the course of many years, we have developed innovative
and meaningful philanthropic programs that have
improved business education and provided access to
capital for thousands of women entrepreneurs and
small businesses.

Goldman Sachs 2018 Annual Report

Since the launch of our 10,000 Women initiative in
2008, we have invested over $150 million to help
women entrepreneurs across 56 countries, providing
practical business education, mentoring, networking
and access to capital. Most recently, we have
democratized access to business education on a global
scale through the introduction of online business
education courses. In addition, this past year, the Women
Entrepreneurs Opportunity Facility — developed in
partnership with the IFC as the ﬁrst of its kind gender
facility — surpassed $1 billion in investments to ﬁnancial
institutions in 31 countries and is well on its way to
providing capital to 100,000 women.

Through our 10,000 Small Businesses program,
launched in 2010, we have committed $500 million to
provide training and access to capital to small business
owners looking to grow and create new jobs in their
communities, with compelling results. To date,
we have graduated 8,200 small business owners, with
78 percent of graduates reporting revenue increases and
57 percent adding jobs within 30 months of graduation.

We will continue our commitment to these extraordinary
programs, but we see an increasing opportunity to focus
on some of the other important issues that are facing
society today — from the environment to health care
to urban development.

For example, our Urban Investment Group (UIG)
has been a major investor in community development
projects, committing more than $7 billion in underserved
American markets since 2001. In 2018, UIG continued
its long-term support of the Brooklyn Navy Yard
by committing $35 million to renovate Building 127,
a 95,000-square-foot manufacturing center that will
drive the creation of approximately 300 quality urban
manufacturing jobs.

Last year, we announced Launch With GS, a
$500 million initiative to invest in women-led companies
and investment managers. Through this effort, we are
harnessing our deep investment expertise to narrow
the gender investing gap in three ways: committing ﬁrm
capital in women-founded, owned or led businesses,
directing client capital to invest in women-centered

technologies will create new price setting mechanisms
to control-side professionals who react quickly to
ﬁnancial and regulatory changes in an effort to always
maintain the ﬁrm’s risk proﬁle and operational integrity.

What initially attracted me to Goldman Sachs and
what has kept me here over the years is our time-honored
culture that values teamwork, excellence and problem-
solving; it has allowed us not only to survive, but thrive
in an industry that is cyclical by nature.

As we look to the future, we are building new
businesses and reorienting the ﬁrm for a broader set
of opportunities. We have a robust approach to risk
management and a strong balance sheet with the talent
to deploy and protect it. We are investing across our
businesses to serve new and existing clients and build
upon an extraordinary client franchise. That’s why I am
very conﬁdent of Goldman Sachs’ ability to generate
strong, industry-leading returns through the cycle.

David M. Solomon
Chairman and
Chief Executive Ofﬁcer

investing ﬁrms, and creating an ecosystem to help
build future investment opportunities.

More broadly, we have seen fast-paced growth in our
Environmental, Social and Governance (ESG) and impact
investing platform, which reached $17 billion in assets
under supervision at the end of 2018. This includes the
launch of an ESG-focused ETF that provides our clients
with broad exposure to U.S. large cap companies that rank
favorably based on values identiﬁed by the American public.

And as another example, at the end of 2018, we reached
$80 billion in our goal to ﬁnance or invest $150 billion
in clean energy by 2025.

Clean Energy Investments
and Financings

Since 2012:

$80B
$150B

Target by 2025:

We are a ﬁnancial institution, operating in global
markets, with a global client base — and we have a
real opportunity through that work not only to lead
by example in how we run our organization, but to
drive sustainable outcomes for our clients and for
our communities.

Looking Ahead

Goldman Sachs of 2018 looks very different from the
ﬁrm Marcus Goldman started a century and a half ago.
Frankly, it looks different from when I started here nearly
20 years ago. One of the reasons that Goldman Sachs has
succeeded for so long is that it reﬂects individuals who
have been able to adapt with the changing times — from
market professionals who see how the emergence of new

Goldman Sachs 2018 Annual Report

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.

10 Goldman Sachs 2018 Annual Report

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2018

Commission File Number: 001-14965

The Goldman Sachs Group, Inc.

(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction of
incorporation or organization)

200 West Street
New York, N.Y.
(Address of principal executive offices)

13-4019460
(I.R.S. Employer
Identification No.)

10282
(Zip Code)

(212) 902-1000
(Registrant’s telephone number, including area code)

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

Title of each class:

Name of each exchange on which registered:

Common stock, par value $.01 per share
Depositary Shares, Each Representing 1/1,000th Interest in a Share of Floating Rate
Non-Cumulative Preferred Stock, Series A
Depositary Shares, Each Representing 1/1,000th Interest in a Share of 6.20%
Non-Cumulative Preferred Stock, Series B
Depositary Shares, Each Representing 1/1,000th Interest in a Share of Floating Rate
Non-Cumulative Preferred Stock, Series C
Depositary Shares, Each Representing 1/1,000th Interest in a Share of Floating Rate
Non-Cumulative Preferred Stock, Series D
Depositary Shares, Each Representing 1/1,000th Interest in a Share of 5.50%
Fixed-to-Floating Rate Non-Cumulative Preferred Stock, Series J
Depositary Shares, Each Representing 1/1,000th Interest in a Share of 6.375%
Fixed-to-Floating Rate Non-Cumulative Preferred Stock, Series K
Depository Shares, Each Representing 1/1,000th Interest in a Share of 6.30%
Non-Cumulative Preferred Stock, Series N
See Exhibit 99.2 for debt and trust securities registered under Section 12(b) of the Act

New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. È Yes ‘ No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. ‘ Yes È No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. È Yes ‘ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to
Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required
to submit such files). È Yes ‘ No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III
of this Form 10-K or any amendment to this Form 10-K. È
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company,
or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging
growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer È

Accelerated filer ‘

Non-accelerated filer ‘

Smaller reporting company ‘

Emerging growth company ‘

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with
any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ‘
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ‘ Yes È No
As of June 30, 2018, the aggregate market value of the common stock of the registrant held by non-affiliates of the registrant was approximately
$82.2 billion.

As of February 8, 2019, there were 368,272,261 shares of the registrant’s common stock outstanding.

Documents incorporated by reference: Portions of The Goldman Sachs Group,
Shareholders are incorporated by reference in the Annual Report on Form 10-K in response to Part III, Items 10, 11, 12, 13 and 14.

Inc.’s Proxy Statement for its 2019 Annual Meeting of

T H E G O L D M A N S A C H S G R O U P ,
A N N U A L R E P O R T O N F O R M 1 0 - K F O R T H E F I S C A L Y E A R E N D E D D E C E M B E R 3 1 , 2 0 1 8

I N C . A N D S U B S I D I A R I E S

INDEX

Form 10-K Item Number

Page No.

Item 7
Management’s Discussion and Analysis of Financial Condition

and Results of Operations

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 Matters and Other Developments

Off-Balance-Sheet Arrangements and Contractual Obligations 74

Risk Management

Overview and Structure of Risk Management

Liquidity Risk Management

Market Risk Management

Credit Risk Management

Operational Risk Management

Model Risk Management

Item 7A

101

Quantitative and Qualitative Disclosures About Market Risk 102

PART I

Item 1

Business

Introduction

Our Business Segments

Investment Banking

Institutional Client Services

Investing & Lending

Investment Management

Business Continuity and Information Security

Employees

Competition

Regulation

Executive Officers of The Goldman Sachs Group, Inc.

Available Information

Cautionary Statement Pursuant to the U.S. Private Securities

Litigation Reform Act of 1995

Item 1A

Risk Factors

Item 1B

Unresolved Staff Comments

Item 2

Properties

Item 3

Legal Proceedings

Item 4

Mine Safety Disclosures

PART II

Item 5

Market for Registrant’s Common Equity, Related Stockholder

Matters and Issuer Purchases of Equity Securities

Item 6

Selected Financial Data

Goldman Sachs 2018 Form 10-K

Page No.

Note 24. Income Taxes

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

Supplemental Financial Information

Quarterly Results

Common Stock Performance
Selected Financial Data

Statistical Disclosures

Item 9
Changes in and Disagreements with Accountants on Accounting

and Financial Disclosure

Item 9A
Controls and Procedures

Item 9B
Other Information

PART III

Item 10

173

176

178

179

186

188

190

191
191

196

Directors, Executive Officers and Corporate Governance

196

Item 11

Executive Compensation

Item 12

Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters

Item 13

Certain Relationships and Related Transactions, and Director

Independence

Item 14

Principal Accounting Fees and Services

PART IV

Item 15

Exhibits, Financial Statement Schedules

SIGNATURES

196

197

202

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INDEX

Item 8

Financial Statements and Supplementary Data

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

102

102
103

104

105

Consolidated Statements of Changes in Shareholders’ Equity 106

Consolidated Statements of Cash Flows

Notes to Consolidated Financial Statements

Note 1. Description of Business

Note 2. Basis of Presentation

Note 3.

Significant Accounting Policies

Note 4. Financial Instruments Owned and Financial

Instruments Sold, But Not Yet Purchased

Note 5. Fair Value Measurements

Note 6. Cash Instruments

Note 7. Derivatives and Hedging Activities

Note 8. Fair Value Option

Note 9. Loans Receivable

Note 10. Collateralized Agreements and Financings

Note 11. Securitization Activities

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

Note 18. Commitments, Contingencies and Guarantees

Note 19. Shareholders’ Equity

Note 20. Regulation and Capital Adequacy

Note 21. Earnings Per Common Share

Note 22. Transactions with Affiliated Funds

Note 23. Interest Income and Interest Expense

107

108

109

116

117

118

124

135

140

144

148

149

152

154

155

156

158

162

165

172

173

Goldman Sachs 2018 Form 10-K

T H E G O L D M A N S A C H S G R O U P ,

I N C . A N D S U B S I D I A R I E S

PART I
Item 1. Business
Introduction

Goldman Sachs is a leading global investment banking,
securities and investment management firm that provides a
wide range of financial services to a substantial and
diversified client base that includes corporations, financial
institutions, governments and individuals.

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

References to “this Form 10-K” are to our Annual Report
on Form 10-K for the year ended December 31, 2018. All
references to 2018, 2017 and 2016 refer to our years ended,
or the dates, as the context requires, December 31, 2018,
December 31, 2017 and December 31, 2016, respectively.

is a bank holding company (BHC) and a
Group Inc.
financial holding company (FHC) regulated by the Board of
Governors of the Federal Reserve System (FRB). Our U.S.
depository institution subsidiary, Goldman Sachs Bank
USA (GS Bank USA), is a New York State-chartered bank.

As of December 2018, we had offices in over 30 countries
and 46% of our headcount was based outside the Americas.
Our clients are located worldwide and we are an active
participant in financial markets around the world.

Our Business Segments

We report our activities
Investment
Investing & Lending and Investment Management.

in four business segments:
Services,

Institutional Client

Banking,

The chart below presents our four business segments.

Firmwide

Investing &
Lending

Investment
Management

Equity
Securities

Management
and Other Fees

Debt
Securities and
Loans

Incentive Fees

Transaction
Revenues

Investment
Banking

Financial
Advisory

Underwriting

Equity
Underwriting

Debt
Underwriting

Institutional
Client
Services

Fixed Income,
Currency and
Commodities
Client Execution

Equities

Equities
Client
Execution

Commissions
and Fees

Securities
Services

Investment Banking
Investment Banking serves public and private sector clients
around the world. We provide financial advisory services
and help companies raise capital to strengthen and grow
their businesses. We seek to develop and maintain long-
term relationships with a diverse global group of
institutional clients,
including corporates, governments,
states and municipalities. Our goal is to deliver to our
institutional clients the entire resources of the firm in a
seamless fashion, with investment banking serving as the
main initial point of contact with Goldman Sachs.

Financial Advisory. We are a leader in providing financial
advisory services, including strategic advisory assignments
with respect to mergers and acquisitions, divestitures,
corporate defense activities, restructurings, spin-offs and
risk management. In particular, we help clients execute
large, complex transactions for which we provide multiple
services,
structuring expertise.
Financial Advisory also includes revenues from derivative
transactions directly related to these client advisory
assignments. We also assist our clients in managing their
asset and liability exposures and their capital.

including cross-border

Goldman Sachs 2018 Form 10-K

T H E G O L D M A N S A C H S G R O U P ,

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Underwriting. The other core activity of
Investment
Banking is helping companies raise capital to fund their
businesses. As a financial intermediary, our job is to match
the capital of our investing clients, who aim to grow the
savings of millions of people, with the needs of our public
and private sector clients, who need financing to generate
growth, create jobs and deliver products and services. Our
underwriting activities include public offerings and private
placements, including local and cross-border transactions
and acquisition financing, of a wide range of securities and
other financial instruments, including loans. Underwriting
also includes revenues from derivative transactions entered
into with public and private sector clients in connection
with our underwriting activities.

Equity Underwriting. We underwrite common and
preferred stock and convertible
and exchangeable
securities. We regularly receive mandates for large, complex
transactions and have held a leading position in worldwide
public common stock offerings and worldwide initial public
offerings for many years.

Debt Underwriting. We underwrite and originate various
types of debt instruments, including investment-grade and
high-yield debt, bank loans and bridge loans, including in
connection with acquisition financing, and emerging- and
growth-market debt, which may be issued by, among
others, corporate, sovereign, municipal and agency issuers.
In addition, we underwrite and originate structured
securities, which include mortgage-related securities and
other asset-backed securities.

Institutional Client Services
Institutional Client Services serves our clients who come to
us to buy and sell financial products, raise funding and
manage risk. We do this by acting as a market maker and
offering market expertise on a global basis. Institutional
Client Services makes markets and facilitates client
currency and
transactions
commodity products. In addition, we make markets in and
clear client transactions on major stock, options and futures
exchanges worldwide.

in fixed income,

equity,

As a market maker, we provide prices to clients globally
across thousands of products in all major asset classes and
markets. At times we take the other side of transactions
ourselves if a buyer or seller is not readily available and at
other times we connect our clients to other parties who
want to transact. Our willingness to make markets, commit
capital and take risk in a broad range of products is crucial
to our client relationships. Market makers provide liquidity
and play a critical role in price discovery, which contributes
to the overall efficiency of the capital markets.

Goldman Sachs 2018 Form 10-K

Our clients are primarily institutions that are professional
market participants, including investment entities whose
ultimate clients include individual investors investing for
their retirement, buying insurance or putting aside surplus
cash in a deposit account.

clients,

Through our global sales force, we maintain relationships
with our
receiving orders and distributing
investment research, trading ideas, market information and
analysis. Much of this connectivity between us and our
clients is maintained on technology platforms and operates
globally wherever and whenever markets are open for
trading.

Institutional Client Services and our other businesses are
supported by our Global Investment Research division,
which, as of December 2018, provided fundamental
research on approximately 3,000 companies worldwide
and more than 40 national economies, as well as on
industries, currencies and commodities.

Institutional Client Services generates revenues from the
following activities:
‰ In large, highly liquid markets (such as markets for U.S.
Treasury bills, large capitalization S&P 500 Index stocks
or certain mortgage pass-through securities), we execute a
high volume of transactions for our clients;

‰ In less liquid markets (such as mid-cap corporate bonds,
growth market
certain non-agency
currencies or
mortgage-backed securities), we execute transactions for
our clients for spreads and fees that are generally
somewhat larger than those charged in more liquid
markets;

‰ We also structure and execute transactions involving
customized or tailor-made products that address our
clients’ risk exposures, investment objectives or other
complex needs (such as a jet fuel hedge for an airline);
‰ We provide financing to our clients for their securities
trading activities, as well as securities lending and other
prime brokerage services; and

‰ In connection with our market-making activities, we
maintain inventory, typically for a short period of time, in
response to, or in anticipation of, client demand. We also
hold inventory to actively manage our risk exposures that
arise from these market-making activities. We carry our
inventory at fair value with changes in valuation reflected
in net revenues.

T H E G O L D M A N S A C H S G R O U P ,

I N C . A N D S U B S I D I A R I E S

Institutional Client Services activities are organized by asset
class
and include both “cash” and “derivative”
instruments. “Cash” refers to trading the underlying
instrument
(such as a stock, bond or barrel of oil).
“Derivative” refers to instruments that derive their value
from underlying asset prices, indices, reference rates and
other inputs, or a combination of these factors (such as an
option, which is the right or obligation to buy or sell a
certain bond, stock or other asset on a specified date in the
future at a certain price, or an interest rate swap, which is
the agreement to convert a fixed rate of interest into a
floating rate or vice versa).

rate products,

Fixed Income, Currency and Commodities Client
Execution. Includes client execution activities related to
making markets in both cash and derivative instruments for
interest
credit products, mortgages,
currencies and commodities.
‰ Interest Rate Products. Government bonds (including
across maturities, other
inflation-linked securities)
sold under
government-backed securities,
agreements to repurchase (repurchase agreements), and
interest rate swaps, options and other derivatives.

securities

‰ Credit Products. Investment-grade corporate securities,
high-yield securities, credit derivatives, exchange-traded
funds, bank and bridge loans, municipal securities,
emerging market and distressed debt, and trade claims.
‰ Mortgages. Commercial mortgage-related securities,
residential mortgage-related
loans and derivatives,
(including U.S.
derivatives
and
securities,
government
collateralized mortgage
agency-issued
obligations and other securities and loans), and other
asset-backed securities, loans and derivatives.

loans

‰ Currencies. Currency options, spot/forwards and other
derivatives on G-10 currencies and emerging-market
products.

‰ Commodities. Commodity derivatives and, to a lesser
extent, physical commodities, involving crude oil and
petroleum products, natural gas, base, precious and other
other
electricity,
metals,
commodity products.

agricultural

coal,

and

Equities. Includes equities client execution, commissions
and fees, and securities services.

Equities Client Execution. We make markets in equity
securities and equity-related products, including exchange-
traded funds, convertible securities, options, futures and
over-the-counter (OTC) derivative instruments, on a global
basis. As a principal, we facilitate client transactions by
providing liquidity to our clients,
including with large
blocks of stocks or derivatives, requiring the commitment
of our capital.

We also structure and make markets in derivatives on
indices, industry groups, financial measures and individual
company stocks. We develop strategies and provide
information about portfolio hedging and restructuring and
asset allocation transactions for our clients. We also work
with our clients to create specially tailored instruments to
enable sophisticated investors to establish or liquidate
investment positions or undertake hedging strategies. We
are one of the leading participants in the trading and
development of equity derivative instruments.

Our exchange-based market-making activities
include
making markets in stocks and exchange-traded funds,
futures and options on major exchanges worldwide.

Commissions and Fees. We generate commissions and
fees
from executing and clearing institutional client
transactions on major stock, options and futures exchanges
worldwide, as well as OTC transactions. We provide our
clients with access to a broad spectrum of equity execution
services, including electronic “low-touch” access and more
complex “high-touch” execution through both traditional
and electronic platforms.

Securities Services. Includes financing, securities lending
and other prime brokerage services.
‰ Financing Services. We provide financing to our clients
for their securities trading activities through margin loans
that are collateralized by securities, cash or other
acceptable collateral. We earn a spread equal to the
difference between the amount we pay for funds and the
amount we receive from our client.

‰ Securities Lending Services. We provide services that
principally involve borrowing and lending securities to
cover institutional clients’ short sales and borrowing
securities to cover our short sales and otherwise to make
deliveries into the market. In addition, we are an active
participant in broker-to-broker securities lending and
third-party agency lending activities.

‰ Other Prime Brokerage Services. We earn fees by
settlement and custody services
providing clearing,
globally. In addition, we provide our hedge fund and
other clients with a technology platform and reporting
which enables them to monitor their security portfolios
and manage risk exposures.

Goldman Sachs 2018 Form 10-K

T H E G O L D M A N S A C H S G R O U P ,

I N C . A N D S U B S I D I A R I E S

Investing & Lending
Our investing and lending activities, which are typically
longer-term, include activities across various asset classes,
primarily debt securities and loans, public and private
infrastructure and real estate. These
equity securities,
activities include making investments, some of which are
consolidated, through our Merchant Banking business and
our Special Situations Group. Some of these investments are
made indirectly through funds that we manage. We also
provide financing to corporate clients and individuals,
including bank loans, personal loans and mortgages.

Equity Securities. We make corporate, real estate,
infrastructure and other equity-related investments.

infrastructure and other debt

Debt Securities and Loans. We make corporate, real
estate,
In
addition, we provide financing to clients through loan
facilities and through secured loans, including secured loans
through our digital platform, Goldman Sachs Private Bank
Select. We also make unsecured loans and accept deposits
through our digital platform, Marcus: by Goldman Sachs.

investments.

Investment Management
Investment Management provides investment and wealth
advisory services to help clients preserve and grow their
to our
financial assets. We provide
institutional and high-net-worth individual clients, as well
as investors who primarily access our products through a
network of third-party distributors around the world.

services

these

investments. Alternative

We manage client assets across a broad range of investment
strategies and asset classes, including equity, fixed income
and alternative
investments
primarily includes hedge funds, credit funds, private equity,
real estate, currencies, commodities and asset allocation
strategies. Our investment offerings include those managed
on a fiduciary basis by our portfolio managers, as well as
strategies managed by third-party managers. We offer our
investments in a variety of structures, including separately
managed accounts, mutual funds, private partnerships and
other commingled vehicles.

We also provide customized investment advisory solutions
designed to address our clients’ investment needs. These
solutions begin with identifying clients’ objectives and
continue through portfolio construction, ongoing asset
allocation and risk management and investment realization.
We draw from a variety of third-party managers, as well as
our proprietary offerings to implement solutions for clients.

Goldman Sachs 2018 Form 10-K

We supplement our investment advisory solutions for
high-net-worth individuals with wealth advisory services
that include income and liability management, trust and
estate planning, philanthropic giving and tax planning. We
also use our global securities and derivatives market-
making capabilities to address clients’ specific investment
needs.

Management and Other Fees. The majority of revenues
in management and other fees consists of asset-based fees
on client assets. The fees that we charge vary by asset class,
distribution channel and the type of services provided, and
are affected by investment performance, as well as asset
inflows and redemptions. Other fees we receive primarily
include financial planning and counseling fees generated
through wealth advisory services provided by our
subsidiary, The Ayco Company, L.P.

Assets under supervision 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. Assets under supervision also 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
supervision
under
excluding liquidity products. Liquidity products represent
money market and bank deposit assets.

supervision represent assets under

Incentive Fees. 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. Such fees include overrides, which
consist of the increased share of the income and gains
derived primarily from our private equity and credit funds
when the return on a fund’s investments over the life of the
fund exceeds certain threshold returns.

for

facilitating

Transaction Revenues. We receive commissions and net
spreads
in
high-net-worth individual accounts. In addition, we earn
net interest income primarily associated with client deposits
and margin lending activity undertaken by such clients.

transactional

activity

T H E G O L D M A N S A C H S G R O U P ,

I N C . A N D S U B S I D I A R I E S

Business
Security

Continuity

and

Information

Competition

Business continuity and information security,
including
cyber security, are high priorities for Goldman Sachs. Their
importance has been highlighted by numerous highly
publicized events in recent years, including (i) cyber attacks
against financial institutions, governmental agencies, large
consumer-based companies and other organizations that
resulted in the unauthorized disclosure of personal
information of clients and customers and other sensitive or
confidential
the theft and destruction of
corporate information and requests for ransom payments,
and (ii) extreme weather events.

information,

Our Business Continuity & Technology Resilience Program
has been developed to provide reasonable assurance of
business continuity in the event of disruptions at our critical
facilities or systems and to comply with regulatory
requirements, including those of FINRA. Because we are a
BHC, our Business Continuity & Technology Resilience
Program is also subject to review by the FRB. The key
elements of the program are crisis management, business
continuity,
recovery,
assurance and verification, and process improvement. In
the area of information security, we have developed and
implemented a framework of principles, policies and
technology designed to protect the information provided to
us by our clients and our own information from cyber
attacks and other misappropriation, corruption or loss.
Safeguards are designed to maintain the confidentiality,
integrity and availability of information.

resilience, business

technology

Employees

Management believes that a major strength and principal
reason for the success of Goldman Sachs is the quality and
dedication of our people and the shared sense of being part
of a team. We strive to maintain a work environment that
fosters professionalism, excellence, diversity, cooperation
among our employees worldwide and high standards of
business ethics.

Instilling the Goldman Sachs culture in all employees is a
continuous process, in which training plays an important
part. All employees are offered the opportunity to participate
in education and periodic seminars that we sponsor at
various locations throughout the world. Another important
part of instilling the Goldman Sachs culture is our employee
review process. Employees are reviewed by supervisors,
co-workers and employees they supervise in a 360-degree
review process that is integral to our team approach, and
which includes an evaluation of an employee’s performance
with respect to risk management, compliance and diversity.
As of December 2018, we had headcount of 36,600.

The financial services industry and all of our businesses are
intensely competitive, and we expect them to remain so.
Our competitors are other entities that provide investment
banking, market-making and investment management
services, and commercial and/or consumer lending and
deposit-taking products, as well as those entities that make
investments in securities, commodities, derivatives, real
loans and other financial assets. These entities
estate,
investment banking firms,
include brokers and dealers,
commercial banks,
investment
advisers, mutual funds, hedge funds, private equity funds,
merchant banks, consumer finance companies and financial
technology and other
internet-based companies. We
compete with some entities globally and with others on a
regional, product or niche basis. We compete based on a
including transaction execution,
number of
products and services, innovation, reputation and price.

companies,

insurance

factors,

We have faced, and expect to continue to face, pressure to
retain market share by committing capital to businesses or
transactions on terms that offer returns that may not be
commensurate with their risks. In particular, corporate
clients seek such commitments (such as agreements to
participate in their loan facilities) from financial services
firms in connection with investment banking and other
assignments.

Consolidation and convergence have significantly increased
the capital base and geographic reach of some of our
competitors, and have also hastened the globalization of the
securities and other financial services markets. As a result,
we have had to commit capital to support our international
operations and to execute large global transactions. To take
advantage of some of our most significant opportunities,
we will have to compete successfully with financial
institutions that are larger and have more capital and that
may have a stronger local presence and longer operating
history outside the U.S.

We also compete with smaller institutions that offer more
targeted services, such as independent advisory firms. Some
clients may perceive these firms to be less susceptible to
potential conflicts of interest than we are, and, as described
below, our ability to effectively compete with them could be
affected by regulations and limitations on activities that
apply to us but may not apply to them.

Goldman Sachs 2018 Form 10-K

T H E G O L D M A N S A C H S G R O U P ,

I N C . A N D S U B S I D I A R I E S

A number of our businesses are subject to intense price
competition. Efforts by our competitors to gain market
share have resulted in pricing pressure in our investment
banking and market-making businesses, and could result in
pricing pressure in other of our businesses. For example, the
increasing volume of
executed electronically,
trades
through the internet and through alternative trading
systems, has increased the pressure on trading commissions,
in that commissions for electronic trading are generally
lower than for non-electronic trading. It appears that this
trend toward low-commission trading will continue. Price
competition has also led to compression in the difference
between the price at which a market participant is willing to
sell an instrument and the price at which another market
participant is willing to buy it (i.e., bid/offer spread), which
has affected our market-making businesses. In addition, we
believe that we will continue to experience competitive
pressures in these and other areas in the future as some of
our competitors seek to obtain market share by further
reducing prices, and as we enter into or expand our
presence in markets that may rely more heavily on
electronic trading and execution.

We also compete on the basis of the types of financial
products that we and our competitors offer. In some
financial
circumstances, our
products that we do not offer and that our clients may
prefer.

competitors may offer

(Dodd-Frank Act),

The provisions of the U.S. Dodd-Frank Wall Street Reform
and Consumer Protection Act
the
requirements promulgated by the Basel Committee on
Banking Supervision (Basel Committee) and other financial
regulation could affect our competitive position to the
increased fees and
extent that limitations on activities,
compliance costs or other regulatory requirements do not
apply, or do not apply equally, to all of our competitors or
are
different
jurisdictions. For example, the provisions of the Dodd-
Frank Act that prohibit proprietary trading and restrict
investments in certain hedge and private equity funds
differentiate between U.S.-based and non-U.S.-based
banking organizations and give non-U.S.-based banking
organizations greater flexibility to trade outside of the U.S.
and to form and invest in funds outside the U.S.

implemented

uniformly

across

not

the obligations with respect

to derivative
Likewise,
transactions under Title VII of the Dodd-Frank Act depend,
in part, on the location of the counterparties to the
transaction. The impact of the Dodd-Frank Act and other
regulatory developments on our competitive position will
depend to a large extent on the manner in which the
required rulemaking and regulatory guidance evolve, the
extent of international convergence, and the development
of market practice and structures under the new regulatory
regimes as described further in “Regulation” below.

Goldman Sachs 2018 Form 10-K

We also face intense competition in attracting and retaining
qualified employees. Our ability to continue to compete
effectively will depend upon our ability to attract new
employees, retain and motivate our existing employees and
to continue to compensate employees competitively amid
intense public and regulatory scrutiny on the compensation
practices of large financial institutions. Our pay practices
and those of certain of our competitors are subject to
review by, and the standards of, the FRB and other
regulators inside and outside the U.S.,
including the
Prudential Regulation Authority (PRA) and the Financial
Conduct Authority (FCA) in the U.K. We also compete for
employees with institutions whose pay practices are not
subject
to regulatory oversight. See “Regulation —
Compensation Practices” and “Risk Factors — Our
businesses may be adversely affected if we are unable to hire
and retain qualified employees” in Part I, Item 1A of this
Form 10-K for further information about such regulation.

Regulation

strengthening the regulation,

As a participant in the global financial services industry, we are
subject to extensive regulation and supervision worldwide.
The Dodd-Frank Act, and the rules thereunder, significantly
altered the U.S. financial regulatory regime within which we
operate and the Markets in Financial Instruments Regulation
and Markets in Financial Instruments Directive (collectively,
MiFID II) have significantly revised the regulatory regime for
our European operations. The Basel Committee’s framework
supervision and risk
for
management of banks (Basel III), is implemented by the FRB,
the PRA and other national regulators. The Basel Committee
is the primary global standard setter for prudential bank
regulation. However, its standards are not effective in any
jurisdiction until rules implementing such standards have been
implemented by the relevant regulators. The implications of
such regulations for our businesses depend to a large extent on
their implementation by the relevant regulators globally, and
the market practices and structures that develop.

In 2017 and 2018, the U.S. Department of the Treasury, in
response to an executive order issued by the President of the
issued four reports recommending a number of
U.S.,
comprehensive changes to the regulatory systems applicable
in the U.S. to banks and other financial institutions.

Other reforms have been adopted or are being considered
by regulators and policy makers worldwide, as described
below. Recent developments have added additional
uncertainty to the implementation, scope and timing of
regulatory reforms and potential for deregulation in some
areas. The effects of any changes to the regulations affecting
our businesses,
including as a result of the proposals
described below, are uncertain and will not be known until
the changes are finalized and market practices and
structures develop under the revised regulations.

T H E G O L D M A N S A C H S G R O U P ,

I N C . A N D S U B S I D I A R I E S

International

arrangements

“passporting”

(GSI), Goldman Sachs
Goldman Sachs
International Bank (GSIB) and Goldman Sachs Asset
Management International (GSAMI), our principal E.U.
operating subsidiaries, are incorporated and headquartered
in the U.K. and, as such, are currently subject to E.U. legal
and regulatory requirements, based on directly binding
regulations of the E.U. and the implementation of E.U.
directives by the U.K. They all currently benefit from
non-discriminatory access to E.U. clients and infrastructure
based on E.U. treaties and E.U. legislation, including cross-
border
specific
arrangements for the establishment of E.U. branches. As a
result of the U.K.’s notification to the European Council of
its decision to leave the E.U. (Brexit), there is considerable
uncertainty as to the regulatory regime that will be applicable
in the U.K. and the regulatory framework that will govern
transactions and business undertaken by our U.K.
subsidiaries in the remaining E.U. countries. The U.K.’s
European Union (Withdrawal) Act 2018 aims to preserve the
direct and operative E.U. law governing the requirements on
U.K. financial service providers as English law beginning
March 29, 2019. References to E.U. regulations that are in
effect in the U.K. as of March 29, 2019 may apply to our
U.K. subsidiaries following Brexit. In addition, proposals by
the Basel Committee or the E.U. may be implemented in the
U.K. and apply to our U.K. subsidiaries.

and

Pursuant to an agreement endorsed by the E.U. and U.K.
leaders in November (Withdrawal Agreement), the existing
access arrangements for financial services would continue
unchanged until the end of 2020, with potential for one
further extension of up to two years, subsequent to which a
new trade relationship may be established between the E.U.
and the U.K. While the parties have issued a political
declaration on the outline of such co-operation, the exact
terms of that future relationship, including the exact terms of
access to each other’s financial markets remain subject to
future negotiation. If the Withdrawal Agreement is not
ratified, beginning March 29, 2019, the date on which the
U.K. is scheduled to leave the E.U., firms established in the
U.K.,
including our U.K. subsidiaries, would lose their
pan-E.U. “passports” and generally be treated like entities in
countries outside the E.U. They may, however, benefit from
emergency measures,
including those that several E.U.
member states have introduced so that existing contractual
arrangements are not disrupted, in order to minimize any
impact on existing transactions. The E.U. has also provided
interim recognition to U.K. clearing houses so that E.U.
clients can continue to access them.

Banking Supervision and Regulation
Group Inc.
is a BHC under the U.S. Bank Holding
Company Act of 1956 (BHC Act) and an FHC under
amendments to the BHC Act effected by the U.S. Gramm-
Leach-Bliley Act of 1999 (GLB Act), and is subject to
supervision and examination by the FRB, which is our
primary regulator.

Under the system of “functional regulation” established
under the BHC Act, the primary regulators of our U.S.
non-bank subsidiaries directly regulate the activities of
those subsidiaries, with the FRB exercising a supervisory
role. Such “functionally regulated” subsidiaries include
broker-dealers registered with the SEC, such as our
principal U.S. broker-dealer, Goldman Sachs & Co. LLC
(GS&Co.), entities registered with or regulated by the
CFTC with respect to futures-related and swaps-related
activities and investment advisers registered with the SEC
with respect to their investment advisory activities.

In November 2018, the FRB issued a final rule establishing
a new rating system for large financial institutions, such as
us. The new rating system is intended to align with the
FRB’s existing supervisory program for large financial
institutions and includes component ratings for capital
planning, liquidity risk management, and governance and
controls. The FRB has also proposed related guidance for
the governance and controls component.

Our principal U.S. bank subsidiary, GS Bank USA,
is
supervised and regulated by the FRB, the FDIC, the New
York State Department of Financial Services (NYDFS) and
the Bureau of Consumer Financial Protection. A number of
our activities are conducted partially or entirely through GS
Bank USA and its subsidiaries, including: origination of
bank loans; personal loans and mortgages; interest rate,
credit, currency and other derivatives; leveraged finance;
deposit-taking; and agency lending. Our consumer-oriented
activities are subject to extensive regulation and supervision
by federal and state regulators with regard to consumer
protection laws, including laws relating to fair lending and
other practices in connection with marketing and providing
consumer financial products.

Goldman Sachs 2018 Form 10-K

T H E G O L D M A N S A C H S G R O U P ,

I N C . A N D S U B S I D I A R I E S

Certain of our subsidiaries are regulated by the banking and
securities regulatory authorities of the countries in which
they operate. As described below, our E.U. subsidiaries,
including our U.K. subsidiaries, are subject to various
European regulations, as well as national laws, which to
some extent implement European directives.

subject

consumer-oriented

GSI, our U.K. broker-dealer subsidiary and a designated
investment firm, and GSIB, our U.K. bank subsidiary, are
regulated by the PRA and the FCA. GSI provides broker-
dealer services in and from the U.K., and GSIB acts as a
primary dealer for European government bonds and is
involved in market making in European government bonds,
lending (including securities lending) and deposit-taking
activities. GSIB’s
deposit-taking
activities are
consumer protection
to U.K.
regulations. Goldman Sachs Bank Europe SE (“GSBE,”
formerly Goldman Sachs AG), our German bank
subsidiary,
regulated by the BaFin and Deutsche
Bundesbank within the context of the European Single
Supervisory Mechanism. In addition, in December 2018,
our German subsidiary, Goldman Sachs Europe SE, was
approved by BaFin as an authorized investment firm, which
will allow it to conduct certain activities (such as activities
related to physical commodities) which GSBE may be
prevented from undertaking.

Capital and Liquidity Requirements. We and GS Bank
USA are subject
to regulatory risk-based capital and
leverage requirements that are calculated in accordance
with the regulations of the FRB (Capital Framework). The
Capital Framework is largely based on Basel III and also
implements certain provisions of the Dodd-Frank Act.
Under the Capital Framework, we and GS Bank USA are
“Advanced approach” banking organizations. We have
also been designated as a global systemically important
bank (G-SIB). Under
adequacy
requirements, we and GS Bank USA must meet specific
regulatory capital requirements that involve quantitative
measures of assets, liabilities and certain off-balance-sheet
items. The sufficiency of our capital levels is also subject to
qualitative judgments by regulators. We and GS Bank USA
are also subject to liquidity requirements established by the
U.S. federal bank regulatory agencies.

the FRB’s

capital

Goldman Sachs 2018 Form 10-K

In October 2018, the FRB released two proposals that
would generally make the applicable capital and liquidity
requirements
large U.S. banking
organizations other than those that are U.S. G-SIBs, such as
us.

stringent

less

for

GSI and GSIB are subject to capital requirements prescribed
in the E.U. Capital Requirements Regulation (CRR) and the
E.U. Fourth Capital Requirements Directive (CRD IV). GSI
and GSIB are subject to liquidity requirements established
by U.K. regulatory authorities that are similar to those
applicable to GS Bank USA and us.

Risk-Based Capital Ratios. The Capital Framework
provides for an additional capital ratio requirement that
consists of three components: (i) for capital conservation
(capital conservation buffer),
for countercyclicality
(countercyclical capital buffer) and (iii) as a consequence of
our designation as a G-SIB (G-SIB buffer). The additional
capital ratio requirement must be satisfied entirely with
capital that qualifies as Common Equity Tier 1 (CET1). GS
Bank USA is subject to the first two components of the
additional capital ratio requirement discussed above.

(ii)

The capital conservation buffer and G-SIB buffer began to
phase in on January 1, 2016 and continued to do so
through January 1, 2019. In April 2018, the FRB proposed
a rule that would, among other things, replace the capital
conservation buffer with a stress capital buffer (SCB)
requirement
to the FRB’s
Comprehensive Capital Analysis and Review (CCAR). See
“Regulation — Banking Supervision and Regulation —
Stress Tests” for further information about this proposed
rule.

large BHCs

subject

for

The countercyclical capital buffer is designed to counteract
systemic vulnerabilities and currently applies only to
“Advanced approach” banking organizations. Several
other national supervisors also require countercyclical
capital buffers. The G-SIB and countercyclical capital
buffers applicable to us could change in the future and, as a
result, the minimum capital ratios to which we are subject
could change.

the U.S.

In December 2018,
federal bank regulatory
agencies issued a final rule that would provide an optional
three-year phase-in period for the day-one regulatory
capital effects of the adoption of the Current Expected
Credit Losses (CECL) accounting standard. The FRB also
released a statement indicating that it will not incorporate
CECL into the calculation of the allowance for credit losses
in supervisory stress tests through the 2021 stress test cycle.
See Note 3 to the consolidated financial statements in
Part II, Item 8 of this Form 10-K for further information
about CECL.

T H E G O L D M A N S A C H S G R O U P ,

I N C . A N D S U B S I D I A R I E S

approach

standardized

In October 2018, the U.S. federal bank regulatory agencies
issued a proposed rule that would implement the Basel
Committee’s
for measuring
counterparty credit risk exposures in connection with
the proposal,
derivative contracts
“Advanced approach” banking organizations would be
required to use SA-CCR for purposes of calculating their
standardized risk-weighted assets (RWAs) and, with some
their
purposes
adjustments,
supplementary leverage ratios (SLRs) discussed below.

(SA-CCR). Under

determining

for

The Basel Committee has published final guidelines for
calculating incremental capital ratio requirements for
banking institutions that are systemically significant from a
domestic but not global perspective (D-SIBs). If these
guidelines are implemented by national regulators, they will
apply, among others, to certain subsidiaries of G-SIBs.
These guidelines are in addition to the framework for
G-SIBs, but are more principles-based. CRD IV and the
CRR provide that
that are systemically
institutions
important at the E.U. or member state level, known as other
systemically important institutions (O-SIIs), may be subject
to additional capital ratio requirements of up to 2% of
CET1, according to their degree of systemic importance
(O-SII buffers). O-SIIs are identified annually, along with
their applicable buffers. The PRA has identified Goldman
Sachs Group UK Limited (GSG UK), the parent company of
GSI and GSIB, as an O-SII. GSG UK’s O-SII buffer is
currently set at zero percent.

In January 2019, the Basel Committee finalized revisions to
the framework for calculating capital requirements for
market risk, which is expected to increase market risk
capital requirements for most banking organizations,
the
although to a lesser degree than the version of
framework issued in January 2016. The revised framework,
among other things, revises the standardized approach and
internal models to calculate market risk requirements and
clarifies the scope of positions subject to market risk capital
requirements. The Basel Committee has proposed that
the revised framework
national regulators implement
beginning January 1, 2022. The U.S.
federal bank
regulatory agencies and the European Commission have
not yet proposed rules implementing the 2019 version of
the revised market risk framework for the U.S. and E.U.
financial institutions, respectively.

In December 2017, the Basel Committee published standards
that it described as the finalization of the Basel III post-crisis
regulatory reforms. These standards set a floor on internally
modeled capital requirements at a percentage of the capital
requirements under the standardized approach. They also
revise the Basel Committee’s standardized and model-based
approaches for credit risk, provide a new standardized
approach for operational
risk capital and revise the
frameworks for credit valuation adjustment risk. The Basel
Committee has proposed that national regulators implement
these standards beginning January 1, 2022, and that the new
floor be phased in through January 1, 2027.

also published updated
The Basel Committee has
frameworks relating to Pillar 3 disclosure requirements and
the regulatory capital treatment of securitization exposures
and a revised G-SIB assessment methodology. The U.S.
federal bank regulatory agencies have not yet proposed rules
implementing the December 2017 standards for purposes of
risk-based capital ratios or the Basel Committee frameworks.

See “Management’s Discussion and Analysis of Financial
Condition and Results of Operations — Equity Capital
Management and Regulatory Capital” in Part II, Item 7 of
this Form 10-K and Note 20 to the consolidated financial
statements in Part II, Item 8 of this Form 10-K for
information about the capital ratios of the firm, GS Bank
USA and GSI.

described

“Other Restrictions”

As
in
September 2016, the FRB issued a proposed rule that would,
among other things, require FHCs to hold additional capital
in connection with covered physical commodity activities.

below,

Leverage Ratios. Under the Capital Framework, we and GS
Bank USA are subject to Tier 1 leverage ratios and SLRs
established by the FRB. In April 2018, the FRB and the
Office of the Comptroller of the Currency (OCC) issued a
proposed rule which would replace the current 2% SLR
buffer for G-SIBs, including us, with a buffer equal to 50% of
their G-SIB buffer. This proposal and the proposal to use
SA-CCR for purposes of calculating the SLR would
implement certain of the revisions to the leverage ratio
in
framework published by
December 2017.

the Basel Committee

The Basel Committee has also issued consultation papers
on, among other matters, changes to leverage ratio
treatment of client cleared derivatives and the public
disclosure of daily average balances for certain components
of leverage ratio calculations.

The European Commission’s November 2016 proposal to
amend the CRR would implement the Basel III leverage
ratio framework by establishing a 3% minimum leverage
ratio requirement for certain E.U. financial institutions,
including GSI and GSIB, but it has not been enacted.

Goldman Sachs 2018 Form 10-K

T H E G O L D M A N S A C H S G R O U P ,

I N C . A N D S U B S I D I A R I E S

See “Management’s Discussion and Analysis of Financial
Condition and Results of Operations — Equity Capital
Management and Regulatory Capital” in Part II, Item 7 of
this Form 10-K and Note 20 to the consolidated financial
statements in Part II, Item 8 of this Form 10-K for
information about our and GS Bank USA’s Tier 1 leverage
ratios and SLRs, and GSI’s leverage ratio.

Liquidity Ratios. The Basel Committee’s framework for
liquidity risk measurement, standards and monitoring
requires banking organizations to measure their liquidity
against two specific liquidity tests: the Liquidity Coverage
Ratio (LCR) and the Net Stable Funding Ratio (NSFR).

The LCR rule issued by the U.S. federal bank regulatory
agencies and applicable to both us and GS Bank USA is
generally consistent with the Basel Committee’s framework
and is designed to ensure that a banking organization
maintains an adequate level of unencumbered, high-quality
liquid assets equal to or greater than the expected net cash
outflows under an acute short-term liquidity stress
issued by the European
scenario. The LCR rule
Commission and applicable to GSI and GSIB is also
generally
Basel Committee’s
framework. We are required to maintain a minimum LCR
of 100%. We disclose, on a quarterly basis, our average
daily LCR over the quarter. See “Available Information.”

consistent with

the

The NSFR is designed to promote medium- and long-term
stable funding of the assets and off-balance-sheet activities
of banking organizations over a one-year time horizon. The
Basel Committee’s NSFR framework requires banking
organizations to maintain a minimum NSFR of 100%.

In May 2016, the U.S. federal bank regulatory agencies
issued a proposed rule that would implement the NSFR for
large U.S. banking organizations, including us and GS Bank
USA. The European Commission’s November 2016
proposal to amend the CRR would implement the NSFR
institutions. Neither the U.S.
for certain E.U. financial
federal bank regulatory agencies nor
the European
Commission have released a final rule.

risk management

The FRB’s enhanced prudential standards require BHCs,
including Group Inc., with $100 billion or more in total
consolidated assets, to comply with enhanced liquidity and
overall
standards, which include
maintaining a level of highly liquid assets based on
projected funding needs for 30 days, and increased
involvement by boards of directors in liquidity and overall
risk management. Although the liquidity requirement under
these rules has some similarities to the LCR, it is a separate
requirement.

Goldman Sachs 2018 Form 10-K

See “Management’s Discussion and Analysis of Financial
Condition and Results of Operations — Risk Management —
Overview and Structure of Risk Management” and
“— Liquidity Risk Management” in Part II, Item 7 of this
Form 10-K for information about the LCR and NSFR, as well
as our risk management practices and liquidity.

Stress Tests. As required by the FRB’s annual CCAR rules,
we submit a capital plan for review by the FRB. In addition,
we are required to perform company-run stress tests on a
semi-annual basis, although the FRB has recently proposed
to reduce the required frequency of these tests to annually.
We publish summaries of our stress tests results on our
website as described in “Available Information” below.

Our annual stress test submission is incorporated into the
annual capital plans that we submit to the FRB as part of the
CCAR process for large BHCs, which is designed to ensure
that capital planning processes will permit continued
operations by such institutions during times of economic and
financial stress. As part of CCAR, the FRB evaluates an
institution’s plan to make capital distributions, such as by
repurchasing or
redeeming stock or making dividend
payments, across a range of macroeconomic and firm-specific
assumptions based on the institution’s and the FRB’s stress
tests. If the FRB objects to an institution’s capital plan, the
institution is generally prohibited from making capital
distributions other than those to which the FRB has not
objected. In addition, an institution faces limitations on
capital distributions to the extent that actual capital issuances
are less than the amounts indicated in its capital plan.

In April 2018, the FRB issued a proposed rule to establish
stress buffer requirements. Under the proposal, the SCB
would replace the component of the capital conservation
buffer. The SCB, subject to a minimum, would reflect
stressed losses in the supervisory severely adverse scenario
of the FRB’s CCAR stress tests and would also include four
quarters of planned common stock dividends. The proposal
would also introduce a stress leverage buffer requirement,
similar to the SCB, which would apply to the Tier 1
leverage ratio. In addition, the proposal would require
BHCs to reduce their planned capital distributions if those
distributions would not be consistent with the applicable
capital buffer constraints based on the BHCs’ own baseline
scenario projections.

Under recent amendments to the Dodd-Frank Act, effective
November 2019, depository institutions with total
consolidated assets between $100 billion and $250 billion,
such as GS Bank USA, will not be required to conduct
annual company-run stress tests. GS Bank USA will not be
required to conduct the annual company-run stress test in
2019. GSI and GSIB also have their own capital planning
and stress testing process, which incorporates internally
designed stress tests and those required under the PRA’s
Internal Capital Adequacy Assessment Process.

T H E G O L D M A N S A C H S G R O U P ,

I N C . A N D S U B S I D I A R I E S

Dividends and Stock Repurchases. Dividend payments
by Group Inc. to its shareholders and stock repurchases by
Group Inc. are subject to the oversight of the FRB.

U.S. federal and state laws impose limitations on the
payment of dividends by U.S. depository institutions, such
as GS Bank USA. In general, the amount of dividends that
may be paid by GS Bank USA is limited to the lesser of the
amounts calculated under a “recent earnings” test and an
“undivided profits” test. Under the recent earnings test, a
dividend may not be paid if the total of all dividends
declared by the entity in any calendar year is in excess of the
current year’s net income combined with the retained net
income of the two preceding years, unless the entity obtains
prior regulatory approval. Under the undivided profits test,
a dividend may not be paid in excess of the entity’s
“undivided profits” (generally, accumulated net profits that
have not been paid out as dividends or transferred to
surplus).

The applicable U.S. banking regulators have authority to
prohibit or limit the payment of dividends if, in the banking
regulator’s opinion, payment of a dividend would
constitute an unsafe or unsound practice in light of the
financial condition of the banking organization.

Source of Strength. The Dodd-Frank Act requires BHCs
to act as a source of strength to their bank subsidiaries and
to commit capital and financial resources to support those
subsidiaries. This support may be required by the FRB at
times when we might otherwise determine not to provide it.
Capital
loans by a BHC to a subsidiary bank are
subordinate in right of payment to deposits and to certain
other indebtedness of the subsidiary bank. In addition, if a
BHC commits to a U.S. federal banking agency that it will
maintain the capital of its bank subsidiary, whether in
response to the FRB’s invoking its source-of-strength
authority or in response to other regulatory measures, that
commitment will be assumed by the bankruptcy trustee for
the BHC and the bank will be entitled to priority payment
in respect of that commitment, ahead of other creditors of
the BHC.

Transactions between Affiliates. Transactions between
GS Bank USA or its subsidiaries, on the one hand, and
Group Inc. or its other subsidiaries and affiliates, on the
other hand, are regulated by the FRB. These regulations
generally limit the types and amounts of transactions
(including credit extensions from GS Bank USA or its
subsidiaries to Group Inc. or its other subsidiaries and
affiliates) that may take place and generally require those
transactions to be on market terms or better to GS Bank
USA or its subsidiaries. These regulations generally do not
apply to transactions between GS Bank USA and its
subsidiaries. The Dodd-Frank Act expanded the coverage
and scope of these regulations, including by applying them
to the credit exposure arising under derivative transactions,
repurchase and reverse
repurchase agreements, and
securities borrowing and lending transactions.

The BHC Act prohibits the FRB from requiring a payment
by a BHC subsidiary to a depository institution if the
functional regulator of that subsidiary objects to such
payment. In such a case, the FRB could instead require the
the depository institution and impose
divestiture of
operating restrictions pending the divestiture.

leverage or

Resolution and Recovery. Group Inc. is required by the
FRB and the FDIC to submit a periodic plan for its rapid
and orderly resolution in the event of material financial
distress or failure (resolution plan). If the regulators jointly
determine that an institution has failed to remediate
identified shortcomings in its resolution plan and that its
resolution plan, after any permitted resubmission, is not
credible or would not facilitate an orderly resolution under
the U.S. Bankruptcy Code, the regulators may jointly
impose more stringent capital,
liquidity
restrictions on growth, activities or
requirements or
operations or may jointly order the institutions to divest
assets or operations in order to facilitate orderly resolution
in the event of failure. In December 2018, the FRB and
FDIC finalized guidance for resolution plan submissions
which consolidated or superseded all prior guidance. See
“Risk Factors — The application of Group Inc.’s proposed
resolution strategy could result in greater losses for Group
Inc.’s security holders” in Part I, Item 1A of this Form 10-K
and “Management’s Discussion and Analysis of Financial
Condition and Results of Operations — Regulatory
Matters and Other Developments — Regulatory Matters —
Resolution and Recovery Plans” in Part II, Item 7 of this
Form 10-K for further information about our resolution
plan.

We are also required by the FRB to submit, on a periodic
basis, a global recovery plan that outlines the steps that
management could take to reduce risk, maintain sufficient
liquidity, and conserve capital in times of prolonged stress.

Goldman Sachs 2018 Form 10-K

T H E G O L D M A N S A C H S G R O U P ,

I N C . A N D S U B S I D I A R I E S

The FDIC has issued a rule requiring each insured
depository institution with $50 billion or more in assets,
such as GS Bank USA, to provide a resolution plan. Our
resolution plan for GS Bank USA must, among other things,
demonstrate that it is adequately protected from risks
arising from our other entities.

The federal bank regulatory agencies have adopted final
rules imposing restrictions on qualified financial contracts
(QFCs) entered into by G-SIBs. The rules began to phase in
on January 1, 2019 and will be fully effective on
January 1, 2020. The rules are intended to facilitate the
orderly resolution of a failed G-SIB by limiting the ability of
the G-SIB to enter into a QFC unless (i) the counterparty
waives certain default rights in such contract arising upon
the entry of the G-SIB or one of its affiliates into resolution,
(ii) the contract does not contain enumerated prohibitions
on the transfer of such contract and/or any related credit
enhancement, and (iii) the counterparty agrees that the
contract will be subject to the special resolution regimes set
forth in the Dodd-Frank Act orderly liquidation authority
(OLA) and the Federal Deposit Insurance Act of 1950
(FDIA), described below. Compliance can be achieved by
adhering to the ISDA Universal Protocol or U.S. ISDA
Protocol described below.

to the

Certain Group Inc. subsidiaries, along with those of a
number of other major global banking organizations,
International Swaps and Derivatives
adhere
(ISDA
Association Universal Resolution Stay Protocol
Universal Protocol), which was developed and updated in
coordination with the Financial Stability Board (FSB), an
international body that sets standards and coordinates the
work of national financial authorities and international
standard-setting bodies. The ISDA Universal Protocol
imposes a stay on certain cross-default and early
termination rights within standard ISDA derivative
contracts and securities financing transactions between
adhering parties in the event that one of them is subject to
resolution in its home jurisdiction, including a resolution
under the OLA or the FDIA in the U.S. In addition, certain
Group Inc. subsidiaries adhere to the International Swaps
and Derivatives Association 2018 U.S. Resolution Stay
Protocol (U.S. ISDA Protocol), which was based on the
ISDA Universal Protocol and was created to allow market
participants to comply with the final QFC rules adopted by
the federal bank regulatory agencies.

Goldman Sachs 2018 Form 10-K

The E.U. Bank Recovery and Resolution Directive (BRRD)
establishes a framework for the recovery and resolution of
financial institutions in the E.U., such as GSI and GSIB. The
BRRD provides national supervisory authorities with tools
and powers to pre-emptively address potential financial
crises in order to promote financial stability and minimize
taxpayers’ exposure to losses. The BRRD requires E.U.
member states to grant “bail-in” powers to E.U. resolution
authorities to recapitalize a failing entity by writing down
its unsecured debt or converting its unsecured debt into
equity. Financial institutions in the E.U. must provide that
contracts enable such actions.

implementation of the FSB’s total

Total Loss-Absorbing Capacity. In December 2016, the
FRB adopted a final rule establishing loss-absorbency and
related requirements for BHCs that have been designated as
U.S. G-SIBs, such as Group Inc. The rule became effective in
January 2019 with no phase-in period. The rule addresses
U.S.
loss-absorbing
capacity (TLAC) principles and term sheet on minimum
TLAC requirements for G-SIBs (issued in November 2015).
The rule (i) establishes minimum TLAC requirements,
(ii) establishes minimum “eligible long-term debt” (i.e.,
debt that is unsecured, has a maturity of at least one year
from issuance and satisfies certain additional criteria)
(iii) prohibits certain parent company
requirements,
transactions and (iv) caps the amount of parent company
liabilities that are not eligible long-term debt.

The rule also prohibits a BHC that has been designated as a
U.S. G-SIB from (i) guaranteeing liabilities of subsidiaries
that are subject to early termination provisions if the BHC
enters into an insolvency or receivership proceeding, subject
to an exception for guarantees permitted by rules of the U.S.
federal banking agencies imposing restrictions on QFCs;
(ii)
subsidiaries;
(iii) issuing short-term debt; or (iv) entering into derivatives
and certain other
financial contracts with external
counterparties.

guaranteed by

incurring

liabilities

Additionally, the rule caps, at 5% of the value of the parent
company’s eligible TLAC,
the amount of unsecured
non-contingent third-party liabilities that are not eligible
long-term debt that could rank equally with or junior to
eligible long-term debt.

The FSB’s final TLAC standard requires certain material
subsidiaries of a G-SIB organized outside of the G-SIB’s
home country, such as GSI and GSIB, to maintain amounts
of TLAC directly or indirectly from the parent company. In
July 2017, the FSB issued a final set of guiding principles on
the implementation of the TLAC requirements applicable
to material subsidiaries.

T H E G O L D M A N S A C H S G R O U P ,

I N C . A N D S U B S I D I A R I E S

The BRRD subjects institutions to a minimum requirement
for own funds and eligible liabilities (MREL), which is
generally consistent with the FSB’s TLAC standard. In
June 2018, the Bank of England published a statement of
policy on internal MREL, which requires a material U.K.
subsidiary of an overseas banking group, such as GSI, to
meet a minimum internal MREL requirement to facilitate
the transfer of losses to its resolution entity, which for GSI
is Group Inc. The transitional minimum internal MREL
requirement began to phase in from January 1, 2019 and
will become fully effective on January 1, 2022. In order to
comply with the MREL statement of policy, bail-in triggers
have been provided to the Bank of England over certain
intercompany
debt
instruments issued by GSI. These triggers enable the Bank
of England to write down such instruments or convert such
instruments to equity. The triggers can be exercised by the
Bank of England if it determines that GSI has reached the
point of non-viability and the FRB and the FDIC have not
objected to the bail-in or if Group Inc. enters bankruptcy or
similar proceedings.

regulatory

capital

senior

and

The European Commission’s November 2016 proposed
amendments to the CRR and the BRRD include provisions
that are designed to implement the FSB’s minimum TLAC
for G-SIBs. The proposal would require
requirement
subsidiaries of a non-E.U. G-SIB that account for more than
5% of its RWAs, operating income or leverage exposure,
such as GSI, to meet 90% of the requirement applicable to
E.U. G-SIBs.

In November 2016,
the European Commission also
proposed to amend CRD IV to require a non-E.U. G-SIB,
such as us, to establish an E.U.
intermediate holding
company (E.U. IHC) if a firm has two or more of certain
types of E.U. financial institution subsidiaries, including
broker-dealers and banks. The European Commission also
proposed amendments to the CRR that would require E.U.
IHCs to satisfy MREL requirements and certain other
prudential requirements. These proposals are subject to
adoption at
the directives,
implementing rulemakings by E.U. member states, which
have not yet occurred.

level and,

the E.U.

for

Insolvency of an Insured Depository Institution or a
Bank Holding Company. Under the FDIA, if the FDIC is
appointed as conservator or receiver for an insured
depository institution such as GS Bank USA, upon its
insolvency or in certain other events, the FDIC has broad
powers, including the power:
‰ To transfer any of the depository institution’s assets and
liabilities to a new obligor, including a newly formed
“bridge” bank, without the approval of the depository
institution’s creditors;

‰ To enforce the depository institution’s contracts pursuant
to their terms without regard to any provisions triggered
by the appointment of the FDIC in that capacity; or

‰ To repudiate or disaffirm any contract or lease to which
the depository institution is a party, the performance of
which is determined by the FDIC to be burdensome and
the disaffirmance or repudiation of which is determined
by the FDIC to promote the orderly administration of the
depository institution.

In addition, the claims of holders of domestic deposit
liabilities and certain claims for administrative expenses
against an insured depository institution would be afforded
a priority over other general unsecured claims, including
deposits at non-U.S. branches and claims of debtholders of
the institution, in the “liquidation or other resolution” of
such an institution by any receiver. As a result, whether or
not the FDIC ever sought to repudiate any debt obligations
of GS Bank USA, the debtholders (other than depositors)
would be treated differently from, and could receive, if
anything, substantially less than, the depositors of GS Bank
USA.

The Dodd-Frank Act created a new resolution regime
(known as OLA) for BHCs and their affiliates that are
systemically important and certain non-bank financial
companies. Under OLA, the FDIC may be appointed as
receiver for the systemically important institution and its
failed non-bank subsidiaries if, upon the recommendation
of applicable regulators, the U.S. Secretary of the Treasury
determines, among other things, that the institution is in
default or in danger of default, that the institution’s failure
would have serious adverse effects on the U.S. financial
system and that resolution under OLA would avoid or
mitigate those effects.

If the FDIC is appointed as receiver under OLA, then the
powers of the receiver, and the rights and obligations of
creditors and other parties who have dealt with the
institution, would be determined under OLA, and not
under the bankruptcy or insolvency law that would
otherwise apply. The powers of the receiver under OLA
were generally based on the powers of the FDIC as receiver
for depository institutions under the FDIA.

Goldman Sachs 2018 Form 10-K

The prompt corrective action regulations do not apply to
BHCs. However, the FRB is authorized to take appropriate
action at the BHC level, based upon the undercapitalized
status of the BHC’s depository institution subsidiaries. In
certain instances relating to an undercapitalized depository
institution subsidiary, the BHC would be required to
guarantee
the undercapitalized
subsidiary’s capital restoration plan and might be liable for
civil money damages for failure to fulfill its commitments
on that guarantee. Furthermore,
the
bankruptcy of the BHC, the guarantee would take priority
over the BHC’s general unsecured creditors, as described in
“Source of Strength” above.

the performance of

in the event of

Volcker Rule and Other Restrictions on Activities. As a
BHC, we are subject to limitations on the types of business
activities we may engage in.

Volcker Rule. The provisions of the Dodd-Frank Act
referred to as the “Volcker Rule” became effective in
July 2015. The Volcker Rule prohibits “proprietary
trading,” but permits activities such as underwriting,
market making and risk-mitigation hedging, requires an
extensive compliance program and includes additional
reporting and record-keeping requirements.

In addition, the Volcker Rule limits the sponsorship of, and
investment in, “covered funds” (as defined in the rule) by
banking entities, including us. 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. Covered funds include our
private equity funds, certain of our credit and real estate
funds, our hedge funds and certain other investment
structures. The limitation on investments in covered funds
requires us to limit our investment in each such fund to 3%
or less of the fund’s net asset value, and to limit our
aggregate investment in all such funds to 3% or less of our
Tier 1 capital.

The FRB has extended the conformance period to July 2022
for our investments in, and relationships with, certain
legacy “illiquid funds” (as defined in the Volcker Rule) that
were in place prior to December 2013. See Note 6 to the
consolidated financial statements in Part II, Item 8 of this
Form 10-K for further information about our investments
in such funds.

T H E G O L D M A N S A C H S G R O U P ,

I N C . A N D S U B S I D I A R I E S

Substantial differences in the rights of creditors exist
between OLA and the U.S. Bankruptcy Code, including the
right of the FDIC under OLA to disregard the strict priority
of creditor claims in some circumstances, the use of an
administrative claims procedure to determine creditors’
claims (as opposed to the judicial procedure utilized in
bankruptcy proceedings), and the right of the FDIC to
transfer claims to a “bridge” entity. In addition, OLA limits
the ability of creditors to enforce certain contractual cross-
defaults against affiliates of the institution in receivership.
The FDIC has issued a notice that it would likely resolve a
failed FHC by transferring its assets to a “bridge” holding
company under its “single point of entry” or “SPOE”
strategy pursuant to OLA.

Deposit Insurance. Deposits at GS Bank USA have the
benefit of FDIC insurance up to the applicable limits. The
FDIC’s Deposit Insurance Fund is funded by assessments on
insured depository institutions. GS Bank USA’s assessment
(subject to adjustment by the FDIC) is currently based on its
average total consolidated assets less its average tangible
equity during the assessment period, its supervisory ratings
and specified forward-looking financial measures used to
calculate the assessment rate. In addition, deposits at GSIB
are covered by the Financial Services Compensation Scheme
up to the applicable limits.

Prompt Corrective Action. The U.S. Federal Deposit
Insurance Corporation Improvement Act of 1991 (FDICIA)
requires the U.S. federal bank regulatory agencies to take
“prompt corrective action” in respect of depository
institutions that do not meet specified capital requirements.
FDICIA establishes five capital categories for FDIC-insured
banks, such as GS Bank USA: well-capitalized, adequately
capitalized, undercapitalized, significantly undercapitalized
and critically undercapitalized.

An institution may be downgraded to, or deemed to be in, a
capital category that is lower than is indicated by its capital
ratios if it is determined to be in an unsafe or unsound
condition or if it receives an unsatisfactory examination
rating with respect to certain matters. FDICIA imposes
progressively more restrictive constraints on operations,
management and capital distributions, as the capital
category of an institution declines. Failure to meet the
capital requirements could also require a depository
critically
institution
undercapitalized institutions are subject to the appointment
of a receiver or conservator, as described in “Insolvency of
an Insured Depository Institution or a Bank Holding
Company” above.

capital. Ultimately,

raise

Goldman Sachs 2018 Form 10-K

T H E G O L D M A N S A C H S G R O U P ,

I N C . A N D S U B S I D I A R I E S

In July 2018, the FRB, OCC, FDIC, CFTC and SEC issued
a notice of proposed rulemaking intended to amend the
application of the Volcker Rule based on the size and scope
of a banking entity’s trading activities and to clarify and
amend certain definitions, requirements and exemptions.
The ultimate impact of any amendments to the Volcker
Rule will depend on, among other
further
rulemaking and implementation guidance from the relevant
U.S. federal regulatory agencies and the development of
market practices and standards.

things,

Other Restrictions. FHCs generally can engage in a
broader range of financial and related activities than are
otherwise permissible for BHCs as long as they continue to
meet the eligibility requirements for FHCs. The broader
range of permissible
includes
activities
underwriting, dealing and making markets in securities and
making investments in non-FHCs (merchant banking
activities). In addition, certain FHCs are permitted to
engage in certain commodities activities in the U.S. that
may otherwise be impermissible for BHCs, so long as the
assets held pursuant to these activities do not equal 5% or
more of their consolidated assets.

for FHCs

The FRB, however, has the authority to limit an FHC’s
ability to conduct activities that would otherwise be
permissible, and will likely do so if the FHC does not
satisfactorily meet certain requirements of the FRB. For
example, if an FHC or any of its U.S. depository institution
subsidiaries ceases to maintain its status as well-capitalized
or well-managed, the FRB may impose corrective capital
and/or managerial requirements, as well as additional
limitations or conditions. If the deficiencies persist, the FHC
may be required to divest its U.S. depository institution
subsidiaries or to cease engaging in activities other than the
business of banking and certain closely related activities.

If any insured depository institution subsidiary of an FHC
fails to maintain at least a “satisfactory” rating under the
Community Reinvestment Act, the FHC would be subject
to restrictions on certain new activities and acquisitions.

In addition, we are required to obtain prior FRB approval
before engaging in certain banking and other financial
activities both within and outside the U.S.

In September 2016, the FRB issued a proposed rule which,
if adopted, would impose new requirements on the physical
commodity activities and certain merchant banking
activities of FHCs. The proposed rule would, among other
in
things, (i) require FHCs to hold additional capital
connection with covered physical commodity activities,
including merchant banking investments in companies
engaged in physical commodity activities; (ii) tighten the
quantitative limits on permissible physical trading activity;
and (iii) establish new public reporting requirements on the
nature and extent of an FHC’s physical commodity
holdings and activities. In addition, in a September 2016
report, the FRB recommended that Congress repeal (i) the
authority of FHCs to engage in merchant banking activities;
and (ii) the authority described above for certain FHCs to
engage in certain otherwise permissible commodities
activities.

In June 2018, the FRB issued a final rule regarding single
counterparty credit limits, which imposes more stringent
requirements for credit exposures among major financial
institutions. The final rule requires U.S. G-SIBs, such as us,
to comply by January 1, 2020. In addition, the FRB has
proposed early remediation requirements, which are
modeled on the prompt corrective action regime, described
in “Prompt Corrective Action” above, but are designed to
require action to begin in earlier stages of a company’s
financial distress, based on a range of triggers, including
capital and leverage, stress test results, liquidity and risk
management.

In addition, New York State banking law imposes lending
limits (which take into account credit exposure from
derivative transactions) and other requirements that could
impact the manner and scope of GS Bank USA’s activities.

The U.S. federal bank regulatory agencies have issued
guidance that focuses on transaction structures and risk
frameworks and that outlines high-level
management
principles for safe-and-sound leveraged lending, including
underwriting standards, valuation and stress testing. This
guidance has, among other things, limited the percentage
amount of debt that can be included in certain transactions.
The status of
this guidance is uncertain as the U.S.
Government Accountability Office has determined that it is
a rule subject to review under the Congressional Review
Act.

Goldman Sachs 2018 Form 10-K

T H E G O L D M A N S A C H S G R O U P ,

I N C . A N D S U B S I D I A R I E S

Broker-Dealer and Securities Regulation
Our broker-dealer subsidiaries are subject to regulations
that cover all aspects of the securities business, including
sales methods, trade practices, use and safekeeping of
funds and securities, capital structure, record-
clients’
keeping,
the financing of clients’ purchases, and the
conduct of directors, officers and employees. In the U.S., the
SEC is the federal agency responsible for the administration
of the federal securities laws. GS&Co. is registered as a
broker-dealer, a municipal advisor and an investment
adviser with the SEC and as a broker-dealer in all 50 states
and the District of Columbia. U.S.
self-regulatory
organizations, such as FINRA and the NYSE, adopt rules
that apply to, and examine, broker-dealers such as GS&Co.

U.S. state securities and other U.S. regulators also have
regulatory or oversight authority over GS&Co. Similarly,
our businesses are also subject to regulation by various
non-U.S. governmental and regulatory bodies and self-
regulatory authorities in virtually all countries where we
have offices, as described further below, as well as in
“Other Regulation.” For a description of net capital
requirements applicable to GS&Co., see “Management’s
Discussion and Analysis of Financial Condition and Results
of Operations — Equity Capital Management and
Regulatory Capital — U.S. Regulated Broker-Dealer
Subsidiaries” in Part II, Item 7 of this Form 10-K.

In Europe, we provide broker-dealer services that are
subject to oversight by national regulators. These services
are regulated in accordance with national laws, many of
which implement E.U. directives, and,
increasingly, by
directly applicable E.U. regulations. These national and
E.U. laws require, among other things, compliance with
certain capital adequacy standards, customer protection
requirements and market conduct and trade reporting rules.

Goldman Sachs Japan Co., Ltd. (GSJCL), our regulated
Japanese broker-dealer, is subject to capital requirements
imposed by Japan’s Financial Services Agency. GSJCL is
also regulated by the Tokyo Stock Exchange, the Osaka
Exchange,
the Japan
the Tokyo Financial Exchange,
the Tokyo Commodity
Securities Dealers Association,
Exchange,
Surveillance
Exchange
and
Commission, Bank of Japan and the Ministry of Finance,
among others.

Securities

Goldman Sachs 2018 Form 10-K

Also, the Securities and Futures Commission in Hong
Kong, the Monetary Authority of Singapore, the China
Securities Regulatory Commission, the Korean Financial
the
Supervisory Service,
Securities and Exchange Board of India, the Australian
Securities and Investments Commission and the Australian
Securities Exchange, among others, regulate various of our
subsidiaries and also have capital standards and other
requirements comparable to the rules of the SEC.

the Reserve Bank of

India,

Our exchange-based market-making activities are subject
to extensive regulation by a number of securities exchanges.
As a market maker on exchanges, we are required to
maintain orderly markets in the securities to which we are
assigned.

In April 2018, the SEC issued a proposed rule that would
require broker-dealers to act in the best interest of their
customers, and also proposed an interpretation clarifying
the SEC’s views of the existing fiduciary duty owed by
investment advisers to their clients. Additionally, the SEC
issued a proposed rule that would require broker-dealers
and investment advisers to provide a standardized, short-
form disclosure highlighting services offered, applicable
the differences
standards of conduct,
between brokerage and advisory services, and any conflicts
of interest.

fees and costs,

In November 2018, the SEC adopted a final rule requiring
broker-dealers to provide to specified customers at their
request individualized information about the execution of
certain stock orders, including how such orders were routed
and the average rebates received or fees paid.

GS&Co., GS Bank USA and other U.S. subsidiaries are also
subject to rules adopted by U.S. federal agencies pursuant
to the Dodd-Frank Act that require any person who
organizes or
certain asset-backed securities
transactions to retain a portion (generally, at least five
percent) of any credit risk that the person conveys to a third
party. For certain securitization transactions, retention by
third-party purchasers may satisfy this requirement.

initiates

securitization participants

Securitizations would also be affected by rules proposed by
the SEC to implement the Dodd-Frank Act’s prohibition
against
in any
transaction that would involve or result in any material
conflict of interest with an investor in a securitization
transaction. The proposed rules would exempt bona fide
market-making activities and risk-mitigating hedging
activities in connection with securitization activities from
the general prohibition.

engaging

T H E G O L D M A N S A C H S G R O U P ,

I N C . A N D S U B S I D I A R I E S

The SEC, FINRA and regulators in various non-U.S.
jurisdictions have
imposed both conduct-based and
disclosure-based requirements with respect to research
reports and research analysts and may impose additional
regulations.

Swaps, Derivatives and Commodities Regulation
The commodity futures, commodity options and swaps
industry in the U.S. is subject to regulation under the U.S.
Commodity Exchange Act (CEA). The CFTC is the U.S.
federal agency charged with the administration of the CEA.
In addition, the SEC is the U.S. federal agency charged with
the regulation of security-based swaps. The rules and
regulations of various self-regulatory organizations, such as
the Chicago Mercantile Exchange, other futures exchanges
and the National Futures Association, also govern
commodity futures,
commodity options and swaps
activities.

The terms “swaps” and “security-based swaps” include a
wide variety of derivative instruments in addition to those
conventionally referred to as swaps (including certain
forward contracts and options), and relate to a wide variety
of underlying assets or obligations, including currencies,
commodities,
interest or other monetary rates, yields,
indices, securities, credit events, loans and other financial
obligations.

CFTC rules require registration of swap dealers, mandatory
clearing and execution of interest rate and credit default
swaps and real-time public reporting and adherence to
business conduct standards for all
in-scope swaps. In
December 2016,
the CFTC proposed revised capital
regulations for swap dealers that are not subject to the
capital rules of a prudential regulator, such as the FRB, as
well as a liquidity requirement for those swap dealers.

SEC rules govern the registration and regulation of security-
based swap dealers but compliance with such rules is not
currently required. In October 2018, the SEC re-proposed,
and requested comment on, a number of its rules for
security-based swap dealers, including capital, margin and
segregation requirements.

GS&Co.
registered with the CFTC as a futures
commission merchant, and several of our subsidiaries,
including GS&Co., are registered with the CFTC and act as
commodity pool operators and commodity trading
advisors. GS&Co. and other subsidiaries, including GS
Bank USA, GSI and J. Aron & Company LLC (J. Aron), are
registered with the CFTC as swap dealers. In addition,
GS&Co. and Goldman Sachs Financial Markets, L.P. are
registered with the SEC as OTC derivatives dealers.

Our affiliates registered as swap dealers are subject to the
margin rules issued by the CFTC (in the case of our
non-bank swap dealers) and the FRB (in the case of GS
Bank USA). The rules for variation margin have become
effective, and those for initial margin will phase in through
September 2020 depending on certain activity levels of the
swap dealer and the relevant counterparty. In contrast to
the FRB margin rules, inter-affiliate transactions under the
CFTC margin rules are generally exempt from initial
margin requirements.

The CFTC has proposed position limit rules that will limit
the size of positions in physical commodity derivatives that
can be held by any entity, or any group of affiliates or other
parties trading under common control, subject to certain
exemptions, such as for bona fide hedging positions. These
proposed rules would apply to positions in swaps, as well as
futures and options on futures.

Similar types of swap regulation have been proposed or
adopted in jurisdictions outside the U.S., including in the
E.U. and Japan. For example, the E.U. has established
regulatory requirements relating to portfolio reconciliation
and reporting, clearing certain OTC derivatives and
margining for uncleared derivatives activities under the
European Market Infrastructure Regulation.

The CFTC has adopted rules relating to cross-border
regulation of swaps, and has proposed cross-border
business conduct and registration rules. The CFTC has
entered into agreements with certain non-U.S. regulators,
including in the E.U., regarding the cross-border regulation
of derivatives and the mutual recognition of cross-border
clearing houses, and has approved substituted compliance
including E.U.
with
regulations,
conduct
requirements and margin rules. The U.S. prudential
regulators have not yet made a determination with respect
to
to substituted compliance for transactions subject
non-U.S. margin rules.

regulations,
certain

non-U.S.

business

certain

J. Aron is authorized by the U.S. Federal Energy Regulatory
Commission (FERC) to sell wholesale physical power at
a FERC-authorized power
market-based rates. As
marketer, J. Aron is subject to regulation under the U.S.
Federal Power Act and FERC regulations and to the
oversight of FERC. As a result of our investing activities,
Group Inc. is also an “exempt holding company” under the
U.S. Public Utility Holding Company Act of 2005 and
applicable FERC rules.

Goldman Sachs 2018 Form 10-K

T H E G O L D M A N S A C H S G R O U P ,

I N C . A N D S U B S I D I A R I E S

In addition, as a result of our power-related and commodities
activities, we are subject to energy, environmental and other
governmental laws and regulations, as described in “Risk
Factors — Our commodities activities, particularly our
physical commodities activities, subject us to extensive
regulation and involve certain potential risks,
including
environmental, reputational and other risks that may expose
us to significant liabilities and costs” in Part I, Item 1A of this
Form 10-K.

Investment Management Regulation
Our
to
investment management business
significant regulation in numerous jurisdictions around the
world relating to, among other things, the safeguarding of
client assets, offerings of
funds, marketing activities,
transactions among affiliates and our management of client
funds.

subject

The SEC has adopted rules relating to liquidity risk
management that require registered open-end funds to
classify and review the liquidity of their portfolio assets. In
the rules require funds to make disclosures
addition,
relating to their liquidity risk management program and
report to the SEC instances when a fund’s percentage of
illiquid investments exceeds certain thresholds or when
certain funds experience shortfalls in their highly liquid
investments. While
in
December 2018, certain portfolio asset classification and
disclosure requirements will become effective in June 2019
and December 2019.

rules became

effective

some

Certain of our European subsidiaries, including GSAMI,
are subject to the Alternative Investment Fund Managers
Directive and related regulations, which govern the
reporting
approval,
requirements
investment
managers and the ability of alternative investment fund
managers located outside the E.U. to access the E.U.
market.

organizational, marketing
E.U.-based

alternative

and

An E.U. regulation relating to money market
funds,
including provisions prescribing minimum levels of daily
and weekly liquidity, clear labeling of money market funds
and internal credit risk assessments, became effective in
July 2018.

Compensation Practices
Our compensation practices are subject to oversight by the
FRB and, with respect to some of our subsidiaries and
employees, by other regulatory bodies worldwide. The
scope and content of compensation regulation in the
financial industry are continuing to develop, and we expect
that these regulations and resulting market practices will
evolve over a number of years.

Goldman Sachs 2018 Form 10-K

arrangements

compensation

The FSB has released standards for local regulators to
implement certain compensation principles for banks and
other financial companies designed to encourage sound
compensation practices. The U.S. federal bank regulatory
agencies have provided guidance designed to ensure that
incentive
banking
organizations take into account risk and are consistent with
safe and sound practices. The guidance sets forth the
following three key principles with respect to incentive
compensation arrangements: (i) the arrangements should
provide employees with incentives that appropriately
balance risk and financial results in a manner that does not
encourage employees to expose their organizations to
imprudent risk; (ii) the arrangements should be compatible
with effective controls and risk management; and (iii) the
arrangements should be supported by strong corporate
supervisory
governance. The guidance provides
findings with respect to incentive compensation will be
incorporated, as appropriate,
into the organization’s
supervisory ratings, which can affect its ability to make
acquisitions or perform other actions. The guidance also
provides that enforcement actions may be taken against a
banking organization if
compensation
its
arrangements or related risk management, control or
governance processes pose a risk to the organization’s
safety and soundness.

incentive

that

The Dodd-Frank Act requires the U.S. financial regulators,
including the FRB and SEC, to adopt rules on incentive-
based payment arrangements at specified regulated entities
having at least $1 billion in total assets (including Group
Inc. and some of its depository institution, broker-dealer
and investment adviser subsidiaries). The U.S. financial
regulators proposed revised rules in 2016, which have not
been finalized.

In October 2016, the NYDFS issued guidance emphasizing
that its regulated banking institutions, including GS Bank
USA, must ensure that any incentive compensation
arrangements tied to employee performance indicators are
subject to effective risk management, oversight and control.

In the E.U., the CRR and CRD IV include compensation
provisions designed to implement the FSB’s compensation
standards. These rules have been implemented by E.U.
member states and, among other things, limit the ratio of
variable to fixed compensation of certain employees,
including those identified as having a material impact on
the risk profile of E.U.-regulated entities, including GSI.

The E.U. has also introduced rules regulating compensation
for certain persons providing services to certain investment
funds. These requirements are in addition to the guidance
issued by U.S. financial regulators described above and the
Dodd-Frank Act provision described above.

T H E G O L D M A N S A C H S G R O U P ,

I N C . A N D S U B S I D I A R I E S

Anti-Money Laundering and Anti-Bribery Rules and
Regulations
The U.S. Bank Secrecy Act (BSA), as amended by the USA
PATRIOT Act of 2001 (PATRIOT Act), contains anti-
money laundering and financial transparency laws and
mandates
regulations
the implementation of various
applicable to all financial institutions, including standards
for verifying client identification at account opening, and
transactions and report
obligations to monitor client
suspicious activities. Through these and other provisions,
the BSA and the PATRIOT Act seek to promote the
identification of parties that may be involved in terrorism,
money laundering or other suspicious activities. Anti-
money laundering laws outside the U.S. contain some
similar provisions.

In addition, we are subject
to laws and regulations
worldwide, including the U.S. Foreign Corrupt Practices
Act (FCPA) and the U.K. Bribery Act, relating to corrupt
and illegal payments to, and hiring practices with regard to,
government officials and others. The scope of the types of
payments or other benefits covered by these laws is very
broad and regulators are frequently using enforcement
these laws. The
proceedings to define the scope of
obligation of financial
including Goldman
Sachs, to identify their clients, to monitor for and report
suspicious transactions, to monitor direct and indirect
payments to government officials, to respond to requests
for
information by regulatory authorities and law
enforcement agencies, and to share information with other
financial institutions, has required the implementation and
maintenance of internal practices, procedures and controls.

institutions,

the

Japanese Personal

Privacy and Cyber Security Regulation
to laws and
Certain of our businesses are subject
regulations enacted by U.S. federal and state governments,
the E.U. or other non-U.S. jurisdictions and/or enacted by
various regulatory organizations or exchanges relating to
the privacy of the information of clients, employees or
others, including the GLB Act, the E.U.’s General Data
Protection Regulation (GDPR) which took effect on
May 25, 2018,
Information
Protection Act, the Hong Kong Personal Data (Privacy)
Ordinance, the Australian Privacy Act and the Brazilian
Bank Secrecy Law. The GDPR has heightened our privacy
compliance
businesses’
collection, processing and retention of personal data and
imposed strict standards for reporting data breaches. The
GDPR also provides
for
non-compliance. In addition, the California Consumer
Privacy Act (CCPA) was enacted in June 2018 and is
scheduled to take effect on January 1, 2020 and will impose
privacy compliance obligations with regard to the personal
information of California residents.

significant penalties

obligations,

impacted

our

for

The NYDFS also requires financial institutions regulated by
the NYDFS, including GS Bank USA, to, among other
things, (i) establish and maintain a cyber security program
designed to ensure the confidentiality,
integrity and
availability of their information systems; (ii) implement and
maintain a written cyber security policy setting forth
policies and procedures
their
for
information systems and nonpublic information; and
(iii) designate a Chief Information Security Officer. In
addition, in October 2016, the U.S. federal bank regulatory
agencies issued an advance notice of proposed rulemaking
on potential enhanced cyber risk management standards for
large financial institutions.

the protection of

Other Regulation
U.S. and non-U.S. government agencies, regulatory bodies
and self-regulatory organizations, as well as state securities
commissions and other state regulators in the U.S., are
empowered to conduct administrative proceedings that can
result in censure, fine, the issuance of cease-and-desist
orders, or the suspension or expulsion of a regulated entity
or its directors, officers or employees. In particular, state
attorneys general have become much more active in seeking
fines and penalties in enforcement led by the federal
regulators. In addition, a number of our other activities
to obtain licenses, adhere to applicable
require us
regulations and be subject to the oversight of various
regulators in the jurisdictions in which we conduct these
activities.

MiFID II includes extensive market structure reforms, such
as the establishment of new trading venue categories for the
purposes of discharging the obligation to trade OTC
derivatives on a trading platform and enhanced pre- and
post-trade transparency covering a wider range of financial
instruments. In equities, MiFID II introduced volume caps
on non-transparent liquidity trading for trading venues,
limited the use of broker-dealer crossing networks and
created a new regime for systematic internalizers, which are
investment firms that execute client transactions outside a
trading venue.

requirements were introduced for
Additional control
algorithmic trading, high frequency trading and direct
electronic access. Commodities trading firms are required
to calculate their positions and adhere to specific limits.
Other reforms introduced enhanced transaction reporting,
the publication of best execution data by investment firms
and trading venues, transparency on costs and charges of
service to investors, changes to the way investment
managers can pay for the receipt of investment research and
mandatory
between
for
execution and other major services.

broker-dealers

unbundling

Goldman Sachs 2018 Form 10-K

T H E G O L D M A N S A C H S G R O U P ,

I N C . A N D S U B S I D I A R I E S

The E.U. and national financial legislators and regulators in
the E.U. have proposed or adopted numerous further
market reforms that may impact our businesses, including
heightened corporate governance standards for financial
institutions, rules on key information documents for
packaged retail and insurance-based investment products
and rules on indices that are used as benchmarks for
financial instruments or funds. In addition, the European
the European Securities and Markets
Commission,
Authority and the European Banking Authority have
announced or are formulating regulatory standards and
other measures which will impact our European operations.
Certain of our European subsidiaries are also regulated by
the securities, derivatives and commodities exchanges of
which they are members.

As described above, many of our subsidiaries are subject to
regulatory capital requirements in jurisdictions throughout
the world. Subsidiaries not subject to separate regulation
may hold capital to satisfy local tax guidelines, rating
agency requirements or internal policies, including policies
concerning the minimum amount of capital a subsidiary
should hold based upon its underlying risk.

Executive Officers of The Goldman Sachs
Group, Inc.

Set forth below are the name, age, present title, principal
occupation and certain biographical information for our
executive officers. Our executive officers have been
appointed by and serve at the pleasure of our Board of
Directors.

Dane E. Holmes, 48
Mr. Holmes has been an Executive Vice President and
Global Head of Human Capital Management
since
January 2018 and Global Head of Pine Street, our
leadership development program, since 2016. He had
previously served as Global Head of Investor Relations
since October 2007.

John F.W. Rogers, 62
Mr. Rogers has been an Executive Vice President since
April 2011 and Chief of Staff and Secretary to our Board of
Directors since December 2001.

Stephen M. Scherr, 54
Mr. Scherr has been an Executive Vice President and Chief
Financial Officer since November 2018. He had previously
served as Chief Executive Officer of Goldman Sachs Bank
USA since May 2016, and head of the Consumer &
Commercial Banking Division from 2016 to 2018. From
June 2014 to 2017, he was Chief Strategy Officer, and from
2011 to 2016 he was Head of the Latin America business.
He was also Global Head of the Financing Group from
2008 to 2014.

Goldman Sachs 2018 Form 10-K

Karen P. Seymour, 57
Ms. Seymour has been an Executive Vice President, General
Counsel and Secretary, and Head or Co-Head of the Legal
Department since January 2018. From 2000 through
January 2002 and 2005 through 2017, she was a partner at
Sullivan & Cromwell LLP, a global law firm, including
serving as a member of its management committee from
April 2015 to December 2017, and as the co-managing
partner of its litigation group from December 2012 to
April 2015.

Sarah E. Smith, 59
Ms. Smith has been an Executive Vice President and Global
Head of Compliance since March 2017. She had previously
served as Controller and Chief Accounting Officer since
2002.

David M. Solomon, 57
Mr. Solomon has been Chairman of the Board since
January 2019, and Chief Executive Officer and a director
since October 2018. He had previously served as President
since
and Chief
January 2017 and Co-Head of the Investment Banking
Division from July 2006 to December 2016.

or Co-Chief Operating Officer

John E. Waldron, 49
Mr. Waldron has been President and Chief Operating
Officer since October 2018. He had previously served as
Co-Head of
the Investment Banking Division since
December 2014. Prior to that he was Global Head of
the
Investment Banking Services/Client Coverage for
Investment Banking Division and had oversight of the
Investment Banking Services Leadership Group, and from
2007 to 2009 was Global Co-Head of the Financial
Sponsors Group.

Available Information

Our internet address is www.goldmansachs.com and the
investor relations section of our website is located at
www.goldmansachs.com/investor-relations. We make
available free of charge through the investor relations
section of our website, annual reports on Form 10-K,
quarterly reports on Form 10-Q and current reports on
Form 8-K and amendments to those reports filed or
furnished pursuant to Section 13(a) or 15(d) of the U.S.
Securities Exchange Act of 1934 (Exchange Act), as well as
proxy statements, as soon as reasonably practicable after
we electronically file such material with, or furnish it to, the
SEC.

T H E G O L D M A N S A C H S G R O U P ,

I N C . A N D S U B S I D I A R I E S

Also posted on our website, and available in print upon
request of any shareholder to our Investor Relations
Department, are our certificate of
incorporation and
by-laws, charters for our Audit Committee, Risk Committee,
Compensation Committee, Corporate Governance and
Nominating Committee,
and Public Responsibilities
Committee, our Policy Regarding Director Independence
Determinations, our Policy on Reporting of Concerns
Regarding Accounting and Other Matters, our Corporate
Governance Guidelines and our Code of Business Conduct
and Ethics governing our directors, officers and employees.
Within the time period required by the SEC, we will post on
our website any amendment to the Code of Business
Conduct and Ethics and any waiver applicable to any
executive officer, director or senior financial officer.

In addition, our website includes information concerning:
‰ Purchases and sales of our equity securities by our

executive officers and directors;

‰ Disclosure relating to certain non-GAAP financial
measures (as defined in the SEC’s Regulation G) that we
may make public orally, telephonically, by webcast, by
broadcast or by other means from time to time;

‰ Dodd-Frank Act stress test results;
‰ The public portion of our resolution plan submission;
‰ Our risk management practices and regulatory capital
ratios, as required under the disclosure-related provisions
of the Capital Framework, which are based on the third
pillar of Basel III; and

‰ Our quarterly average LCR.

Our Investor Relations Department can be contacted at
The Goldman Sachs Group, Inc., 200 West Street,
29th Floor, New York, New York 10282, Attn:
Investor Relations, telephone: 212-902-0300, e-mail:
gs-investor-relations@gs.com.

our

From time to time, we use our website, our Twitter account
(twitter.com/GoldmanSachs),
Instagram account
(instagram.com/GoldmanSachs) and other social media
channels as additional means of disclosing public
information to investors, the media and others interested in
Goldman Sachs. In addition, our officers may use similar
social media channels to disclose public information. It is
possible that certain information we or our officers post on
our website and on social media could be deemed to be
material
information, and we encourage investors, the
media and others interested in Goldman Sachs to review the
business and financial information we or our officers post
on our website and on the social media channels identified
above. The information on our website and those social
media channels is not incorporated by reference into this
Form 10-K.

Cautionary Statement Pursuant to the U.S.
Private Securities Litigation Reform Act of
1995

We have included or incorporated by reference in this
Form 10-K, and from time to time our management may
make, statements that may constitute “forward-looking
statements” within the meaning of
the safe harbor
provisions of the U.S. Private Securities Litigation Reform
Act of 1995. Forward-looking statements are not historical
facts, but instead represent only our beliefs regarding future
events, many of which, by their nature, are inherently
uncertain and outside our control.

These statements include statements other than historical
information or statements of current conditions 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, leverage, liquidity, long-
term debt and TLAC rules applicable to banks and BHCs,
the impact of the Dodd-Frank Act on our businesses and
operations, and various legal proceedings, governmental
investigations or mortgage-related contingencies as set
forth in both Notes 27 and 18 to the consolidated financial
statements in Part II, Item 8 of this Form 10-K, as well as
statements about the results of our Dodd-Frank Act and
our stress tests, statements about
the objectives and
effectiveness of our business continuity plan, information
security program, risk management and liquidity policies,
statements about our resolution plan and resolution
strategy and their implications for our debtholders and
other stakeholders, statements about
the design and
effectiveness of our resolution capital and liquidity models
and our triggers and alerts framework, 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,
statements about our investment banking transaction
backlog, statements about our expected tax rate, statements
about the estimated impact of new accounting standards,
statements about the level of capital actions, statements
about our expected interest income, statements about our
credit exposures, statements about our preparations for
Brexit, including our plan to manage a hard Brexit scenario,
statements about the replacement of LIBOR and other
IBORs and the objectives of our program related to the
transition from IBORs to alternative risk-free reference
rates, and statements about the adequacy of our allowance
for credit losses.

Goldman Sachs 2018 Form 10-K

T H E G O L D M A N S A C H S G R O U P ,

I N C . A N D S U B S I D I A R I E S

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 described below
and in “Risk Factors” in Part I, Item 1A of this Form 10-K.

Statements about our investment banking transaction
backlog are subject to the risk that the terms of these
transactions may be modified or that they may not be
completed at all; therefore, the net revenues, if any, that we
actually earn from these transactions may differ, possibly
materially,
Important
from those currently expected.
factors that could result in a modification of the terms of a
transaction or a transaction not being completed include, in
the case of underwriting transactions, a decline or
continued weakness
in general economic conditions,
outbreak of hostilities, volatility in the securities markets
generally or an adverse development with respect to the
issuer of the securities and, in the case of financial advisory
transactions, a decline in the securities markets, an inability
to obtain adequate financing, an adverse development with
respect to a party to the transaction or a failure to obtain a
required regulatory approval. For information about other
important
could adversely affect our
investment banking transactions, see “Risk Factors” in
Part I, Item 1A of this Form 10-K.

factors

that

Statements about our expected 2019 effective income tax
rate are subject to the risk that our tax rate may differ from
the anticipated rate indicated in such statements, possibly
materially, due to, among other things, changes in our
earnings mix, our profitability and entities in which we
generate profits,
the assumptions we have made in
forecasting our expected tax rate, as well as guidance that
may be issued by the U.S. Internal Revenue Service.

We provided in this filing information regarding our NSFR.
The statements with respect to our NSFR are forward-
looking statements, based on our current interpretation,
expectations and understandings of the relevant proposal,
and reflect significant assumptions about the treatment of
various assets and liabilities and the manner in which our
NSFR is calculated. As a result, the methods used to
calculate our NSFR may differ, possibly materially, from
those used in calculating our NSFR for any future
disclosures. The ultimate methods of calculating our NSFR
will depend on, among other things, rulemaking from the
U.S. federal bank regulatory agencies and the development
of market practices and standards.

Goldman Sachs 2018 Form 10-K

Item 1A. Risk Factors

We face a variety of risks that are substantial and inherent
in our businesses,
liquidity, credit,
operational, legal, regulatory and reputational risks. The
following are some of the more important factors that
could affect our businesses.

including market,

Our businesses have been and may continue to be
adversely affected by conditions in the global
financial markets and economic conditions generally.

Our businesses, by their nature, do not produce predictable
earnings, and all of our businesses are materially affected by
conditions in the global financial markets and economic
conditions generally, both directly and through their impact
on client activity levels. These conditions can change
suddenly and negatively.

conditions which result

liquid and efficient capital markets,

Our financial performance is highly dependent on the
environment in which our businesses operate. A favorable
business environment is generally characterized by, among
other factors, high global gross domestic product growth,
in
regulatory and market
transparent,
low
inflation, high business and investor confidence, stable
regulations and strong
geopolitical conditions, clear
business earnings. Unfavorable or uncertain economic and
market conditions can be caused by: concerns about
sovereign defaults; uncertainty concerning fiscal or
monetary policy, government shutdowns, debt ceilings or
funding; the extent of and uncertainty about tax and other
regulatory changes; declines in economic growth, business
activity or investor or business confidence; limitations on
the availability or increases in the cost of credit and capital;
illiquid markets;
interest rates,
exchange rate or basic commodity price volatility or default
rates; the imposition of tariffs or other limitations on
international trade and travel; outbreaks of domestic or
international
terrorism, nuclear
proliferation, cybersecurity threats or attacks and other
forms of disruption to or
global
communication, energy transmission or transportation
networks or other geopolitical instability or uncertainty,
such as Brexit; corporate, political or other scandals that
reduce investor confidence in capital markets; extreme
weather events or other natural disasters or pandemics; or a
combination of these or other factors.

tensions or hostilities,

increases in inflation,

curtailment of

T H E G O L D M A N S A C H S G R O U P ,

I N C . A N D S U B S I D I A R I E S

The financial services industry and the securities markets
have been materially and adversely affected in the past by
significant declines in the values of nearly all asset classes
and by a serious lack of liquidity. In addition, concerns
about European sovereign debt risk and its impact on the
European banking system,
the
imposition of tariffs by the U.S. and by other countries in
response thereto, and changes in interest rates and other
market conditions or actual changes in interest rates and
other market conditions, have resulted, at
in
significant volatility while negatively impacting the levels of
client activity.

the impact of Brexit,

times,

General uncertainty about economic, political and market
activities, and the scope, timing and impact of regulatory
reform, as well as weak consumer,
investor and CEO
confidence resulting in large part from such uncertainty,
continues to negatively impact client activity, which
adversely affects many of our businesses. Periods of low
volatility and periods of high volatility combined with a
lack of liquidity, have at times had an unfavorable impact
on our market-making businesses.

Financial institution returns in many countries may be
negatively impacted by increased funding costs due in part
to the lack of perceived government support of such
institutions in the event of future financial crises relative to
financial institutions in countries in which governmental
support is maintained. In addition, liquidity in the financial
markets has also been negatively impacted as market
participants and market practices and structures continue
to adjust to new regulations.

Our revenues and profitability and those of our competitors
have been and will continue to be impacted by requirements
relating to capital, additional
loss-absorbing capacity,
leverage, minimum liquidity and long-term funding levels,
requirements related to resolution and recovery planning,
derivatives clearing and margin rules and levels of
regulatory oversight, as well as limitations on which and, if
permitted, how certain business activities may be carried
out by financial institutions.

the manner

The degree to which these and other changes since the
financial crisis continue to have an impact on the
profitability of financial institutions will depend on the
regulations adopted after 2008 and new
effect of
in which markets, market
regulations,
participants and financial institutions have continued to
adapt to these regulations, and the prevailing economic and
financial market conditions. However, there is a significant
risk that such changes will negatively impact the absolute
level of revenues, profitability and return on equity for us
and other financial institutions.

Our businesses and those of our clients are subject to
extensive and pervasive regulation around the world.

As a participant in the financial services industry and a
systemically important financial institution, we are subject
to extensive regulation in jurisdictions around the world.
We face the risk of significant
intervention by law
enforcement, regulatory and taxing authorities, as well as
private litigation, in all jurisdictions in which we conduct
our businesses. In many cases, our activities may be subject
to overlapping and divergent
regulation in different
jurisdictions. Among other things, as a result of law
enforcement authorities,
regulators or private parties
challenging our compliance with existing laws and
regulations, we or our employees could be fined or
criminally sanctioned, prohibited from engaging in some of
our business activities, subject to limitations or conditions
capital
on our business activities,
requirements, or subjected to new or substantially higher
taxes or other governmental charges in connection with the
conduct of our businesses or with respect to our employees.
Such limitations or conditions may limit our business
activities and negatively impact our profitability.

including higher

In addition to the impact on the scope and profitability of
our business activities, day-to-day compliance with existing
laws and regulations, in particular those adopted since
2008, has involved and will, except to the extent that some
of such regulations are modified or otherwise repealed,
continue to involve significant amounts of time, including
that of our senior leaders and that of a large number of
dedicated compliance and other reporting and operational
personnel, all of which may negatively impact our
profitability.

Goldman Sachs 2018 Form 10-K

T H E G O L D M A N S A C H S G R O U P ,

I N C . A N D S U B S I D I A R I E S

business

reporting

practices,

If there are new laws or regulations or changes in the
enforcement of existing laws or regulations applicable to our
businesses or those of our clients, including capital, liquidity,
leverage, long-term debt, total loss-absorbing capacity and
margin requirements, restrictions on leveraged lending or
other
requirements,
requirements relating to recovery and resolution planning,
tax burdens and compensation restrictions, that are imposed
on a limited subset of financial institutions (either based on
size, method of funding, activities, geography or other
criteria), compliance with these new laws or regulations, or
changes in the enforcement of existing laws or regulations,
could adversely affect our ability to compete effectively with
other institutions that are not affected in the same way. In
addition, regulation imposed on financial institutions or
market participants generally, such as taxes on financial
transactions, could adversely impact levels of market activity
more broadly, and thus impact our businesses.

changing

These developments could impact our profitability in the
affected jurisdictions, or even make it uneconomic for us to
continue to conduct all or certain of our businesses in such
jurisdictions, or could cause us to incur significant costs
associated with
practices,
restructuring our businesses, moving all or certain of our
businesses and our employees to other locations or
complying with applicable capital requirements, including
reducing dividends or share repurchases, liquidating assets
or raising capital in a manner that adversely increases our
affects our
funding
shareholders and creditors.

costs or otherwise

adversely

business

our

U.S. and non-U.S. regulatory developments, in particular the
Dodd-Frank Act and Basel III, have significantly altered the
regulatory framework within which we operate and have
adversely affected and may in the future affect our profitability.

transactions;

requirements

limitations on incentive

Among the aspects of the Dodd-Frank Act that have affected
or may in the future affect our businesses are: increased
capital, liquidity and reporting requirements; limitations on
activities in which we may engage; increased regulation of
and restrictions on OTC derivatives markets
and
compensation;
transactions;
limitations on affiliate
to
reorganize or limit activities in connection with recovery and
resolution planning; increased deposit insurance assessments;
and increased standards of care for broker-dealers and
investment
clients. The
implementation of higher capital requirements, the LCR, the
NSFR, requirements relating to long-term debt and total
loss-absorbing capacity and the prohibition on proprietary
trading and the sponsorship of, or investment in, covered
funds by the Volcker Rule may continue to adversely affect
our profitability and competitive position, particularly if
these requirements do not apply equally to our competitors
or are not implemented uniformly across jurisdictions.

dealing with

advisers

Goldman Sachs 2018 Form 10-K

As described in “Business — Regulation — Banking
Supervision and Regulation” in Part I, Item 1 of this
Form 10-K, Group Inc.’s proposed capital actions and
capital plan are reviewed by the FRB as part of the CCAR
process. If the FRB objects to our proposed capital actions
in our capital plan, Group Inc. could be prohibited from
taking some or all of the proposed capital actions, including
increasing or paying dividends on common or preferred
stock or repurchasing common stock or other capital
securities. Our inability to carry out our proposed capital
actions could, among other things, prevent us from
returning capital to our shareholders and impact our return
on equity. Additionally, as a consequence of our
designation as a G-SIB, we are subject to the G-SIB buffer.
Our G-SIB buffer is updated annually based on financial
data from the prior year. Expansion of our businesses or
growth in our balance sheet may result in an increase in our
G-SIB buffer and a corresponding increase in our capital
requirements.

We are also subject to laws and regulations, such as the
GDPR, relating to the privacy of the information of clients,
employees or others, and any failure to comply with these
laws and regulations could expose us to liability and/or
reputational damage. As new privacy-related laws and
regulations are implemented, the time and resources needed
for us to comply with such laws and regulations, as well as
our potential liability for non-compliance and reporting
obligations in the case of data breaches, may significantly
increase.

In addition, our businesses are increasingly subject to laws
and regulations relating to surveillance, encryption and
data on-shoring in the jurisdictions in which we operate.
Compliance with these laws and regulations may require us
to change our policies, procedures and technology for
information security, which could, among other things,
make us more
and
misappropriation, corruption or loss of information or
technology.

vulnerable

to cyber

attacks

We have entered into new consumer-oriented deposit-
taking and lending businesses, and we currently expect to
expand the product and geographic scope of our offerings.
Entering into such new businesses, as with any new
business, subjects us to numerous additional regulations in
the jurisdictions in which these businesses operate. Not
only are these regulations extensive, but they involve types
of regulations and supervision, as well as regulatory
compliance risks, that we have not previously encountered.
The level of regulatory scrutiny and the scope of regulations
affecting financial
interactions with consumers is often
much greater than that associated with doing business with
institutions and high-net-worth individuals. Complying
with such new regulations is time-consuming, costly and
presents new and increased risks.

T H E G O L D M A N S A C H S G R O U P ,

I N C . A N D S U B S I D I A R I E S

controlled by financial

institution had no direct knowledge of

Increasingly, regulators and courts have sought to hold
financial
institutions liable for the misconduct of their
clients where such regulators and courts have determined
that the financial institution should have detected that the
client was engaged in wrongdoing, even though the
financial
the
activities engaged in by its client. Regulators and courts
have also increasingly found liability as a “control person”
for activities of entities in which financial institutions or
funds
institutions have an
investment, but which they do not actively manage. In
addition, regulators and courts continue to seek to establish
“fiduciary” obligations to counterparties to which no such
duty had been assumed to exist. To the extent that such
efforts are successful, the cost of, and liabilities associated
with, engaging in brokerage, clearing, market-making,
investing and other similar activities
prime brokerage,
could increase significantly. To the extent that we have
fiduciary obligations in connection with acting as a
financial adviser, investment adviser or in other roles for
fund
individual,
clients, any breach, or even an alleged breach, of such
obligations could have materially negative legal, regulatory
and reputational consequences.

institutional, sovereign or investment

For information about the extensive regulation to which
our businesses are subject, see “Business — Regulation” in
Part I, Item 1 of this Form 10-K.

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.

Many of our businesses have net “long” positions in debt
securities, loans, derivatives, mortgages, equities (including
private equity and real estate) and most other asset classes.
These include positions we take when we act as a principal
to facilitate our clients’ activities, including our exchange-
based market-making activities, or commit large amounts
of capital to maintain positions in interest rate and credit
products, as well as through our currencies, commodities,
equities and mortgage-related activities. In addition, we
invest in similar asset classes. Substantially all of our
investing and market-making positions and a portion of our
loans are marked-to-market on a daily basis and declines in
asset values directly and immediately impact our earnings,
unless we have effectively “hedged” our exposures to such
declines.

In certain circumstances (particularly in the case of credit
products, including leveraged loans, and private equities or
other securities that are not
freely tradable or lack
established and liquid trading markets), it may not be
possible or economic to hedge such exposures and to the
extent that we do so the hedge may be ineffective or may
greatly reduce our ability to profit from increases in the
values of
the assets. Sudden declines and significant
volatility in the prices of assets may substantially curtail or
eliminate the trading markets for certain assets, which may
make it difficult to sell, hedge or value such assets. The
inability to sell or effectively hedge assets reduces our ability
to limit losses in such positions and the difficulty in valuing
assets may negatively affect our capital, liquidity or leverage
ratios, increase our funding costs and generally require us to
maintain additional capital.

In our exchange-based market-making activities, we are
obligated by stock exchange rules to maintain an orderly
market, including by purchasing securities in a declining
market. In markets where asset values are declining and in
volatile markets, this results in losses and an increased need
for liquidity.

We receive asset-based management fees based on the value
of our clients’ portfolios or investment in funds managed by
us and, in some cases, we also receive incentive fees based
on increases in the value of such investments. Declines in
asset values reduce the value of our clients’ portfolios or
fund assets, which in turn reduce the fees we earn for
managing such assets.

We post collateral to support our obligations and receive
collateral to support the obligations of our clients and
counterparties in connection with our client execution
businesses. When the value of the assets posted as collateral
or the credit ratings of the party posting collateral decline,
the party posting the collateral may need to provide
if possible, reduce its trading
additional collateral or,
position. An example of such a situation is a “margin call”
in connection with a brokerage account. Therefore, declines
in the value of asset classes used as collateral mean that
either the cost of funding positions is increased or the size of
positions is decreased.

If we are the party providing collateral, this can increase our
costs and reduce our profitability and if we are the party
receiving collateral, this can also reduce our profitability by
reducing the level of business done with our clients and
counterparties. In addition, volatile or less liquid markets
increase the difficulty of valuing assets, which can lead to
costly and time-consuming disputes over asset values and
the level of required collateral, as well as increased credit
risk to the recipient of the collateral due to delays in
receiving adequate collateral.

Goldman Sachs 2018 Form 10-K

T H E G O L D M A N S A C H S G R O U P ,

I N C . A N D S U B S I D I A R I E S

In cases where we foreclose on collateral, sudden declines in
the value or liquidity of such collateral may, despite credit
monitoring, over-collateralization, the ability to call for
additional collateral or the ability to force repayment of the
underlying obligation, result in significant losses to us,
especially where there is a single type of collateral
supporting the obligation. In addition, we have been, and
may in the future be, subject to claims that the foreclosure
the legal documents, was
was not permitted under
conducted in an improper manner or caused a client or
counterparty to go out of business.

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.

Widening credit spreads, as well as significant declines in
the availability of credit, have in the past adversely affected
our ability to borrow on a secured and unsecured basis and
may do so in the future. We fund ourselves on an unsecured
basis by issuing long-term debt, by accepting deposits at our
bank subsidiaries, by issuing hybrid financial instruments
or by obtaining loans or lines of credit from commercial or
other banking entities. We seek to finance many of our
assets on a secured basis. Any disruptions in the credit
markets may make it harder and more expensive to obtain
funding for our businesses. If our available funding is
limited or we are forced to fund our operations at a higher
cost, these conditions may require us to curtail our business
activities and increase our cost of funding, both of which
could reduce our profitability, particularly in our businesses
that involve investing, lending and market making.

Our clients engaging in mergers, acquisitions and other
types of strategic transactions often rely on access to the
secured and unsecured credit markets to finance their
transactions. A lack of available credit or an increased cost
of credit can adversely affect the size, volume and timing of
our
transactions,
particularly large transactions, and adversely affect our
financial advisory and underwriting businesses.

clients’ merger

acquisition

and

Our credit businesses have been and may in the future be
negatively affected by a lack of liquidity in credit markets. A
lack of liquidity reduces price transparency, increases price
volatility and decreases transaction volumes and size, all of
which can increase transaction risk or decrease the
profitability of such businesses.

Goldman Sachs 2018 Form 10-K

Our market-making activities have been and may be
affected by changes in the levels of market volatility.

Certain of our market-making activities depend on market
volatility to provide trading and arbitrage opportunities to
our clients, and decreases in volatility have reduced and
may in the future reduce these opportunities and the level of
client activity associated with them and adversely affect the
results of these activities. On the other hand, increased
volatility, while it can increase trading volumes and
spreads, also increases risk as measured by Value-at-Risk
(VaR) and may expose us to increased risks in connection
with our market-making activities or cause us to reduce our
market-making inventory in order to avoid increasing our
VaR. Limiting the size of our market-making positions can
adversely affect our profitability. In periods when volatility
is increasing, but asset values are declining significantly, it
may not be possible to sell assets at all or it may only be
possible to do so at steep discounts. In such circumstances
we may be forced to either take on additional risk or to
realize losses in order to decrease our VaR. In addition,
increases in volatility increase the level of our RWAs, which
increases our capital requirements.

Our
investment banking, client execution and
investment management businesses have been
adversely affected and may in the future 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 banking business has been, and may in the
future be, adversely affected by market conditions. Poor
conditions and other adverse geopolitical
economic
conditions can adversely affect and have in the past
adversely affected investor and CEO confidence, resulting
in significant industry-wide declines in the size and number
of underwritings and of financial advisory transactions,
which could have an adverse effect on our revenues and our
profit margins. In particular, because a significant portion
of our investment banking revenues is derived from our
participation in large transactions, a decline in the number
of large transactions would adversely affect our investment
banking business.

In certain circumstances, market uncertainty or general
declines in market or economic activity may affect our
client execution businesses by decreasing levels of overall
activity or by decreasing volatility, but at other times
market uncertainty and even declining economic activity
may result in higher trading volumes or higher spreads or
both.

T H E G O L D M A N S A C H S G R O U P ,

I N C . A N D S U B S I D I A R I E S

Market uncertainty, volatility and adverse economic
conditions, as well as declines in asset values, may cause our
clients to transfer their assets out of our funds or other
products or their brokerage accounts and result in reduced
net revenues, principally in our investment management
business. Even if clients do not withdraw their funds, they
may invest them in products that generate less fee income.

Our
investment management business may be
affected by the poor investment performance of our
investment products or a client preference for
products other than those which we offer or for
products that generate lower fees.

Poor investment returns in our investment management
business, due to either general market conditions or
underperformance (relative to our competitors or to
benchmarks) by funds or accounts that we manage or
investment products that we design or sell, affects our
ability to retain existing assets and to attract new clients or
additional assets from existing clients. This could affect the
management and incentive fees that we earn on assets under
supervision or the commissions and net spreads that we
earn for
such as
structured notes or derivatives. To the extent that our
clients choose to invest in products that we do not currently
offer, we will suffer outflows and a loss of management
fees. Further, if, due to changes in investor sentiment or the
relative performance of certain asset classes or otherwise,
clients invest in products that generate lower fees, our
investment management business could be adversely
affected.

investment products,

selling other

We may incur losses as a result of ineffective risk
management processes and strategies.

We seek to monitor and control our risk exposure through
a risk and control framework encompassing a variety of
separate but complementary financial, credit, operational,
compliance and legal reporting systems, internal controls,
management review processes and other mechanisms. Our
risk management process seeks to balance our ability to
profit from market-making, investing or lending positions,
and underwriting activities, with our exposure to potential
losses. While we employ a broad and diversified set of risk
monitoring
those
risk mitigation
and
techniques and the judgments
that accompany their
application cannot anticipate every economic and financial
outcome or the specifics and timing of such outcomes.
Thus, we may, in the course of our activities, incur losses.
Market
involved
unprecedented dislocations and highlight the limitations
inherent in using historical data to manage risk.

years have

techniques,

conditions

in recent

reflect assumptions about

The models that we use to assess and control our risk
exposures
the degrees of
correlation or lack thereof among prices of various asset
classes or other market indicators. In times of market stress
or other unforeseen circumstances, such as those that
occurred during 2008 and early 2009, and to some extent
since 2011, previously uncorrelated indicators may become
correlated, or conversely previously correlated indicators
may move in different directions. These types of market
movements have at times limited the effectiveness of our
hedging strategies and have caused us to incur significant
losses, and they may do so in the future. These changes in
correlation can be exacerbated where other market
participants are using risk or
trading models with
assumptions or algorithms that are similar to ours. In these
and other cases, it may be difficult to reduce our risk
positions due to the activity of other market participants or
widespread market dislocations, including circumstances
where asset values are declining significantly or no market
exists for certain assets.

In addition, the use of models in connection with risk
management and numerous other critical activities presents
risks that such models may be ineffective, either because of
poor design or ineffective testing,
improper or flawed
inputs, as well as unpermitted access to such models
resulting in unapproved or malicious changes to the model
or its inputs.

To the extent that we have positions through our market-
making or origination activities or we make investments
directly through our investing activities, including private
equity, that do not have an established liquid trading
market or are otherwise subject to restrictions on sale or
hedging, we may not be able to reduce our positions and
therefore reduce our risk associated with such positions. In
addition, to the extent permitted by applicable law and
regulation, we invest our own capital in private equity,
credit, real estate and hedge funds that we manage and
limitations on our ability to withdraw some or all of our
investments in these funds, whether for legal, reputational
or other reasons, may make it more difficult for us to
control the risk exposures relating to these investments.

Prudent risk management, as well as regulatory restrictions,
may cause us to limit our exposure to counterparties,
geographic areas or markets, which may limit our business
opportunities and increase the cost of our funding or
hedging activities.

Goldman Sachs 2018 Form 10-K

to our liquidity. A
Our credit ratings are important
reduction in our credit ratings could adversely affect our
liquidity and competitive position, increase our borrowing
costs, limit our access to the capital markets or trigger our
obligations under certain provisions in some of our trading
and collateralized financing contracts. Under
these
provisions, counterparties could be permitted to terminate
contracts with us or require us to post additional collateral.
Termination of our trading and collateralized financing
contracts could cause us to sustain losses and impair our
liquidity by requiring us to find other sources of financing
or
securities
movements.

to make significant cash payments or

our

credit

ratings

As of December 2018, our counterparties could have called
for additional collateral or termination payments related to
our net derivative liabilities under bilateral agreements in an
aggregate amount of $262 million in the event of a
one-notch downgrade of
and
$959 million in the event of a two-notch downgrade of our
credit ratings. 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. For further information about our credit ratings,
see “Management’s Discussion and Analysis of Financial
Condition
of Operations — Risk
Management — Liquidity Risk Management — Credit
Ratings” in Part II, Item 7 of this Form 10-K.

and Results

Our cost of obtaining long-term unsecured funding is
directly related to our credit spreads (the amount in excess
of the interest rate of U.S. Treasury securities (or other
benchmark securities) of the same maturity that we need to
pay to our debt investors). Increases in our credit spreads
can significantly increase our cost of this funding. Changes
in credit spreads are continuous, market-driven, and subject
at times to unpredictable and highly volatile movements.
spreads are also influenced by market
Our credit
perceptions of our creditworthiness. In addition, our credit
spreads may be influenced by movements in the costs to
purchasers of credit default swaps referenced to our long-
term debt. The market for credit default swaps has proven
to be extremely volatile and at times has lacked a high
degree of transparency or liquidity.

T H E G O L D M A N S A C H S G R O U P ,

I N C . A N D S U B S I D I A R I E S

As we have expanded and intend to continue to expand the
product and geographic scope of our offerings of credit
products to consumers, we are presented with different
credit risks and must expand and adapt our credit risk
monitoring and mitigation activities to account for these
new business activities. A failure to adequately assess and
control such risk exposures could result in losses to us.

For further information about our risk management
policies and procedures, see “Management’s Discussion
and Analysis of Financial Condition and Results of
Operations — Risk Management” in Part II, Item 7 of this
Form 10-K.

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.

Liquidity is essential to our businesses. It is of critical
importance to us, as most of the failures of financial
institutions have occurred in large part due to insufficient
liquidity. Our liquidity may be impaired by an inability to
access secured and/or unsecured debt markets, an inability
to access funds from our subsidiaries or otherwise allocate
liquidity optimally, an inability to sell assets or redeem our
investments, or unforeseen outflows of cash or collateral.
This situation may arise due to circumstances that we may
be unable to control, such as a general market disruption or
an operational problem that affects third parties or us, or
even by the perception among market participants that we,
or other market participants, are experiencing greater
liquidity risk.

We employ structured products to benefit our clients and
hedge our own risks. The financial instruments that we
hold and the contracts to which we are a party are often
complex, and these complex structured products often do
not have readily available markets to access in times of
liquidity stress. Our investing and lending activities may
lead to situations where the holdings from these activities
represent a significant portion of specific markets, which
could restrict liquidity for our positions.

Further, our ability to sell assets may be impaired if there is
not generally a liquid market for such assets, as well as in
circumstances where other market participants are seeking
to sell similar otherwise generally liquid assets at the same
time, as is likely to occur in a liquidity or other market crisis
or in response to changes to rules or regulations. In
addition, financial institutions with which we interact may
exercise set-off rights or the right to require additional
collateral, including in difficult market conditions, which
could further impair our liquidity.

Goldman Sachs 2018 Form 10-K

T H E G O L D M A N S A C H S G R O U P ,

I N C . A N D S U B S I D I A R I E S

for

large

introduce more
financial

Regulatory changes relating to liquidity may also negatively
impact our results of operations and competitive position.
Recently, numerous regulations have been adopted or
stringent
proposed
liquidity
institutions. These
requirements
regulations address, among other matters, liquidity stress
testing, minimum liquidity
requirements, wholesale
funding, limitations on the issuance of short-term debt and
structured notes and prohibitions on parent guarantees that
are subject to certain cross-defaults. New and prospective
liquidity-related regulations may overlap with, and be
impacted by, other regulatory changes,
including rules
relating to minimum long-term debt requirements and
TLAC, guidance on the treatment of brokered deposits and
the
and resolution and recovery
frameworks applicable to large financial institutions. Given
the overlap and complex interactions among these new and
they may have unintended
prospective
cumulative effects, and their full
impact will remain
uncertain, while regulatory reforms are being adopted and
market practices develop in response to such reforms.

regulations,

leverage

capital,

A failure to appropriately identify and address
potential conflicts of interest could adversely affect
our businesses.

Due to the broad scope of our businesses and our client
base, we regularly address potential conflicts of interest,
including situations where our services to a particular client
or our own investments or other interests conflict, or are
perceived to conflict, with the interests of another client, as
well as situations where one or more of our businesses have
access to material non-public information that may not be
shared with our other businesses and situations where we
may be a creditor of an entity with which we also have an
advisory or other relationship.

In addition, our status as a BHC subjects us to heightened
regulation and increased regulatory scrutiny by the FRB
with respect to transactions between GS Bank USA and
entities that are or could be viewed as affiliates of ours and,
under the Volcker Rule, transactions between Goldman
Sachs and certain covered funds.

among

businesses.

We have extensive procedures and controls that are
designed to identify and address conflicts of interest,
including those designed to prevent the improper sharing of
However,
our
information
appropriately identifying and dealing with conflicts of
interest is complex and difficult, and our reputation, which
is one of our most important assets, could be damaged and
the willingness of clients to enter into transactions with us
may be affected if we fail, or appear to fail, to identify,
disclose and deal appropriately with conflicts of interest. In
addition, potential or perceived conflicts could give rise to
litigation or regulatory enforcement actions.

A failure in our operational systems or infrastructure,
or those of third parties, as well as human error or
malfeasance, could impair our liquidity, disrupt our
businesses, result in the disclosure of confidential
information, damage our reputation and cause losses.

Our businesses are highly dependent on our ability to
process and monitor, on a daily basis, a very large number
of transactions, many of which are highly complex and
occur at high volumes and frequencies, across numerous
and diverse markets in many currencies. These transactions,
as well as the information technology services we provide to
clients, often must adhere to client-specific guidelines, as
well as legal and regulatory standards.

and other

to execute transactions and report

Many rules and regulations worldwide govern our
obligations
such
information to regulators,
transactions
exchanges and investors. Compliance with these legal and
reporting requirements can be challenging, and we have
been, and may in the future be, subject to regulatory fines
and penalties for failing to follow these rules or to report
timely, accurate and complete information in accordance
with such rules. As such requirements expand, compliance
with these rules and regulations has become more
challenging.

(as well

electronic

to clients,

regulators and exchanges)

As our client base,
including through our consumer
businesses, and our geographical reach expand and the
volume, speed, frequency and complexity of transactions,
the
transactions
especially
requirements to report such transactions on a real-time
basis
increase,
developing and maintaining our operational systems and
infrastructure becomes more challenging, and the risk of
systems or human error
in connection with such
transactions increases, as well as the potential consequences
of such errors due to the speed and volume of transactions
involved and the potential difficulty associated with
discovering such errors quickly enough to limit the resulting
consequences.

Our
financial, accounting, data processing or other
operational systems and facilities may fail to operate
properly or become disabled as a result of events that are
wholly or partially beyond our control, such as a spike in
transaction volume, adversely affecting our ability to
process these transactions or provide these services. We
must continuously update these systems to support our
operations and growth and to respond to changes in
regulations and markets, and invest heavily in systemic
controls and training to ensure that such transactions do
not violate applicable rules and regulations or, due to errors
in processing such transactions, adversely affect markets,
our clients and counterparties or us.

Goldman Sachs 2018 Form 10-K

T H E G O L D M A N S A C H S G R O U P ,

I N C . A N D S U B S I D I A R I E S

Enhancements and updates to systems, as well as the
requisite training,
including in connection with the
integration of new businesses, entail significant costs and
create risks associated with implementing new systems and
integrating them with existing ones.

The use of computing devices and phones is critical to the
work done by our employees and the operation of our
systems and businesses and those of our clients and our
third-party service providers and vendors. Fundamental
security flaws in computer chips found in many types of
these computing devices and phones have been reported in
the past and may be discovered in the future. Addressing
this and similar issues could be costly and affect the
performance of
these businesses and systems, and
operational risks may be incurred in applying fixes and
there may still be residual security risks.

Additionally, although the prevalence and scope of
applications of distributed ledger technology and similar
technologies is growing, the technology is also nascent and
may be vulnerable to cyber attacks or have other inherent
weaknesses. We may be, or may become, exposed to risks
related to distributed ledger technology through our
facilitation of clients’ activities involving financial products
linked to distributed ledger technology, such as blockchain
or cryptocurrencies, our investments in companies that seek
to develop platforms based on distributed ledger
technology, and the use of distributed ledger technology by
third-party vendors, clients, counterparties, clearing houses
and other financial intermediaries.

always

are not

Notwithstanding the proliferation of
technology and
technology-based risk and control systems, our businesses
ultimately rely on people as our greatest resource, and,
from time-to-time,
they make mistakes or engage in
violations of applicable policies, laws, rules or procedures
that
immediately by our
caught
technological processes or by our controls and other
procedures, which are intended to prevent and detect such
errors or violations. These can include calculation errors,
mistakes in addressing emails, errors in software or model
development or implementation, or simple errors in
judgment, as well as intentional efforts to ignore or
circumvent applicable policies, laws, rules or procedures.
Human errors and malfeasance,
even if promptly
discovered and remediated, can result in material losses and
liabilities for us.

In addition, we face the risk of operational failure or
significant operational delay,
termination or capacity
constraints of any of the clearing agents, exchanges, clearing
houses or other financial intermediaries we use to facilitate
our securities and derivatives transactions, and as our
interconnectivity with our clients grows, we increasingly face
the risk of operational failure or significant operational delay
with respect to our clients’ systems.

Goldman Sachs 2018 Form 10-K

In recent years, there has been significant consolidation
among clearing agents, exchanges and clearing houses and
an increasing number of derivative transactions are now or
in the near future will be cleared on exchanges, which has
increased our exposure to operational failure or significant
operational delay, termination or capacity constraints of
the particular financial
intermediaries that we use and
could affect our ability to find adequate and cost-effective
alternatives in the event of any such failure, delay,
termination or constraint. Industry consolidation, whether
among market participants or financial
intermediaries,
increases the risk of operational failure or significant
operational delay as disparate complex systems need to be
integrated, often on an accelerated basis.

cause

entity may

Furthermore, the interconnectivity of multiple financial
institutions with central agents, exchanges and clearing
these entities,
houses, and the increased centrality of
failure at one
increases the risk that an operational
institution or
an industry-wide
operational failure that could materially impact our ability
to conduct business. Any such failure, termination or
constraint could adversely affect our ability to effect
transactions, service our clients, manage our exposure to
risk or expand our businesses or result in financial loss or
impairment of our liquidity,
liability to our clients,
disruption of our businesses, regulatory intervention or
reputational damage.

communications,

cable or other

Despite the resiliency plans and facilities we have in place,
our ability to conduct business may be adversely impacted
by a disruption in the infrastructure that supports our
businesses and the communities in which we are located.
This may include a disruption involving electrical, satellite,
internet,
undersea
transportation or other services facilities used by us, our
employees or third parties with which we conduct business,
including cloud service providers. These disruptions may
occur as a result of events that affect only our buildings or
systems or those of such third parties, or as a result of
events with a broader impact globally, regionally or in the
cities where those buildings or systems are located,
including, but not limited to, natural disasters, war, civil
unrest,
terrorism, economic or political developments,
pandemics and weather events.

In addition, although we seek to diversify our third-party
vendors to increase our resiliency, we are also exposed to
the risk that a disruption or other information technology
event at a common service provider to our vendors could
impede their ability to provide products or services to us.
We may not be able to effectively monitor or mitigate
operational risks relating to our vendors’ use of common
service providers.

T H E G O L D M A N S A C H S G R O U P ,

I N C . A N D S U B S I D I A R I E S

Nearly all of our employees in our primary locations,
including the New York metropolitan area, London,
Bengaluru, Hong Kong, Tokyo and Salt Lake City, work in
close proximity to one another, in one or more buildings.
to maintain business
efforts
Notwithstanding our
continuity, given that our headquarters and the largest
concentration of our employees are in the New York
metropolitan area, and our two principal office buildings in
the New York area both are located on the waterfront of
the Hudson River, depending on the intensity and longevity
of the event, a catastrophic event impacting our New York
metropolitan area offices,
including a terrorist attack,
extreme weather event or other hostile or catastrophic
event, could negatively affect our business. If a disruption
occurs in one location and our employees in that location
are unable to occupy our offices or communicate with or
travel to other locations, our ability to service and interact
with our clients may suffer, and we may not be able to
successfully implement contingency plans that depend on
communication or travel.

A failure to protect our computer systems, networks
and information, and our clients’ information, against
cyber attacks and similar threats could impair our
ability to conduct our businesses, result in the
theft or destruction of confidential
disclosure,
information, damage our reputation and cause losses.

and

other

reporting

organizations

Our operations rely on the secure processing, storage and
transmission of confidential and other information in our
computer systems and networks. There have been a number
of highly publicized cases involving financial services
consumer-based companies, governmental
companies,
agencies
the
unauthorized disclosure of client, customer or other
confidential information in recent years, as well as cyber
attacks involving the dissemination, theft and destruction
of corporate information or other assets, as a result of
failure to follow procedures by employees or contractors or
as a result of actions by third parties, including actions by
foreign governments. There have also been several highly
publicized cases where hackers have requested “ransom”
for not disclosing customer
payments
information or for restoring access to information or
systems.

in exchange

The

and data

increasing migration

We are regularly the target of attempted cyber attacks,
including denial-of-service attacks, and must continuously
monitor and develop our systems to protect our technology
infrastructure
from misappropriation or
corruption. We may face an increasing number of
attempted cyber attacks as we expand our mobile- and
other internet-based products and services, as well as our
usage of mobile and cloud technologies and as we provide
more of these services to a greater number of individual
consumers.
firm
communication and other platforms from firm-provided
devices to employee-owned devices presents additional
to our
risks of
interconnectivity with third-party vendors
(and their
respective service providers), central agents, exchanges,
clearing houses and other financial institutions, we could be
adversely impacted if any of them is subject to a successful
cyber attack or other information security event. These
effects could include the loss of access to information or
services from the third party subject to the cyber attack or
other information security event, which could, in turn,
interrupt certain of our businesses.

In addition, due

cyber attacks.

the

especially because

Despite our efforts to ensure the integrity of our systems
and information, we may not be able to anticipate, detect or
implement effective preventive measures against all cyber
threats,
techniques used are
increasingly sophisticated, change frequently and are often
not recognized until launched. Cyber attacks can originate
from a variety of sources, including third parties who are
affiliated with or sponsored by foreign governments or are
involved with organized crime or terrorist organizations.
Third parties may also attempt to place individuals within
the firm or induce employees, clients or other users of our
systems to disclose sensitive information or provide access
to our data or that of our clients, and these types of risks
may be difficult to detect or prevent.

Although we take protective measures and endeavor to
modify them as circumstances warrant, our computer
systems, software and networks may be vulnerable to
unauthorized access, misuse, computer viruses or other
malicious code, cyber attacks on our vendors and other
events that could have a security impact. Due to the
complexity and interconnectedness of our systems, the
process of enhancing our protective measures can itself
create a risk of systems disruptions and security issues.

Goldman Sachs 2018 Form 10-K

T H E G O L D M A N S A C H S G R O U P ,

I N C . A N D S U B S I D I A R I E S

If one or more of such events occur, this potentially could
jeopardize our or our clients’ or counterparties’ confidential
and other information processed and stored in, and
transmitted through, our computer systems and networks,
or otherwise cause interruptions or malfunctions in our,
our clients’, our counterparties’ or third parties’ operations,
which could impact their ability to transact with us or
otherwise result in legal or regulatory action, significant
losses or reputational damage. In addition, such an event
could persist for an extended period of time before being
detected,
could take
following detection,
considerable time for us to obtain full and reliable
the extent, amount and type of
information about
information compromised. During the course of an
investigation, we may not know the full impact of the event
and how to remediate it, and actions, decisions and
mistakes that are taken or made may further increase the
negative effects of the event on our business, results of
operations and reputation.

and,

The increased use of mobile and cloud technologies can
heighten these and other operational risks. We expect to
expend significant additional resources on an ongoing basis
to modify our protective measures and to investigate and
remediate vulnerabilities or other exposures, but
these
measures may be ineffective and we may be subject to legal
or regulatory action, and financial losses that are either not
insured against or not fully covered through any insurance
maintained by us. Certain aspects of the security of such
technologies are unpredictable or beyond our control, and
the failure by mobile technology and cloud service providers
to adequately safeguard their systems and prevent cyber
attacks could disrupt our operations and result
in
misappropriation, corruption or loss of confidential and
other information. In addition, there is a risk that encryption
and other protective measures, despite their sophistication,
may be defeated, particularly to the extent
that new
computing technologies vastly increase the speed and
computing power available.

We routinely transmit and receive personal, confidential and
proprietary information by email and other electronic means.
We have discussed and worked with clients, vendors, service
providers, counterparties and other third parties to develop
secure transmission capabilities and protect against cyber
attacks, but we do not have, and may be unable to put in
place, secure capabilities with all of our clients, vendors,
service providers, counterparties and other third parties and
we may not be able to ensure that these third parties have
appropriate controls in place to protect the confidentiality of
the information. An interception, misuse or mishandling of
personal, confidential or proprietary information being sent
to or received from a client, vendor, service provider,
counterparty or other third party could result in legal
liability, regulatory action and reputational harm.

Goldman Sachs 2018 Form 10-K

Group Inc. is a holding company and is dependent for
liquidity on payments from its subsidiaries, many of
which are subject to restrictions.

Group Inc. is a holding company and, therefore, depends
on dividends, distributions and other payments from its
subsidiaries to fund dividend payments and to fund all
payments on its obligations, including debt obligations.
Many of our subsidiaries, including our broker-dealer and
bank subsidiaries, are subject to laws that restrict dividend
payments or authorize regulatory bodies to block or reduce
the flow of funds from those subsidiaries to Group Inc.

transactions,

increased capital

In addition, our broker-dealer and bank subsidiaries are
subject to restrictions on their ability to lend or transact
with affiliates and to minimum regulatory capital and other
requirements, as well as restrictions on their ability to use
funds deposited with them in brokerage or bank accounts
to fund their businesses. Additional restrictions on related-
party
and liquidity
requirements and additional limitations on the use of funds
on deposit in bank or brokerage accounts, as well as lower
earnings, can reduce the amount of funds available to meet
the obligations of Group Inc., including under the FRB’s
source of strength requirement, and even require Group
Inc. to provide additional funding to such subsidiaries.
Restrictions or regulatory action of that kind could impede
access to funds that Group Inc. needs to make payments on
its obligations,
including debt obligations, or dividend
payments. In addition, Group Inc.’s right to participate in a
distribution of assets upon a subsidiary’s liquidation or
reorganization is subject
the
subsidiary’s creditors.

to the prior claims of

There has been a trend towards increased regulation and
supervision of our subsidiaries by the governments and
regulators in the countries in which those subsidiaries are
located or do business. Concerns about protecting clients
and creditors of financial institutions that are controlled by
persons or entities located outside of the country in which
such entities are located or do business have caused or may
cause a number of governments and regulators to take
additional steps to “ring fence” or require internal total
loss-absorbing capacity at such entities in order to protect
clients and creditors of such entities in the event of financial
difficulties involving such entities. The result has been and
may continue to be additional limitations on our ability to
efficiently move capital and liquidity among our affiliated
entities, thereby increasing the overall level of capital and
liquidity required by us on a consolidated basis.

T H E G O L D M A N S A C H S G R O U P ,

I N C . A N D S U B S I D I A R I E S

other

to certain exceptions.

Furthermore, Group Inc. has guaranteed the payment
obligations of certain of its subsidiaries, including GS&Co.
and GS Bank USA, subject
In
addition, Group Inc. guarantees many of the obligations of
a
its
transaction-by-transaction basis,
as negotiated with
counterparties. These guarantees may require Group Inc. to
provide substantial funds or assets to its subsidiaries or
their creditors or counterparties at a time when Group Inc.
is in need of liquidity to fund its own obligations.

consolidated

subsidiaries

The requirements for Group Inc. and GS Bank USA to
develop and submit recovery and resolution plans to
regulators, and the incorporation of feedback received from
regulators, may require us to increase capital or liquidity
levels or issue additional long-term debt at Group Inc. or
particular subsidiaries or otherwise incur additional or
duplicative operational or other costs at multiple entities,
and may reduce our ability to provide Group Inc.
guarantees of the obligations of our subsidiaries or raise
debt at Group Inc. Resolution planning may also impair
our ability to structure our intercompany and external
activities in a manner that we may otherwise deem most
operationally efficient. Furthermore, arrangements
to
facilitate our resolution planning may cause us to be subject
to additional taxes. Any such limitations or requirements
would be in addition to the legal and regulatory restrictions
described above on our ability to engage in capital actions
or make intercompany dividends or payments.

See “Business — Regulation” in Part I, Item 1 of this
Form 10-K for further information about regulatory
restrictions.

regulatory

application of

and
The
requirements in the U.S. 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.

strategies

As described in “Business — Regulation — Banking
Supervision and Regulation — Insolvency of an Insured
Depository Institution or a Bank Holding Company,” if the
FDIC is appointed as receiver under OLA, the rights of
Group Inc.’s creditors would be determined under OLA,
and substantial differences exist in the rights of creditors
between OLA and the U.S. Bankruptcy Code, including the
right of the FDIC under OLA to disregard the strict priority
of creditor claims in some circumstances, which could have
a material adverse effect on debtholders.

things,

The FDIC has announced that a single point of entry
strategy may be a desirable strategy under OLA to resolve a
large financial institution such as Group Inc. in a manner
that would, among other
impose losses on
shareholders, debtholders and other creditors of the top-tier
BHC (in our case, Group Inc.), while the BHC’s subsidiaries
may continue to operate. It is possible that the application
of the single point of entry strategy under OLA, in which
Group Inc. would be the only entity to enter resolution
proceedings (and its material broker-dealer, bank and other
operating entities would not enter resolution proceedings),
would result in greater losses to Group Inc.’s security
holders (including holders of our fixed rate, floating rate
and indexed debt securities), than the losses that would
result from the application of a bankruptcy proceeding or a
different resolution strategy, such as a multiple point of
entry resolution strategy for Group Inc. and certain of its
material subsidiaries.

Assuming Group Inc. entered resolution proceedings and
that support from Group Inc. to its subsidiaries was
sufficient to enable the subsidiaries to remain solvent, losses
at the subsidiary level would be transferred to Group Inc.
and ultimately borne by Group Inc.’s security holders,
third-party creditors of Group Inc.’s subsidiaries would
receive full recoveries on their claims, and Group Inc.’s
security holders (including our shareholders, debtholders
and other unsecured creditors) could face significant and
possibly complete losses. In that case, Group Inc.’s security
holders would face losses while the third-party creditors of
Group Inc.’s subsidiaries would incur no losses because the
subsidiaries would continue to operate and would not enter
resolution or bankruptcy proceedings. In addition, holders
of Group Inc.’s eligible long-term debt and holders of
Group Inc.’s other debt securities could face losses ahead of
its other similarly situated creditors in a resolution under
OLA if the FDIC exercised its right, described above, to
disregard the priority of creditor claims.

OLA also provides the FDIC with authority to cause
creditors and shareholders of the financial company (such
as Group Inc.)
in receivership to bear losses before
taxpayers are exposed to such losses, and amounts owed to
the U.S. government would generally receive a statutory
payment priority over the claims of private creditors,
including senior creditors.

Goldman Sachs 2018 Form 10-K

T H E G O L D M A N S A C H S G R O U P ,

I N C . A N D S U B S I D I A R I E S

In addition, under OLA, claims of creditors (including
debtholders) could be satisfied through the issuance of
equity or other securities in a bridge entity to which Group
Inc.’s assets are transferred. If such a securities-for-claims
exchange were implemented, there can be no assurance that
the value of the securities of the bridge entity would be
sufficient to repay or satisfy all or any part of the creditor
claims for which the securities were exchanged. While the
FDIC has issued regulations to implement OLA, not all
aspects of how the FDIC might exercise this authority are
known and additional rulemaking is possible.

In addition, certain jurisdictions, including the U.K. and the
E.U., have implemented, or are considering, changes to
resolution regimes to provide resolution authorities with
the ability to recapitalize a failing entity by writing down its
unsecured debt or converting its unsecured debt into equity.
Such “bail-in” powers are intended to enable the
recapitalization of a failing institution by allocating losses
to its shareholders and unsecured debtholders.
If the
intercompany funding we provide to our subsidiaries is
“bailed in,” Group Inc.’s claims on its subsidiaries would
be subordinated to the claims of the subsidiaries’ third-
party creditors or written down. U.S. regulators are
considering and non-U.S. authorities have adopted
requirements that certain subsidiaries of large financial
institutions maintain minimum amounts of total
loss-
absorbing capacity that would pass losses up from the
subsidiaries to the top-tier BHC and, ultimately, to security
holders of the top-tier BHC in the event of failure.

The application of Group Inc.’s proposed resolution
strategy could result in greater losses for Group Inc.’s
security holders.

In our resolution plan, Group Inc. would be resolved under
the U.S. Bankruptcy Code. The strategy described in our
resolution plan is a variant of the single point of entry
strategy: Group Inc. and Goldman Sachs Funding LLC
(Funding IHC), a wholly-owned, direct subsidiary of Group
Inc., would recapitalize and provide liquidity to certain
major subsidiaries, including through the forgiveness of
intercompany indebtedness, the extension of the maturities
intercompany indebtedness and the extension of
of
additional
strategy were
successful, creditors of some or all of Group Inc.’s major
subsidiaries would receive full recoveries on their claims,
while Group Inc.’s security holders could face significant
and possibly complete losses.

intercompany loans.

this

To facilitate the execution of our resolution plan, we
In exchange for an unsecured
formed Funding IHC.
subordinated funding note and equity interest, Group Inc.
transferred
and
substantially all of its global core liquid assets (GCLA) to
Funding IHC, and agreed to transfer additional GCLA
above prescribed thresholds.

intercompany

receivables

certain

Goldman Sachs 2018 Form 10-K

the

and

financial

terminate

automatically

We also put in place a Capital and Liquidity Support
Agreement (CLSA) among Group Inc., Funding IHC and
our major subsidiaries. Under the CLSA, Funding IHC has
provided Group Inc. with a committed line of credit that
allows Group Inc. to draw sufficient funds to meet its cash
needs during the ordinary course of business. In addition, if
our
resources deteriorate so severely that
resolution may be imminent, (i) the committed line of credit
unsecured
will
subordinated funding note will automatically be forgiven,
(ii) all
intercompany receivables owed by the major
subsidiaries to Group Inc. will be transferred to Funding
IHC or their maturities will be extended to five years,
(iii) Group Inc. will be obligated to transfer substantially all
of its remaining intercompany receivables and GCLA (other
than an amount to fund anticipated bankruptcy expenses)
to Funding IHC, and (iv) Funding IHC will be obligated to
provide capital and liquidity support
to the major
subsidiaries. Group Inc.’s and Funding IHC’s obligations
under the CLSA are secured pursuant to a related security
agreement. Such actions would materially and adversely
affect Group Inc.’s liquidity. As a result, during a period of
severe stress, Group Inc. might commence bankruptcy
proceedings at an earlier time than it otherwise would if the
CLSA and related security agreement had not been
implemented.

its guarantee obligations

If Group Inc.’s proposed resolution strategy were
successful, Group Inc.’s security holders could face losses
while the third-party creditors of Group Inc.’s major
subsidiaries would incur no losses because
those
subsidiaries would continue to operate and not enter
resolution or bankruptcy proceedings. As part of the
strategy, Group Inc. could also seek to elevate the priority
of
relating to its major
subsidiaries’ derivative contracts or transfer them to
another entity so that cross-default and early termination
rights would be stayed under the ISDA Universal Protocol
or U.S. ISDA Protocol (ISDA Protocols), as applicable,
which would result in holders of Group Inc.’s eligible long-
term debt and holders of Group Inc.’s other debt securities
those
incurring losses ahead of
guarantee obligations. It is also possible that holders of
Group Inc.’s eligible long-term debt and other debt
securities could incur losses ahead of other similarly
situated creditors.

the beneficiaries of

T H E G O L D M A N S A C H S G R O U P ,

I N C . A N D S U B S I D I A R I E S

If Group Inc.’s proposed resolution strategy were not
successful, Group Inc.’s financial condition would be
adversely impacted and Group Inc.’s security holders,
including debtholders, may as a consequence be in a worse
position than if the strategy had not been implemented. In
all cases, any payments to debtholders are dependent on
our ability to make such payments and are therefore subject
to our credit risk.

As a result of our recovery and resolution planning
processes,
including incorporating feedback from our
regulators, we may incur increased operational, funding or
other costs and face limitations on our ability to structure
our internal organization or engage in internal or external
activities in a manner that we may otherwise deem most
operationally efficient.

Our businesses, profitability and liquidity may be
adversely affected by Brexit.

In March 2017, the U.K. notified the European Council of
its decision to leave the E.U. (Brexit). As discussed in
this
“Business — Regulation” in Part
Form 10-K there is considerable uncertainty as to the
regulatory framework that will govern transactions and
business undertaken by our U.K. subsidiaries in the E.U.,
both in the near term and the long term. As a result, we face
numerous risks that could adversely affect how we conduct
our businesses or our profitability and liquidity.

Item 1 of

Our principal E.U. operating subsidiaries, GSI, GSIB and
GSAMI, are incorporated and headquartered in the U.K.
They all currently benefit from non-discriminatory access
to E.U. clients and infrastructure based on E.U. treaties and
E.U. legislation, including arrangements for cross-border
“passporting” and the establishment of E.U. branches.
Because the Withdrawal Agreement has not been ratified by
the U.K. and E.U. Parliaments, it is uncertain whether GSI,
GSIB and GSAMI will continue to benefit from the existing
following
access arrangements
March 29, 2019, the date on which the U.K. is scheduled to
leave the E.U. Further, even if the Withdrawal Agreement is
ratified, there is uncertainty regarding the terms of the long-
term trading relationship between the E.U. and the U.K.,
including the terms of access to each other’s financial
markets.

financial

services

for

In a hard Brexit scenario or as otherwise necessary, our
German bank subsidiary, GSBE, will act as our main
operating subsidiary in the E.U. and will assume certain
functions that can no longer be efficiently and effectively
performed by our U.K. operating subsidiaries, including
GSI, GSIB and GSAMI. Implementing this strategy could
materially adversely affect the manner in which we operate
certain businesses in Europe, require us to restructure
certain of our operations and expose us to higher
operational, regulatory and compliance costs, higher taxes,
higher subsidiary-level capital and liquidity requirements,
additional restrictions on intercompany transactions, and
new restrictions on the ability of our subsidiaries to share
personal data, including client data, all of which could
adversely affect our liquidity and profitability.

GSBE has not been one of our main operating subsidiaries
in the E.U. Depending on the outcome, Brexit could
necessitate a rapid and significant expansion in the scope of
GSBE’s activities, as well as its headcount, balance sheet,
and capital and funding needs. Although we have invested
significant resources to plan for and address Brexit, there
can be no assurance that we will be able to successfully
execute our strategy. In addition, even if we are able to
successfully execute our strategy, we face the risk that
Brexit could have a disproportionately adverse effect on our
E.U operations compared to some of our competitors who
have more extensive pre-existing operations in the E.U.
outside of the U.K.

In addition, Brexit has created an uncertain political and
economic environment in the U.K., and may create such
environments in other E.U. member states. Political and
economic uncertainty has in the past led to, and the
outcome of Brexit could lead to, declines in market liquidity
and activity levels, volatile market conditions, a contraction
of available credit, changes in interest rates or exchange
rates, weaker economic growth and reduced business
confidence all of which could adversely impact our
business.

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.

We are exposed to the risk that third parties that owe us
money, securities or other assets will not perform their
obligations. These parties may default on their obligations
to us due to bankruptcy, lack of liquidity, operational
failure or other reasons. A failure of a significant market
participant, or even concerns about a default by such an
institution, could lead to significant liquidity problems,
losses or defaults by other institutions, which in turn could
adversely affect us.

Goldman Sachs 2018 Form 10-K

T H E G O L D M A N S A C H S G R O U P ,

I N C . A N D S U B S I D I A R I E S

We are also subject to the risk that our rights against third
parties may not be enforceable in all circumstances. In
addition, deterioration in the credit quality of third parties
whose securities or obligations we hold,
including a
deterioration in the value of collateral posted by third
parties to secure their obligations to us under derivative
contracts and loan agreements, could result in losses and/or
adversely affect our ability to rehypothecate or otherwise
use those securities or obligations for liquidity purposes.

A significant downgrade in the credit ratings of our
counterparties could also have a negative impact on our
results. While in many cases we are permitted to require
additional collateral from counterparties that experience
financial difficulty, disputes may arise as to the amount of
collateral we are entitled to receive and the value of pledged
assets. The termination of contracts and the foreclosure on
collateral may subject us to claims for the improper exercise
of our rights. Default rates, downgrades and disputes with
counterparties as to the valuation of collateral increase
significantly in times of market stress, increased volatility
and illiquidity.

As part of our clearing and prime brokerage activities, we
finance our clients’ positions, and we could be held
responsible for the defaults or misconduct of our clients.
Although we regularly review credit exposures to specific
clients and counterparties and to specific industries,
countries and regions that we believe may present credit
from events or
risk may arise
concerns, default
circumstances that are difficult to detect or foresee.

Concentration of risk increases the potential
significant
in
underwriting, investing and lending activities.

for
our market-making,

losses

Concentration of risk increases the potential for significant
losses in our market-making, underwriting, investing and
lending activities. The number and size of such transactions
may affect our results of operations in a given period.
Moreover, because of concentration of risk, we may suffer
losses even when economic and market conditions are
generally favorable for our competitors. Disruptions in the
credit markets can make it difficult to hedge these credit
exposures effectively or economically. In addition, we
extend large commitments as part of our credit origination
activities.

Goldman Sachs 2018 Form 10-K

Rules adopted under the Dodd-Frank Act, and similar rules
adopted in other jurisdictions, require issuers of certain
asset-backed securities and any person who organizes and
initiates certain asset-backed securities transactions to
retain economic exposure to the asset, which has affected
the cost of and structures used in connection with these
securitization activities. Our inability to reduce our credit
risk by selling, syndicating or securitizing these positions,
including during periods of market stress, could negatively
affect our results of operations due to a decrease in the fair
value of the positions, including due to the insolvency or
bankruptcy of the borrower, as well as the loss of revenues
associated with selling such securities or loans.

In the ordinary course of business, we may be subject to a
concentration of credit risk to a particular counterparty,
borrower, issuer, including sovereign issuers, or geographic
area or group of related countries, such as the E.U., and a
failure or downgrade of, or default by, such entity could
negatively impact our businesses, perhaps materially, and
the systems by which we set limits and monitor the level of
our credit exposure to individual entities, industries and
countries may not
function as we have anticipated.
Regulatory reform, including the Dodd-Frank Act, has led
to increased centralization of trading activity through
particular clearing houses, central agents or exchanges,
which has significantly increased our concentration of risk
with respect to these entities. While our activities expose us
to many different industries, counterparties and countries,
we routinely execute a high volume of transactions with
counterparties engaged in financial services activities,
including brokers and dealers, commercial banks, clearing
houses, exchanges and investment funds. This has resulted
in significant credit concentration with respect to these
counterparties.

The financial services industry is both highly
competitive and interrelated.

our products

in the
and

The financial services industry and all of our businesses are
intensely competitive, and we expect them to remain so. We
compete on the basis of a number of factors, including
and services,
transaction execution,
innovation, reputation, creditworthiness and price. There
has been substantial consolidation and convergence among
industry. This
financial
companies
the
hastened
convergence
consolidation
globalization of the securities and other financial services
markets. As a result, we have had to commit capital to
support our international operations and to execute large
global transactions. To the extent we expand into new
business areas and new geographic regions, we will face
competitors with more experience and more established
relationships with clients,
and industry
participants in the relevant market, which could adversely
affect our ability to expand.

services
has

regulators

T H E G O L D M A N S A C H S G R O U P ,

I N C . A N D S U B S I D I A R I E S

adopted

recently adopted
Governments and regulators have
regulations,
compensation
taxes,
imposed
restrictions or otherwise put forward various proposals that
have or may impact our ability to conduct certain of our
businesses in a cost-effective manner or at all in certain or
all jurisdictions, including proposals relating to restrictions
on the type of activities in which financial institutions are
permitted to engage. These or other similar rules, many of
which do not apply to all our U.S. or non-U.S. competitors,
could impact our ability to compete effectively.

Pricing and other competitive pressures in our businesses
have continued to increase, particularly in situations where
some of our competitors may seek to increase market share
by reducing prices. For example,
in connection with
investment banking and other assignments, in response to
competitive pressure we have experienced, we have
extended and priced credit at levels that may not always
fully compensate us for the risks we take.

The financial services industry is highly interrelated in that
a significant volume of transactions occur among a limited
number of members of that industry. Many transactions are
syndicated to other financial
institutions and financial
institutions are often counterparties in transactions. This
has led to claims by other market participants and
regulators that such institutions have colluded in order to
manipulate markets or market prices, including allegations
that antitrust laws have been violated. While we have
extensive procedures and controls that are designed to
identify and prevent such activities, allegations of such
activities, particularly by regulators, can have a negative
reputational impact and can subject us to large fines and
settlements, and potentially significant penalties, including
treble damages.

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.

A number of our recent and planned business initiatives and
expansions of existing businesses may bring us into contact,
directly or indirectly, with individuals and entities that are
not within our traditional client and counterparty base and
expose us to new asset classes and new markets. For
example, we continue to transact business and invest in new
regions, including a wide range of emerging and growth
markets. Furthermore,
in a number of our businesses,
including where we make markets, invest and lend, we
directly or indirectly own interests in, or otherwise become
affiliated with the ownership and operation of public
services, such as airports, toll roads and shipping ports, as
well as physical commodities and commodities infrastructure
components, both within and outside the U.S.

We have increased and intend to further increase our
consumer-oriented deposit-taking and lending activities. To
the extent we engage in such activities or similar consumer-
oriented activities, we could face additional compliance,
legal and regulatory risk, increased reputational risk and
increased operational risk due to, among other things,
higher transaction volumes and significantly increased
retention and transmission of
customer and client
information. As a result of a recent information security
event involving a credit reporting agency, identity fraud
may increase and industry practices may change in a
manner
financial
institutions, such as us, to evaluate the creditworthiness of
consumers.

it more difficult

that makes

for

New business initiatives expose us to new and enhanced
risks,
including risks associated with dealing with
governmental entities, reputational concerns arising from
dealing with less sophisticated clients, counterparties and
investors, greater regulatory scrutiny of these activities,
increased credit-related, market, sovereign and operational
risks, risks arising from accidents or acts of terrorism, and
reputational concerns with the manner in which certain
assets are being operated or held or in which we interact with
these counterparties. Legal, regulatory and reputational risks
may also exist in connection with activities and transactions
involving new products or markets where there is regulatory
uncertainty or where there are different or conflicting
regulations depending on the regulator or the jurisdiction
involved, particularly where transactions in such products
may involve multiple jurisdictions.

In recent years, we have invested, and may continue to
invest, more in businesses that we expect will generate a
higher level of more consistent revenues. Such investments
may not be successful or have returns similar to our other
businesses.

results may be adversely affected by the

Our
composition of our client base.

Our client base is not the same as that of our major
competitors. Our businesses may have a higher or lower
percentage of clients in certain industries or markets than
some or all of our competitors. Therefore, unfavorable
industry developments or market conditions affecting
certain industries or markets may result in our businesses
underperforming relative to similar businesses of a
competitor if our businesses have a higher concentration of
clients in such industries or markets. For example, our
market-making businesses have a higher percentage of
clients with actively managed assets than our competitors
and such clients have been disproportionately affected
during recent periods of low volatility.

Goldman Sachs 2018 Form 10-K

transactions,

including
Derivative contracts and other
secondary bank loan purchases and sales, entered into with
third parties are not always confirmed by the counterparties
or settled on a timely basis. While the transaction remains
unconfirmed or during any delay in settlement, we are subject
to heightened credit and operational risk and in the event of a
default may find it more difficult to enforce our rights.

the terms of

instruments, disputes about

In addition, as new complex derivative products are
created, covering a wider array of underlying credit and
other
the
underlying contracts could arise, which could impair our
ability to effectively manage our risk exposures from these
products and subject us to increased costs. The provisions
of the Dodd-Frank Act requiring central clearing of credit
derivatives and other OTC derivatives, or a market shift
toward standardized derivatives, could reduce the risk
associated with such transactions, but under certain
circumstances could also limit our ability to develop
derivatives that best suit the needs of our clients and to
hedge our own risks, and could adversely affect our
profitability and increase our credit exposure to central
clearing platforms.

Certain of our businesses, our funding and financial
products may be adversely affected by changes in or
the discontinuance of
Interbank Offered Rates
(IBORs), in particular LIBOR.

The FCA, which regulates LIBOR, has announced that it
will not compel panel banks to contribute to LIBOR after
2021. It is likely that banks will not continue to provide
submissions for the calculation of LIBOR after 2021 and
possibly prior to then. Similarly, it is not possible to know
whether LIBOR will continue to be viewed as an acceptable
market benchmark, what rate or rates may become
accepted alternatives to LIBOR, or what the effect of any
such changes in views or alternatives may have on the
financial markets for LIBOR-linked financial instruments.
Similar statements have been made with respect to other
IBORs.

T H E G O L D M A N S A C H S G R O U P ,

I N C . A N D S U B S I D I A R I E S

less

simply

favorable or

adverse
Correspondingly,
developments or market conditions involving industries or
markets in a business where we have a lower concentration
of clients in such industry or market may also result in our
underperforming relative to a similar business of a
competitor that has a higher concentration of clients in such
industry or market. For example, we have a smaller
corporate client base in our market-making businesses than
many of our peers and therefore such competitors may
benefit more from increased activity by corporate clients.

Derivative transactions and delayed settlements may
expose us to unexpected risk and potential losses.

are

negotiated

We are party to a large number of derivative transactions,
these derivative
including credit derivatives. Many of
instruments
and
individually
non-standardized, which can make exiting, transferring or
settling positions difficult. Many credit derivatives require
that we deliver to the counterparty the underlying security,
loan or other obligation in order to receive payment. In a
number of cases, we do not hold the underlying security,
loan or other obligation and may not be able to obtain the
underlying security, loan or other obligation. This could
cause us to forfeit the payments due to us under these
contracts or result in settlement delays with the attendant
credit and operational risk, as well as increased costs to us.

Derivative transactions may also involve the risk that
documentation has not been properly executed,
that
executed agreements may not be enforceable against the
counterparty, or that obligations under such agreements
may not be able to be “netted” against other obligations
with such counterparty. In addition, counterparties may
claim that such transactions were not appropriate or
authorized.

As a signatory to the ISDA Protocols and being subject to the
FRB’s and FDIC’s rules on QFCs and similar rules in other
jurisdictions, we may not be able to exercise remedies against
counterparties and, as this new regime has not yet been
tested, we may suffer risks or losses that we would not have
expected to suffer if we could immediately close out
transactions upon a termination event. Various non-U.S.
regulators have also proposed regulations contemplated by
the ISDA Universal Protocol, and those implementing
regulations may result in additional limitations on our ability
to exercise remedies against counterparties. The impact of
the ISDA Protocols and these rules and regulations will
depend on the development of market practices and
structures, and they extend to repurchase agreements and
other instruments that are not derivative contracts.

Goldman Sachs 2018 Form 10-K

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and the

regarding

taking of
IBORs
Uncertainty
discretionary actions or negotiation of fallback provisions
could result in pricing volatility, loss of market share in
certain products, adverse tax or accounting impacts,
compliance, legal and operational costs and risks associated
with client disclosures, as well as systems disruption, model
disruption and other business continuity issues. In addition,
uncertainty relating to IBORs could result in increased
low
capital requirements for the firm given potential
transaction volumes, a lack of
limited
observability for exposures linked to IBORs or any
emerging successor
incidents
associated with changes in and the discontinuance of
IBORs.

rates and operational

liquidity or

The language in our contracts and financial instruments
that define IBORs, in particular LIBOR, have developed
over time and may have various events that trigger when a
successor rate to the designated rate would be selected. If a
trigger is satisfied, contracts and financial instruments may
give the calculation agent (which may be us) discretion over
the successor rate or benchmark to be selected. As a result,
there is considerable uncertainty as to how the financial
services
the discontinuance of
designated rates in contracts and financial instruments or
such designated rates ceasing to be acceptable reference
rates. This uncertainty could ultimately result in client
disputes
proper
interpretation of our IBOR-based contracts and financial
instruments.

industry will address

surrounding

litigation

and

the

amounts

Further, the discontinuation of an IBOR, changes in an
IBOR or changes in market acceptance of any IBOR as a
reference rate may also adversely affect the yield on loans or
securities held by us, amounts paid on securities we have
issued,
received and paid on derivative
instruments we have entered into, the value of such loans,
securities or derivative instruments, the trading market for
the terms of new loans being made using
securities,
different or modified reference rates, our ability to
effectively use derivative instruments to manage risk, or the
availability or cost of our floating-rate funding and our
exposure to fluctuations in interest rates.

Certain of our businesses and our funding may be
adversely affected by changes in other reference
rates, currencies, indexes, baskets or ETFs to which
products we offer or funding that we raise are linked.

All of our floating rate funding pays interest by reference to
rates, such as LIBOR or Federal Funds. In addition, many of
the products that we own or that we offer, such as structured
notes, warrants, swaps or security-based swaps, pay interest
or determine the principal amount to be paid at maturity or
in the event of default by reference to rates or by reference to
an index, currency, basket, ETF or other financial metric (the
underlier). In the event that the composition of the underlier
is significantly changed, by reference to rules governing such
underlier or otherwise, the underlier ceases to exist (for
example, in the event that a country withdraws from the
Euro or links its currency to or delinks its currency from
another currency or benchmark, or an index or ETF sponsor
materially alters the composition of an index or ETF) or the
underlier ceases to be recognized as an acceptable market
benchmark, we may experience adverse effects consistent
with those described above for IBORs.

Our businesses may be adversely affected if we are
unable to hire and retain qualified employees.

Our performance is largely dependent on the talents and
efforts of highly skilled people; therefore, our continued
ability to compete effectively in our businesses, to manage
our businesses effectively and to expand into new
businesses and geographic areas depends on our ability to
attract new talented and diverse employees and to retain
and motivate our existing employees. Factors that affect
our ability to attract and retain such employees include the
level and composition of our compensation and benefits,
and our reputation as a successful business with a culture of
fairly hiring, training and promoting qualified employees.
As a significant portion of the compensation that we pay to
our employees is in the form of year-end discretionary
compensation, a significant portion of which is in the form
of deferred equity-related awards, declines
in our
profitability, or in the outlook for our future profitability,
as well as regulatory limitations on compensation levels and
terms, can negatively impact our ability to hire and retain
highly qualified employees.

Competition from within the financial services industry and
from businesses outside the financial services industry,
including the technology industry, for qualified employees
has often been intense. Recently, we have experienced
increased competition in hiring and retaining employees to
address the demands of new regulatory requirements,
expanding
our
technology initiatives. This is also the case in emerging and
growth markets, where we are often competing for
qualified employees with entities that have a significantly
greater presence or more extensive experience in the region.

consumer-oriented

businesses

and

Goldman Sachs 2018 Form 10-K

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Changes in law or regulation in jurisdictions in which our
operations are located that affect taxes on our employees’
income, or the amount or composition of compensation,
may also adversely affect our ability to hire and retain
qualified employees in those jurisdictions.

liability or significant
Substantial civil or criminal
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.

Item 1 of

As described further in “Business — Regulation —
Compensation Practices” in Part
this
Form 10-K, our compensation practices are subject to
review by, and the standards of, the FRB. As a large global
financial and banking institution, we are subject
to
limitations on compensation practices (which may or may
not affect our competitors) by the FRB, the PRA, the FCA,
regulators worldwide. These
the FDIC and other
limitations, including any imposed by or as a result of
future legislation or regulation, may require us to alter our
compensation practices in ways that could adversely affect
our ability to attract and retain talented employees.

We may be adversely affected by increased
governmental and regulatory scrutiny or negative
publicity.

sentiment

and public

Governmental scrutiny from regulators, legislative bodies
and law enforcement agencies with respect to matters
relating to compensation, our business practices, our past
actions and other matters has increased dramatically in the
past several years. The financial crisis and the current
political
financial
institutions has resulted in a significant amount of adverse
press coverage, as well as adverse statements or charges by
regulators or other government officials. Press coverage and
other public
form of
wrongdoing (including, in some cases, press coverage and
public statements that do not directly involve us) often
result in some type of investigation by regulators, legislators
and law enforcement officials or in lawsuits.

that assert

statements

regarding

some

We face significant legal risks in our businesses, and the
volume of claims and amount of damages and penalties
claimed in litigation and regulatory proceedings against
financial institutions remain high. See Notes 18 and 27 to
the consolidated financial statements in Part II, Item 8 of
this Form 10-K for information about certain legal and
regulatory proceedings and investigations in which we are
involved. Our experience has been that legal claims by
customers and clients increase in a market downturn and
that employment-related claims increase following periods
in which we have reduced our headcount. Additionally,
governmental entities have been and are plaintiffs in certain
of the legal proceedings in which we are involved, and we
may face future civil or criminal actions or claims by the
same or other governmental entities, as well as follow-on
civil litigation that is often commenced after regulatory
settlements.

large

cases,

affect
in

several
some

settlements
including,

financial
by
Significant
us, with
in
institutions,
governmental entities have been publicly announced. The
trend of large settlements with governmental entities may
the outcomes
adversely
financial
especially where
similar
institutions
governmental officials have announced that
the large
settlements will be used as the basis or a template for other
settlements. The
enforcement
environment makes it difficult to estimate probable losses,
which can lead to substantial disparities between legal
reserves and subsequent actual settlements or penalties.

for other

regulatory

uncertain

actions,

the proceeding,

the ultimate outcome of

Responding to these investigations and lawsuits, regardless
is time-
of
consuming and expensive and can divert the time and effort
of our senior management from our business. Penalties and
fines sought by regulatory authorities have increased
substantially over the last several years, and certain
regulators have been more likely in recent years to
commence enforcement actions or to advance or support
legislation targeted at
the financial services industry.
Adverse publicity, governmental scrutiny and legal and
enforcement proceedings can also have a negative impact
on our reputation and on the morale and performance of
our employees, which could adversely affect our businesses
and results of operations.

Recently, claims of collusion or anti-competitive conduct
have become more common. Civil cases have been brought
against financial
institutions (including us) alleging bid
rigging, group boycotts or other anti-competitive practices.
Antitrust laws generally provide for joint and several
liability and treble damages. These claims have in the past,
and may in the future, result in significant settlements.

We are subject
to laws and regulations worldwide,
including the FCPA and the U.K. Bribery Act, relating to
corrupt and illegal payments to, and hiring practices with
regard to, government officials and others. Violation of
these or similar laws and regulations could result in
significant monetary penalties, severe restrictions on our
activities and damage to our reputation.

Goldman Sachs 2018 Form 10-K

T H E G O L D M A N S A C H S G R O U P ,

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Certain law enforcement authorities have recently required
admissions of wrongdoing, and, in some cases, criminal
pleas, as part of the resolutions of matters brought by them
against financial institutions or their employees. Any such
resolution of a criminal matter involving us or our
employees could lead to increased exposure to civil
litigation, could adversely affect our reputation, could
result in penalties or limitations on our ability to conduct
our activities generally or in certain circumstances and
could have other negative effects.

facts

In addition, the U.S. Department of Justice (DOJ) has
announced a policy of requiring companies to provide
relating to the
relevant
investigators with all
individuals substantially involved in or responsible for the
alleged misconduct in order to qualify for any cooperation
credit in criminal investigations of corporate wrongdoing,
or maximum cooperation credit in civil investigations of
in us
corporate wrongdoing. This policy may result
incurring increased fines and penalties
the DOJ
determines
that we have not provided sufficient
information about applicable individuals in connection
with an investigation, as well as increased costs in
responding to DOJ investigations. It is possible that other
governmental authorities will adopt similar policies.

The growth of electronic trading and the introduction
of new trading technology may adversely affect our
business and may increase competition.

transactions are

to our business and our
Technology is fundamental
industry. The growth of electronic trading and the
introduction of new technologies is changing our businesses
and presenting us with new challenges. Securities, futures
increasingly occurring
and options
electronically, both on our own systems and through other
alternative trading systems, and it appears that the trend
toward alternative trading systems will continue. Some of
compete with us,
trading systems
these alternative
particularly our exchange-based market-making activities,
and we may experience continued competitive pressures in
these and other areas. In addition, the increased use by our
clients of low-cost electronic trading systems and direct
electronic access to trading markets could cause a reduction
in commissions and spreads. As our clients increasingly use
our systems to trade directly in the markets, we may incur
liabilities as a result of their use of our order routing and
execution infrastructure. We have invested significant
resources into the development of electronic trading
systems and expect to continue to do so, but there is no
assurance that the revenues generated by these systems will
yield an adequate return on our investment, particularly
given the generally lower commissions arising from
electronic trades.

Our commodities activities, particularly our physical
commodities activities, subject us to extensive
regulation and involve certain potential
risks,
including environmental, reputational and other risks
that may expose us to significant liabilities and costs.

As part of our commodities business, we purchase and sell
certain physical commodities, arrange for their storage and
transport, and engage in market making of commodities.
The commodities involved in these activities may include
crude oil, refined oil products, natural gas, liquefied natural
gas, electric power, agricultural products, metals (base and
precious), minerals
(including unenriched uranium),
emission credits, coal, freight and related products and
indices.

In our
investing and lending businesses, we make
investments in and finance entities that engage in the
storage and transportation of numerous
production,
commodities,
commodities
referenced above.

including many of

the

These activities subject us and/or the entities in which we
invest to extensive and evolving federal, state and local
energy, environmental, antitrust and other governmental
laws and regulations worldwide, including environmental
laws and regulations relating to, among others, air quality,
water quality, waste management,
transportation of
hazardous substances, natural resources, site remediation
and health and safety. Additionally, rising climate change
concerns may lead to additional regulation that could
increase the operating costs and adversely affect
the
profitability of certain of our investments.

There may be substantial costs in complying with current or
future laws and regulations relating to our commodities-
related activities and investments. Compliance with these
laws and regulations could require significant commitments
of capital toward environmental monitoring, renovation of
storage facilities or transport vessels, payment of emission
fees and carbon or other taxes, and application for, and
holding of, permits and licenses.

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Commodities involved in our intermediation activities and
investments are also subject to the risk of unforeseen or
catastrophic events, which are likely to be outside of our
control, including those arising from the breakdown or
failure of transport vessels, storage facilities or other
equipment or processes or other mechanical malfunctions,
fires,
leaks, spills or release of hazardous substances,
performance below expected levels of output or efficiency,
terrorist attacks, extreme weather events or other natural
disasters or other hostile or catastrophic events. In addition,
we rely on third-party suppliers or service providers to
perform their contractual obligations and any failure on
their part, including the failure to obtain raw materials at
reasonable prices or
store
commodities, could expose us to costs or losses. Also, while
we seek to insure against potential risks, we may not be able
to obtain insurance to cover some of these risks and the
insurance that we have may be inadequate to cover our
losses.

to safely transport or

The occurrence of any of such events may prevent us from
performing under our agreements with clients, may impair
our operations or financial results and may result in
litigation, regulatory action, negative publicity or other
reputational harm.

We may also be required to divest or discontinue certain of
these activities for regulatory or legal reasons. For example,
the FRB has proposed regulations that could impose
requirements on certain
significant additional capital
commodity-related activities. If that occurs, we may receive
a value that is less than the then carrying value, as we may
be unable to exit these activities in an orderly transaction.

In conducting our businesses around the world, we
are subject to political, economic, legal, operational
and other risks that are inherent in operating in many
countries.

In conducting our businesses and maintaining and
supporting our global operations, we are subject to risks of
possible nationalization, expropriation, price controls,
capital controls, exchange controls and other restrictive
governmental actions, as well as the outbreak of hostilities
or acts of terrorism. For example, sanctions have been
imposed by the U.S. and the E.U. on certain individuals and
companies in Russia. In many countries, the laws and
regulations applicable to the securities and financial
services industries and many of the transactions in which
we are involved are uncertain and evolving, and it may be
difficult for us to determine the exact requirements of local
laws in every market. Any determination by local regulators
that we have not acted in compliance with the application
of local laws in a particular market or our failure to develop
effective working relationships with local regulators could
have a significant and negative effect not only on our
businesses in that market, but also on our reputation
generally. Further, in some jurisdictions a failure to comply
with laws and regulations may subject us and our personnel
not only to civil actions, but also criminal actions. We are
also subject to the enhanced risk that transactions we
structure might not be legally enforceable in all cases.

Our businesses and operations are increasingly expanding
throughout the world, including in emerging and growth
markets, and we expect this trend to continue. Various
emerging and growth market countries have experienced
severe economic and financial disruptions,
including
significant devaluations of their currencies, defaults or
threatened defaults on sovereign debt, capital and currency
exchange controls, and low or negative growth rates in
their economies, as well as military activity, civil unrest or
acts of terrorism. The possible effects of any of these
conditions include an adverse impact on our businesses and
increased volatility in financial markets generally.

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I N C . A N D S U B S I D I A R I E S

While business and other practices throughout the world
differ, our principal entities are subject in their operations
worldwide to rules and regulations relating to corrupt and
illegal payments, hiring practices and money laundering, as
well as laws relating to doing business with certain
individuals, groups and countries, such as the FCPA, the
USA PATRIOT Act and the U.K. Bribery Act. While we
have invested and continue to invest significant resources in
training and in compliance monitoring, the geographical
diversity of our operations, employees, clients and
customers, as well as the vendors and other third parties
that we deal with, greatly increases the risk that we may be
found in violation of such rules or regulations and any such
violation could subject us to significant penalties or
adversely affect our reputation.

In addition, there have been a number of highly publicized
cases around the world, involving actual or alleged fraud or
other misconduct by employees in the financial services
industry in recent years, and we run the risk that employee
misconduct could occur. This misconduct may include
intentional efforts to ignore or circumvent applicable
policies, rules or procedures. This misconduct has included
and may also include in the future the theft of proprietary
information,
is not
always possible to deter or prevent employee misconduct
and the precautions we take to prevent and detect this
activity have not been and may not be effective in all cases.
See
example, “1Malaysia Development Berhad
(1MDB)-Related Matters” in Note 27 to the consolidated
financial statements in Part II, Item 8 of this Form 10-K.

including proprietary software.

for

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.

The occurrence of unforeseen or catastrophic events,
including the emergence of a pandemic, such as the Ebola
or Zika viruses, or other widespread health emergency (or
concerns over the possibility of such an emergency),
terrorist attacks, extreme terrestrial or solar weather events
or other natural disasters, could create economic and
financial disruptions, and could lead to operational
difficulties (including travel limitations) that could impair
our ability to manage our businesses.

Item 1B. Unresolved Staff Comments

There are no material unresolved written comments that
were received from the SEC staff 180 days or more before
the end of our fiscal year relating to our periodic or current
reports under the Exchange Act.

Item 2. Properties

Our principal executive offices are located at 200 West
Street, New York, New York and consist of approximately
2.1 million square feet. The building is located on a parcel
leased from Battery Park City Authority pursuant to a
ground lease. Under the lease, Battery Park City Authority
holds title to all
including the office
improvements,
building, subject to Goldman Sachs’ right of exclusive
possession and use until June 2069, the expiration date of
the lease. Under the terms of the ground lease, we made a
lump sum ground rent payment
in June 2007 of
$161 million for rent through the term of the lease. We have
offices at 30 Hudson Street in Jersey City, New Jersey,
which we own and which include approximately
1.6 million square feet of office space. We have additional
offices and commercial space in the U.S. and elsewhere in
the Americas, which together consist of approximately
2.6 million square feet of leased and owned space.

In Europe, the Middle East and Africa, we have offices that
total approximately 1.6 million square feet of leased and
owned space. Our European headquarters is located in
London at Peterborough Court, pursuant to a lease that we
can terminate in 2019. In total, we have offices with
approximately 1.2 million square feet in London, relating
to various properties. We have substantially completed the
construction of a 826,000 square foot office in London. We
entered into a sale and leaseback agreement
for the
property, which closed in January 2019. We expect initial
occupancy during 2019.

In Asia, Australia and New Zealand, we have offices with
approximately 3.1 million square feet. Our headquarters in
this region are in Tokyo, at the Roppongi Hills Mori
Tower, and in Hong Kong, at the Cheung Kong Center. In
Japan, we currently have offices with approximately
219,000 square feet, the majority of which have leases that
will expire in 2023. In Hong Kong, we currently have
offices with approximately 300,000 square feet,
the
majority of which will expire in 2026.

In the preceding paragraphs, square footage figures are
provided only for properties that are used in the operation
of our businesses.

Our occupancy expenses include costs for 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 space
capacity in relation to current and projected headcount levels.
We may incur exit costs in the future if we (i) reduce our space
capacity or (ii) commit to, or occupy, new properties in
locations in which we operate and dispose of existing space
that had been held for potential growth. These costs may be
material to our operating results in a given period.

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Item 3. Legal Proceedings

We are involved in a number of judicial, regulatory and
arbitration proceedings concerning matters arising in
connection with the conduct of our businesses. Many of
these proceedings are in early stages, and many of these
cases seek an indeterminate amount of damages. However,
we believe, based on currently available information, that
the results of such proceedings, in the aggregate, will not
have a material adverse effect on our financial condition,
but may be material to our operating results in a given
period. Given the range of litigation and investigations
presently under way, our litigation expenses can be
expected to remain high. See “Management’s Discussion
and Analysis of Financial Condition and Results of
Operations — Use of Estimates” in Part II, Item 7 of this
Form 10-K. See Notes 18 and 27 to the consolidated
financial statements in Part II, Item 8 of this Form 10-K for
information about certain judicial, regulatory and legal
proceedings.

Item 4. Mine Safety Disclosures

Not applicable.

PART II
Registrant’s
Item 5. Market
Common Equity, Related Stockholder
Matters and Issuer Purchases of
Equity Securities

for

The principal market on which our common stock is traded
is the NYSE under the symbol “GS.” Information relating
to the performance of our
common stock from
December 31, 2013 through December 31, 2018 is set forth
in “Supplemental Financial Information — Common Stock
Performance” in Part II, Item 8 of this Form 10-K. As of
February 8, 2019, there were 7,137 holders of record of our
common stock.

The table below presents purchases made by or on behalf of
Group Inc. or any “affiliated purchaser” (as defined in
Rule 10b-18(a)(3) under the Exchange Act) of our common
stock during the fourth quarter of 2018.

Total
Shares
Purchased

Average
Price Paid
Per Share

Total Shares
Purchased as
Part of a Publicly
Announced
Program

Maximum Shares
That May Yet Be
Purchased Under
the Program

2018

October
November
December
Total

3,440,242
2,182,707
100
5,623,049

$219.52
$226.69
$178.34

3,440,242
2,182,707
100
5,623,049

35,862,341
33,679,634
33,679,534

Since March 2000, our Board has approved a repurchase
program authorizing repurchases of up to 555 million
shares of our common stock. The repurchase program is
effected primarily through regular open-market purchases
(which may include repurchase plans designed to comply
with Rule 10b5-1), the amounts and timing of which are
determined primarily by our current and projected capital
position, but which may also be influenced by general
market conditions and the prevailing price and trading
volumes of our common stock. The repurchase program
has no set expiration or termination date. Prior to
repurchasing common stock, we must receive confirmation
that the FRB does not object to such capital action.

Information relating to compensation plans under which
our equity securities are authorized for issuance is presented
in Part III, Item 12 of this Form 10-K.

Item 6. Selected Financial Data

The Selected Financial Data table is set forth in Part II,
Item 8 of this Form 10-K.

our

financial

conditions,

The declaration of dividends by Group Inc. is subject to the
discretion of the Board of Directors of Group Inc. (Board).
Our Board will take into account such matters as general
capital
business
requirements, contractual, legal and regulatory restrictions
on the payment of dividends by us to our shareholders or by
our subsidiaries to us, the effect on our debt ratings and
such other factors as our Board may deem relevant. The
holders of our common stock share proportionately on a
per share basis in all dividends and other distributions on
common stock declared by our Board.

results,

Goldman Sachs 2018 Form 10-K

T H E G O L D M A N S A C H S G R O U P ,
Management’s Discussion and Analysis

I N C . A N D S U B S I D I A R I E S

Item 7. Management’s Discussion
and Analysis of Financial Condition
and Results of Operations
Introduction

The Goldman Sachs Group, Inc. (Group Inc. or parent
company), a Delaware corporation,
together with its
consolidated subsidiaries, is a leading global investment
banking, securities and investment management firm that
provides a wide range of financial services to a substantial
includes corporations,
and diversified client base that
financial
and individuals.
institutions,
Founded in 1869, we are headquartered in New York and
maintain offices in all major financial centers around the
world.

governments

When we use the terms “we,” “us” and “our,” we mean
Group Inc. and its consolidated subsidiaries. We report our
activities in four business segments: Investment Banking,
Institutional Client Services, Investing & Lending and
Investment Management. See “Results of Operations” for
further information about our business segments.

References to “this Form 10-K” are to our Annual Report
on Form 10-K for the year ended December 31, 2018. All
references to “the consolidated financial statements” or
“Supplemental Financial Information” are to Part II, Item 8
of this Form 10-K. All references to 2018, 2017 and 2016
refer to our years ended, or the dates, as the context
requires, December 31, 2018, December 31, 2017 and
December 31, 2016, 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.

investigations

loss-absorbing capacity (TLAC)

These statements include statements other than historical
information or statements of current conditions 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, leverage, liquidity, long-term
debt and total
rules
applicable to banks and bank holding companies (BHCs),
the impact of the U.S. Dodd-Frank Wall Street Reform and
Consumer Protection Act
(Dodd-Frank Act) on our
businesses and operations, and various legal proceedings,
governmental
mortgage-related
contingencies as set forth in both Notes 27 and 18 to the
consolidated financial statements in Part II, Item 8 of this
Form 10-K, as well as statements about the results of our
Dodd-Frank Act and our stress tests, statements about the
objectives and effectiveness of our business continuity plan,
information security program,
risk management and
liquidity policies, statements about our resolution plan and
resolution strategy and their implications for our debtholders
and other stakeholders, statements about the design and
effectiveness of our resolution capital and liquidity models
and our triggers and alerts framework, 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,
statements about our
investment banking transaction
backlog, statements about our expected tax rate, statements
about the estimated impact of new accounting standards,
statements about the level of capital actions, statements
about our expected interest income, statements about our
credit
statements about our preparations
following the U.K.’s notification to the European Council of
its decision to leave the E.U. (Brexit), including our plan to
manage a hard Brexit scenario, statements about
the
replacement of LIBOR and other IBORs and the objectives of
our program related to the transition from IBORs to
alternative risk-free reference rates, and statements about the
adequacy of our allowance for credit losses.

exposures,

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 described in “Risk Factors” in Part I,
Item 1A of this Form 10-K and “Cautionary Statement
Pursuant to the U.S. Private Securities Litigation Reform Act
of 1995” in Part I, Item 1 of this Form 10-K.

Goldman Sachs 2018 Form 10-K

T H E G O L D M A N S A C H S G R O U P ,
Management’s Discussion and Analysis

I N C . A N D S U B S I D I A R I E S

Executive Overview

2018 versus 2017. We generated net earnings of
$10.46 billion for 2018, significantly higher compared with
$4.29 billion for 2017. Diluted earnings per common share
was $25.27 for 2018, significantly higher compared with
$9.01 for 2017. Return on average common shareholders’
equity (ROE) was 13.3% for 2018, compared with 4.9%
for 2017. Book value per common share was $207.36 as of
compared with
14.6% higher
December
December 2017.

2018,

In 2018, we recorded a $487 million income tax benefit as
we finalized the estimated income tax expense of
$4.40 billion related to the Tax Cuts and Jobs Act (Tax
Legislation) recorded in the fourth quarter of 2017.
Excluding these items, diluted earnings per common share
was $24.02 for 2018, compared with $19.76 for 2017, and
ROE was 12.7% for 2018, compared with 10.8% for
2017. See “Results of Operations — Financial Overview”
for further information about non-GAAP measures that
exclude the impact of Tax Legislation. See “Results of
Operations — Provision for Taxes” for further information
about Tax Legislation.

Net revenues were $36.62 billion for 2018, 12% higher
than 2017, reflecting higher net revenues across all
segments. Net revenues in Institutional Client Services were
higher, due to higher net revenues in both Equities and
Fixed Income, Currency
and Commodities Client
Execution (FICC Client Execution). Net revenues in
Investing & Lending increased, driven by significantly
higher net interest income in debt securities and loans. Net
revenues were also higher in Investment Management,
primarily due to significantly higher incentive fees, and
Investment Banking, reflecting strong net revenues in both
Financial Advisory and Underwriting during 2018.

Provision for credit losses was $674 million for 2018,
compared with $657 million for 2017, as the higher
provision for credit losses primarily related to consumer
loan growth in 2018 was partially offset by an impairment
of approximately $130 million on a secured loan in 2017.

Operating expenses were $23.46 billion for 2018, 12%
higher than 2017, primarily due to higher compensation
and benefits expenses,
reflecting improved operating
performance, and significantly higher net provisions for
litigation and regulatory proceedings.

Goldman Sachs 2018 Form 10-K

capital

returned $4.52 billion of

to common
We
shareholders during 2018,
including $3.29 billion of
common share repurchases and $1.23 billion in common
stock dividends. As of December 2018, our Common
Equity Tier 1 (CET1) ratio as calculated in accordance with
the Standardized approach was 13.3% and the Basel III
Advanced approach was 13.1%. See Note 20 to the
consolidated financial statements for further information
about our capital ratios.

2017 versus 2016. We generated net earnings of
$4.29 billion for 2017, a decrease of 42%, compared with
$7.40 billion in 2016. Diluted earnings per common share
was $9.01 for 2017, a decrease of 45%, compared with
$16.29 for 2016. ROE was 4.9% for 2017, compared with
9.4% for 2016. Book value per common share was $181.00
as of December 2017, 0.8% lower compared with
December 2016.

Net revenues were $32.73 billion for 2017, 6% higher than
in
to significantly higher net
2016, due
Investing & Lending and higher net revenues in both
Investment Banking and Investment Management. These
increases were partially offset by lower net revenues in
reflecting
Services,
Institutional Client
significantly lower net revenues in FICC Client Execution.

primarily

revenues

Provision for credit losses was $657 million for 2017,
compared with $182 million for 2016, reflecting an
increase in impairments, which included an impairment of
approximately $130 million on a secured loan in 2017, and
higher provision for credit losses primarily related to
consumer loan growth.

Operating expenses were $20.94 billion for 2017, 3%
higher than 2016, primarily driven by slightly higher
compensation and benefits expenses and our investments to
fund growth.

capital

returned $7.90 billion of

to common
We
shareholders during 2017,
including $6.72 billion of
common share repurchases and $1.18 billion in common
stock dividends. As of December 2017, our CET1 ratio as
calculated in accordance with the Standardized approach
was 12.1% and the Basel III Advanced approach was
10.9%, in each case reflecting the applicable transitional
provisions. See Note 20 to the consolidated financial
statements for further information about our capital ratios.

T H E G O L D M A N S A C H S G R O U P ,
Management’s Discussion and Analysis

I N C . A N D S U B S I D I A R I E S

Business Environment

Global
During 2018, real gross domestic product (GDP) growth
appeared to increase in the U.S. but generally decreased in
other major economies. In advanced economies, growth in
the Euro area, U.K., and Japan each was lower and, in
emerging markets, growth in China decreased slightly.
Economic activity in several major emerging market
economies was impacted by concerns about the vulnerability
of these economies to a stronger U.S. dollar and higher U.S.
Treasury rates. Global asset markets experienced significant
periods of volatility in the first and fourth quarters of 2018
driven by concerns about the prospect of slowing global
growth and tighter monetary policy. The U.S. presidential
administration implemented and proposed new tariffs on
imports from China, which prompted retaliatory measures,
and rising global trade tensions remained a meaningful
source of uncertainty affecting asset prices throughout 2018.
Political uncertainty in Europe increased as a new coalition
government formed in Italy in May 2018 and the future of
the relationship between the U.K. and E.U. remained
uncertain. During 2018, the U.S. Federal Reserve increased
the target federal funds rate four times and the Bank of
England increased its official
rate in
August 2018, while the Bank of Japan introduced forward
guidance and expanded the permissible range of fluctuations
for the 10-year interest rate.

interest

target

industry-wide announced and
In investment banking,
completed mergers and acquisitions volumes increased
compared with 2017, while industry-wide underwriting
transactions decreased.

United States
In the U.S., real GDP appeared to increase by 2.9% in
2018, compared with 2.2% in 2017, as growth in total
fixed investment and government spending increased.
Measures of consumer confidence were stronger on average
compared with the prior year, and the unemployment rate
declined to 3.9% as of December 2018. Housing starts,
sales and prices increased compared with 2017. Measures
of headline inflation were stable compared with 2017,
while measures of core inflation (excluding food and
energy) increased. The U.S. Federal Reserve increased the
target federal funds rate by 25 basis points in each quarter
of 2018 to a range of 2.25% to 2.50% as of
December 2018. The yield on the 10-year U.S. Treasury
note ended the year at 2.69%, 29 basis points higher
compared with the end of 2017. The price of crude oil
(WTI) ended the year at approximately $45 per barrel, a
decrease of 25% compared with the end of 2017. In equity
markets, the Dow Jones Industrial Average decreased by
6%,
the S&P 500 Index decreased by 6% and the
NASDAQ Composite Index decreased by 4% compared
with the end of 2017.

Europe
In the Euro area, real GDP increased by 1.8% in 2018,
compared with 2.4% in 2017, while measures of inflation
remained low. The European Central Bank maintained its
main refinancing operations rate at 0% and its deposit rate
at (0.40)%, but reduced its monthly asset purchases to a
pace of €15 billion per month after September 2018 and
through December 2018, after which net asset purchases
ended. Measures of unemployment decreased, and the Euro
depreciated by 4% against the U.S. dollar compared with
the end of 2017. Following the formation of a new coalition
government in May 2018, political uncertainty in Italy
remained high and the yield on 10-year government bonds
in Italy increased significantly. Elsewhere in the Euro area,
yields on 10-year government bonds mostly decreased. In
equity markets, the DAX Index decreased by 18%, the
Euro Stoxx 50 Index decreased by 14% and the CAC 40
Index decreased by 11% compared with the end of 2017. In
March 2018, it was announced that terms were agreed
upon for the transitional period of the U.K.’s withdrawal
from the E.U. and, in November 2018, the U.K. and the
E.U. agreed on a draft Brexit withdrawal agreement.
However, as of the end of the year, there was significant
uncertainty about the future relationship between the U.K.
and the E.U.

In the U.K., real GDP increased by 1.4% in 2018,
compared with 1.8% in 2017. The Bank of England
increased its official bank rate by 25 basis points to 0.75%
in August 2018, and the British pound depreciated by 6%
against the U.S. dollar. The yield on 10-year government
bonds increased by 8 basis points and, in equity markets,
the FTSE 100 Index decreased by 12% compared with the
end of 2017.

Asia
In Japan, real GDP increased by 0.7% in 2018, compared
with 1.9% in 2017. The Bank of Japan maintained its asset
purchase program and continued to target a yield on
10-year government bonds of approximately 0%.
In
July 2018, the Bank of Japan introduced forward guidance
for its interest rate policy and expanded the permissible
range of deviations from the 0% target yield for the 10-year
government bond. The yield on 10-year government bonds
decreased by 3 basis points, the U.S. dollar depreciated by
3% against the Japanese yen and the Nikkei 225 Index
decreased by 12% compared with the end of 2017.

In China, real GDP increased by 6.6% in 2018, compared
with 6.8% in 2017. The U.S. dollar appreciated by 6% against
the Chinese yuan compared with the end of 2017, while in
equity markets, the Shanghai Composite Index decreased by
25% and the Hang Seng Index decreased by 14%.

Goldman Sachs 2018 Form 10-K

T H E G O L D M A N S A C H S G R O U P ,
Management’s Discussion and Analysis

I N C . A N D S U B S I D I A R I E S

In India, real GDP appeared to increase by 7.5% in 2018,
compared with 6.3% in 2017. The U.S. dollar appreciated
by 9% against the Indian rupee and the BSE Sensex Index
increased by 6% compared with the end of 2017.

Other Markets
In Brazil, real GDP appeared to increase by 1.2% in 2018,
compared with 1.1% in 2017. The U.S. dollar appreciated
by 17% against the Brazilian real and the Bovespa Index
increased by 15% compared with the end of 2017. In
Russia, real GDP appeared to increase by 2.3% in 2018,
compared with 1.5% in 2017. The U.S. dollar appreciated
by 21% against the Russian ruble and the MOEX Russia
Index increased by 12% compared with the end of 2017.

Critical Accounting Policies

Fair Value
Fair Value Hierarchy. Financial instruments owned and
financial
instruments sold, but not yet purchased (i.e.,
inventory), and certain other financial assets and financial
liabilities, are included 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 earnings. The use of fair value to
measure financial instruments is fundamental to our risk
management practices and is our most critical accounting
policy.

The fair value of a financial instrument is the amount that
would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market
participants at the measurement date. We measure certain
financial assets and 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). In evaluating the significance of a valuation input,
we consider, among other factors, a portfolio’s net risk
exposure to that input. Assets and liabilities are classified in
their entirety based on the lowest level of input that is
significant to their fair value measurement.

Goldman Sachs 2018 Form 10-K

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
liabilities may require appropriate valuation
financial
adjustments that a market participant would require to
arrive at fair value for factors such as counterparty and our
credit quality, funding risk, transfer restrictions, liquidity
and bid/offer spreads.

for

the

evidence

statements

level 3 financial assets,

Instruments classified in level 3 of the fair value hierarchy
are those which require one or more significant inputs that
are not observable. Level 3 financial assets represented
2.4% as of December 2018 and 2.1% as of
December 2017, of our total assets. See Notes 5 through 8
further
to the consolidated financial
information about
including
changes in level 3 financial assets and related fair value
measurements. Absent
contrary,
instruments classified in level 3 of the fair value hierarchy
are initially valued at transaction price, which is considered
to be the best initial estimate of fair value. Subsequent to the
transaction date, we use other methodologies to determine
fair value, which vary based on the type of instrument.
Estimating the fair value of level 3 financial instruments
requires judgments to be made. These judgments include:
‰ Determining the appropriate valuation methodology and/
or model for each type of level 3 financial instrument;
‰ Determining model inputs based on an evaluation of all
relevant
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
independent risk oversight and control functions. This
independent price verification is critical to ensuring that our
financial instruments are properly valued.

T H E G O L D M A N S A C H S G R O U P ,
Management’s Discussion and Analysis

I N C . A N D S U B S I D I A R I E S

Price Verification. All financial instruments at fair value
classified in levels 1, 2 and 3 of the fair value hierarchy are
subject to our independent price verification process. The
objective of price verification is to have an informed and
independent opinion with regard to the valuation of
financial instruments under review. Instruments that have
one or more
inputs which cannot be
corroborated by external market data are classified in
the fair value hierarchy. Price verification
level 3 of
strategies utilized by our independent risk oversight and
control 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.

significant

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

‰ Calibration to Market Comparables. Market-based
transactions are used to corroborate the valuation of
positions with
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
statements
fair value
for
measurements.

information about

further

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

Review of Valuation Models. Our independent model
risk management group (Model Risk Management),
consisting of quantitative professionals who are separate
from model developers, performs an independent model
review and validation process of our valuation models.
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. See “Risk Management — Model Risk
Management” for further information about the review
and validation of our valuation models.

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

indicators,

In the fourth quarter of 2018, we assessed goodwill for
impairment for each of our reporting units by performing a
qualitative assessment. The qualitative assessment required
management to make judgments and to evaluate several
limited to,
factors, which included, but were not
events,
performance
macroeconomic indicators and fair value indicators. Based
on our evaluation of these factors, we determined that it
was more likely than not that the estimated fair value of
each of the reporting units exceeded its respective estimated
carrying value. Therefore, we determined that goodwill for
each reporting unit was not
impaired and that a
quantitative goodwill test was not required.

firm and industry

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

Estimating the fair value of our reporting units requires
management to make judgments. Critical inputs to the fair
value estimates include projected earnings and attributed
equity. There is inherent uncertainty in the projected
earnings. The estimated net book value of each reporting unit
reflects an allocation of total shareholders’ equity and
represents the estimated amount of total shareholders’ equity
required to support the activities of the reporting unit under
currently applicable regulatory capital requirements. See
“Equity Capital Management and Regulatory Capital” for
further information about our capital requirements.

Goldman Sachs 2018 Form 10-K

T H E G O L D M A N S A C H S G R O U P ,
Management’s Discussion and Analysis

I N C . A N D S U B S I D I A R I E S

If we experience a prolonged or severe period of weakness
in the business environment,
financial markets, our
performance or our common stock price, or additional
increases in capital requirements, our goodwill could be
impaired in the future.

Identifiable Intangible Assets. We amortize our
identifiable intangible assets over their estimated useful
lives generally using the straight-line method. 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.

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

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
further information about our identifiable intangible assets.

Recent Accounting Developments

We estimate and record an allowance for credit losses
related to our loans receivable and lending commitments
held for investment. Management’s estimate of credit losses
entails judgment about collectability at the reporting dates,
and there are uncertainties inherent in those judgments. See
Note 9 to the consolidated financial statements for further
information about the allowance for credit losses.

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

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

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

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

Results of Operations

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

Use of Estimates

U.S. GAAP 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 the allowance for credit
losses on loans
receivable and lending commitments held for investment,
provisions for losses that may arise from litigation and
governmental
regulatory
investigations), and provisions for losses that may arise
from tax audits.

proceedings

(including

Goldman Sachs 2018 Form 10-K

T H E G O L D M A N S A C H S G R O U P ,
Management’s Discussion and Analysis

I N C . A N D S U B S I D I A R I E S

Financial Overview
The table below presents an overview of financial results
and selected financial ratios.

$ in millions, except per share amounts
Net revenues
Pre-tax earnings
Net earnings
Net earnings applicable to common

shareholders

Diluted earnings per common share
ROE
ROTE
Net earnings to average total assets
Return on average total shareholders’

equity

Average total shareholders’ equity to

average total assets
Dividend payout ratio

Year Ended December

2018
$36,616
$12,481
$10,459

$ 9,860
$ 25.27
13.3%
14.1%
1.1%

2017
$32,730
$11,132
$ 4,286

$ 3,685
9.01
$
4.9%
5.2%
0.5%

2016
$30,790
$10,304
$ 7,398

$ 7,087
$ 16.29
9.4%
9.9%
0.8%

12.3%

5.0%

8.5%

8.8%
12.5%

9.5%

9.8%
32.2% 16.0%

In the table above:
‰ Dividend payout ratio is calculated by dividing dividends
declared per common share by diluted earnings per
common share.

‰ Net earnings applicable to common shareholders for 2016
included a benefit of $266 million, reflected in preferred
stock dividends, related to the exchange of APEX for shares
of Series E and Series F Preferred Stock. See Note 19 to the
consolidated financial statements for further information.
‰ ROE is calculated by dividing net earnings applicable to
common shareholders by average monthly common
shareholders’ equity. Tangible common shareholders’ equity
is calculated as total shareholders’ equity less preferred
stock, goodwill and identifiable intangible assets. Return on
average tangible common shareholders’ equity (ROTE) is
calculated by dividing net earnings applicable to common
common
shareholders by average monthly tangible
shareholders’ equity. We believe that tangible common
shareholders’ equity is meaningful because it is a measure
that we and investors use to assess capital adequacy and that
ROTE is meaningful because it measures the performance of
businesses consistently, whether they were acquired or
developed internally. Tangible common shareholders’ equity
and ROTE are non-GAAP measures and may not be
comparable to similar non-GAAP measures used by other
companies. Return on average total shareholders’ equity is
calculated by dividing net earnings by average monthly total
shareholders’ equity. The table below presents average
common and total shareholders’ equity,
including the
reconciliation of average total shareholders’ equity to
average tangible common shareholders’ equity.

Average for the Year Ended December

$ in millions
Total shareholders’ equity
Preferred stock
Common shareholders’ equity
Goodwill and identifiable

2018
$ 85,238
(11,253)
73,985

2017
$ 85,959
(11,238)
74,721

2016
$ 86,658
(11,304)
75,354

intangible assets
Tangible common

(4,090)

(4,065)

(4,126)

shareholders’ equity

$ 69,895

$ 70,656

$ 71,228

‰ In 2017, we recorded $4.40 billion of estimated income
tax expense related to Tax Legislation. Excluding this
expense, diluted earnings per common share was $19.76,
ROE was 10.8% and ROTE was 11.4% for 2017. In the
fourth quarter of 2018, we finalized this estimate to
reflect the impact of updated information,
including
subsequent guidance issued by the U.S. Internal Revenue
Service (IRS), resulting in a $487 million income tax
benefit for 2018. Excluding this benefit, diluted earnings
per common share was $24.02, ROE was 12.7% and
ROTE was 13.4% for 2018. We believe that presenting
our results excluding Tax Legislation is meaningful as
excluding the above items increases the comparability of
period-to-period results. See “Results of Operations —
Provision for Taxes” for further information about Tax
Legislation. Diluted earnings per common share, ROE
and ROTE, excluding the impact of the above items
related to Tax Legislation, are non-GAAP measures and
may not be comparable to similar non-GAAP measures
used by other companies. The tables below present the
calculation of net earnings applicable to common
shareholders, diluted earnings per common share and
average common shareholders’ equity, excluding the
impact of the above items related to Tax Legislation.

Year Ended December

in millions, except per share amounts

2018

Net earnings applicable to common shareholders,

$9,860

2017

$3,685

as reported

Impact of Tax Legislation
Net earnings applicable to common shareholders,

(487)

4,400

excluding the impact of Tax Legislation
Divided by average diluted common shares
Diluted earnings per common share, excluding the

$9,373
390.2

$8,085
409.1

impact of Tax Legislation

$24.02

$19.76

$ in millions

Common shareholders’ equity, as reported
Impact of Tax Legislation
Common shareholders’ equity, excluding

the impact of Tax Legislation

Goodwill and identifiable intangible assets
Tangible common shareholders’ equity,

Average for the
Year Ended
December

2018

2017

$73,985
(42)

$74,721
338

73,943
(4,090)

75,059
(4,065)

excluding the impact of Tax Legislation

$69,853

$70,994

Share-Based

to Employee

‰ In 2017, as required, we adopted ASU No. 2016-09,
“Compensation — Stock Compensation (Topic 718) —
Improvements
Payment
Accounting.” The impact of adoption was a reduction to
our provision for taxes of $719 million for 2017, which
increased diluted earnings per
common share by
approximately $1.75 and both ROE and ROTE by
approximately 1.0 percentage points. The impact for 2018
was not material. See Note 3 to the consolidated financial
statements for further information about this ASU.

Goldman Sachs 2018 Form 10-K

T H E G O L D M A N S A C H S G R O U P ,
Management’s Discussion and Analysis

I N C . A N D S U B S I D I A R I E S

Net Revenues
The table below presents net revenues by line item.

$ in millions

2018

2017

2016

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

$ 7,862
6,514
3,199
9,451
5,823
32,849
19,679
15,912
3,767
$36,616

$ 7,371
5,803
3,051
7,660
5,913
29,798
13,113
10,181
2,932
$32,730

$ 6,273
5,407
3,208
9,933
3,382
28,203
9,691
7,104
2,587
$30,790

In the table above:
‰ Investment banking consists of revenues (excluding net
interest)
from financial advisory and underwriting
assignments, as well as derivative transactions directly
related to these assignments. These activities are included
in our Investment Banking segment.

‰ Investment management consists of revenues (excluding
net interest) 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

revenues

consists of

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.

in interest

transactions

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

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.
Provision for credit losses, previously reported in other
principal transactions revenues, is now reported as a
separate line item in the consolidated statements of
earnings. Previously reported amounts have been
conformed to the current presentation.

consists of

Goldman Sachs 2018 Form 10-K

Operating Environment. During 2018, our market-
making activities reflected generally higher levels of volatility
and improved client activity, compared with a low volatility
environment in 2017. In investment banking, industry-wide
mergers and acquisitions volumes increased compared with
transactions
2017, while
industry-wide underwriting
decreased. Our other principal
revenues
benefited from company-specific events, including sales, and
strong corporate performance, while investments in public
equities reflected losses, as global equity prices generally
decreased in 2018, particularly towards the end of the year.
In investment management, our assets under supervision
increased reflecting net inflows in liquidity products, fixed
income assets and equity assets, partially offset by
depreciation in client assets, primarily in equity assets.

transactions

If market-making or investment banking activity levels decline,
or assets under supervision decline, or asset prices continue to
decline, net revenues would likely be negatively impacted. See
“Segment Operating Results” for further information about
the operating environment and material
trends and
uncertainties that may impact our results of operations.

During 2017, generally higher asset prices and tighter credit
spreads were supportive of industry-wide underwriting
activities, investment management performance and other
principal transactions. However, low levels of volatility in
equity, fixed income, currency and commodity markets
continued to negatively affect our market-making activities.

2018 versus 2017
Net revenues in the consolidated statements of earnings were
$36.62 billion for 2018, 12% higher than 2017, primarily
due to significantly higher market making revenues and net
interest income, as well as higher investment management
revenues and investment banking revenues.

Non-Interest Revenues. Investment banking revenues in
the consolidated statements of earnings were $7.86 billion for
2018, 7% higher than 2017. Revenues in financial advisory
were higher, reflecting an increase in industry-wide completed
mergers and acquisitions volumes. Revenues in underwriting
were slightly higher, due to significantly higher revenues in
equity underwriting, driven by initial public offerings,
partially offset by lower revenues in debt underwriting,
reflecting a decline in leveraged finance activity.

in the

revenues

consolidated
Investment management
statements of earnings were $6.51 billion for 2018, 12% higher
than 2017, primarily due to significantly higher incentive fees,
as a result of harvesting. Management and other fees were also
higher, reflecting higher average assets under supervision and
the impact of
the recently adopted revenue recognition
standard, partially offset by shifts in the mix of client assets and
strategies. See Note 3 to the consolidated financial statements
for further information about ASU No. 2014-09, “Revenue
from Contracts with Customers (Topic 606).”

T H E G O L D M A N S A C H S G R O U P ,
Management’s Discussion and Analysis

I N C . A N D S U B S I D I A R I E S

Commissions and fees in the consolidated statements of
earnings were $3.20 billion for 2018, 5% higher than 2017,
reflecting an increase in our listed cash equity and futures
volumes, generally consistent with market volumes.

Market making revenues in the consolidated statements of
earnings were $9.45 billion for 2018, 23% higher than
2017, due to significantly higher revenues in equity
products, interest rate products and commodities. These
increases were partially offset by significantly lower results
in mortgages and lower revenues in credit products.

Other principal transactions revenues in the consolidated
statements of earnings were $5.82 billion for 2018, 2%
lower than 2017, reflecting net losses from investments in
public equities compared with net gains in the prior year,
partially offset by significantly higher net gains from
investments in private equities, driven by company-specific
events, including sales, and corporate performance.

income

interest

Interest

Income. Net

Net
in the
consolidated statements of earnings was $3.77 billion for
2018, 28% higher than 2017, reflecting an increase in
interest income primarily due to the impact of higher interest
rates on collateralized agreements, other interest-earning
assets and deposits with banks, increases in total average
loans receivable and financial instruments owned, and higher
yields on financial instruments owned and loans receivable.
The increase in interest income was partially offset by higher
interest expense primarily due to the impact of higher interest
rates on other interest-bearing liabilities, collateralized
financings, deposits and long-term borrowings, and increases
in total average long-term borrowings and deposits. See
“Statistical Disclosures — Distribution of Assets, Liabilities
and Shareholders’ Equity” for further information about our
sources of net interest income.

2017 versus 2016
Net revenues in the consolidated statements of earnings
were $32.73 billion for 2017, 6% higher than 2016, due to
significantly higher other principal transactions revenues,
and higher
investment
investment banking revenues,
management revenues and net
income. These
increases were partially offset by significantly lower market
making revenues and lower commissions and fees.

interest

completed mergers

Non-Interest Revenues. Investment banking revenues in
the consolidated statements of earnings were $7.37 billion
for 2017, 18% higher than 2016. Revenues in financial
advisory were higher compared with 2016, reflecting an
increase
acquisitions
transactions. Revenues in underwriting were significantly
higher compared with 2016, due to significantly higher
revenues in both debt underwriting, primarily reflecting an
increase in industry-wide leveraged finance activity, and
equity underwriting, reflecting an increase in industry-wide
secondary offerings.

and

Investment management revenues in the consolidated
statements of earnings were $5.80 billion for 2017, 7%
higher than 2016, due to higher management and other
fees, reflecting higher average assets under supervision, and
higher transaction revenues.

Commissions and fees in the consolidated statements of
earnings were $3.05 billion for 2017, 5% lower than 2016,
reflecting a decline in our listed cash equity volumes in the
U.S. Market volumes in the U.S. also declined.

Market making revenues in the consolidated statements of
earnings were $7.66 billion for 2017, 23% lower than
2016, due to significantly lower revenues in commodities,
currencies, credit products,
interest rate products and
equity derivative products. These results were partially
offset by significantly higher revenues in equity cash
products and significantly improved results in mortgages.

Other principal transactions revenues in the consolidated
statements of earnings were $5.91 billion for 2017, 75%
higher than 2016, primarily reflecting a significant increase in
net gains from private equities, which were positively impacted
by company-specific events and corporate performance. In
addition, net gains from public equities were significantly
higher, as global equity prices increased during the year.

income

interest

Interest

Income. Net

Net
in the
consolidated statements of earnings was $2.93 billion for
2017, 13% higher than 2016, reflecting an increase in
interest income primarily due to the impact of higher interest
rates on collateralized agreements, higher interest income
from loans receivable due to higher yields and an increase in
total average loans receivable, an increase in total average
financial
instruments owned, and the impact of higher
interest rates on other interest-earning assets and deposits
with banks. The increase in interest income was partially
offset by higher interest expense primarily due to the impact
of higher interest rates on other interest-bearing liabilities, an
increase in total average long-term borrowings, and the
impact of higher interest rates on interest-bearing deposits,
short-term borrowings and collateralized financings. See
“Statistical Disclosures — Distribution of Assets, Liabilities
and Shareholders’ Equity” for further information about our
sources of net interest income.

Provision for Credit Losses
Provision for credit losses consists of provision for credit
losses on loans receivable and lending commitments held
for investment. See Note 9 to the consolidated financial
statements for further information about the provision for
credit losses.

The table below presents the provision for credit losses.

$ in millions

Provision for credit losses

Year Ended December

2018

$674

2017

$657

2016

$182

Goldman Sachs 2018 Form 10-K

T H E G O L D M A N S A C H S G R O U P ,
Management’s Discussion and Analysis

I N C . A N D S U B S I D I A R I E S

2018 versus 2017. Provision for credit losses in the
consolidated statements of earnings was $674 million for
2018, compared with $657 million for 2017, as the higher
provision for credit losses primarily related to consumer
loan growth in 2018 was partially offset by an impairment
of approximately $130 million on a secured loan in 2017.

2017 versus 2016. Provision for credit losses in the
consolidated statements of earnings was $657 million for
2017, compared with $182 million for 2016, reflecting an
increase in impairments, which included an impairment of
approximately $130 million on a secured loan in 2017, and
higher provision for credit losses primarily related to
consumer loan growth.

Operating Expenses
Our operating expenses are primarily influenced by
compensation, headcount and levels of business activity.
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, the structure of our share-based compensation
programs and the external environment. In addition, see “Use
of Estimates” for further information about expenses that
may arise from litigation and regulatory proceedings.

The table below presents operating expenses by line item
and headcount.

$ in millions

Compensation and benefits
Brokerage, clearing, exchange

and distribution fees

Market development
Communications and technology
Depreciation and amortization
Occupancy
Professional fees
Other expenses
Total operating expenses

Year Ended December

2018

2017

2016

$12,328

$11,653

$11,448

3,200
740
1,023
1,328
809
1,214
2,819
$23,461

2,876
588
897
1,152
733
1,165
1,877
$20,941

2,823
457
809
998
788
1,081
1,900
$20,304

Headcount at period-end

36,600

33,600

32,400

In the table above, the following reclassifications have been
made to previously reported amounts to conform to the
current presentation:
‰ Regulatory-related fees that are paid to exchanges are
now reported in brokerage, clearing, exchange and
distribution fees. Previously such amounts were reported
in other expenses.

‰ Headcount consists of our employees, and excludes
consultants and temporary staff previously reported as
part of total staff. As a result, expenses related to these
consultants and temporary staff are now reported in
professional fees. Previously such amounts were reported
in compensation and benefits expenses.

Goldman Sachs 2018 Form 10-K

2018 versus 2017. Operating expenses in the consolidated
statements of earnings were $23.46 billion for 2018, 12%
higher than 2017. Our efficiency ratio (total operating
expenses divided by total net revenues) for 2018 was
64.1%, compared with 64.0% for 2017.

for

increased,

The increase in operating expenses compared with 2017 was
primarily due to higher compensation and benefits expenses,
reflecting improved operating performance, and significantly
litigation and regulatory
higher net provisions
proceedings. Brokerage, clearing, exchange and distribution
fees were also higher, reflecting an increase in activity levels,
and technology expenses
reflecting higher
expenses related to computing services. In addition, expenses
related to consolidated investments and our digital lending
and deposit platform increased, with the increases primarily
in depreciation and amortization expenses, market
development expenses and other expenses. The increase
compared with 2017 also included $297 million related to
the recently adopted revenue recognition standard. See
Note 3 to the consolidated financial statements for further
information about ASU No. 2014-09, “Revenue from
Contracts with Customers (Topic 606).”

Net provisions for litigation and regulatory proceedings for
2018 were $844 million compared with $188 million for
2017. 2018 included a $132 million charitable contribution
to Goldman Sachs Gives, our donor-advised fund.
Compensation was
reduced to fund this charitable
contribution to Goldman Sachs Gives. We ask our
participating
make
recommendations regarding potential charitable recipients
for this contribution.

managing

directors

As of December 2018, headcount increased 9% compared
with December 2017, reflecting an increase in technology
professionals and investments in new business initiatives.

2017 versus 2016. Operating expenses in the consolidated
statements of earnings were $20.94 billion for 2017, 3%
higher than 2016. Our efficiency ratio for 2017 was 64.0%
compared with 65.9% for 2016.

The increase in operating expenses compared with 2016
was primarily driven by slightly higher compensation and
benefits expenses and our investments to fund growth.
Higher expenses related to consolidated investments and
our digital lending and deposit platform were primarily
included in depreciation and amortization expenses, market
development expenses and other expenses. In addition,
technology expenses increased, reflecting higher expenses
related to cloud-based services and software depreciation,
and professional
increased, primarily related to
consulting costs. These increases were partially offset by
lower net provisions
litigation and regulatory
proceedings, and lower occupancy expenses (primarily
related to exit costs in 2016).

fees

for

T H E G O L D M A N S A C H S G R O U P ,
Management’s Discussion and Analysis

I N C . A N D S U B S I D I A R I E S

Net provisions for litigation and regulatory proceedings for
2017 were $188 million compared with $396 million for
2016. 2017 included a $127 million charitable contribution
to Goldman Sachs Gives, our donor-advised fund.
reduced to fund this charitable
Compensation was
contribution to Goldman Sachs Gives. We ask our
participating
make
recommendations regarding potential charitable recipients
for this contribution.

managing

directors

As of December 2017, headcount increased 4% compared
with December 2016, reflecting an increase in employees of
our digital lending and deposit platform, and in support of
our regulatory efforts.

Provision for Taxes
The effective income tax rate for 2018 was 16.2%, down
from 61.5% for 2017, as 2017 included the estimated impact
of Tax Legislation, which increased our effective income tax
rate by 39.5 percentage points. Additionally, the decrease
compared with 2017 reflected the impact of the lower U.S.
corporate income tax rate in 2018. The estimated impact of
Tax Legislation was an increase in income tax expense of
$4.40 billion for 2017. During 2018, we finalized this
estimate to reflect the impact of updated information,
including subsequent guidance issued by the IRS, resulting in
a $487 million income tax benefit for 2018.

The effective income tax rate for 2017 was 61.5%, up from
28.2% for 2016. The increase compared with 2016 was
primarily due to the estimated impact of Tax Legislation,
which was enacted on December 22, 2017, partially offset
by tax benefits on the settlement of employee share-based
awards in accordance with ASU No. 2016-09.

Effective January 1, 2018, Tax Legislation reduced the U.S.
corporate tax rate to 21%, eliminated tax deductions for
certain expenses and enacted two new taxes, Base Erosion
and Anti-Abuse Tax (BEAT) and Global Intangible Low
Taxed Income (GILTI). BEAT is an alternative minimum
tax that applies to banks that pay more than 2% of total
deductible expenses to certain foreign subsidiaries. GILTI is
effectively a 10.5% tax, before allowable credits for foreign
taxes paid, on the annual taxable income of certain foreign
subsidiaries. Income tax expense associated with GILTI is
recognized as incurred. During 2018,
the IRS issued
proposed regulations relating to BEAT and GILTI. Our
2018 effective income tax rate includes estimates for BEAT
and GILTI that are based on our current interpretation of
these proposed regulations. We do not expect that the
finalization of these proposed regulations will have a
material impact on these estimates.

Based on our current interpretations of the rules and
legislative guidance to date, we expect our 2019 tax rate to
be between 22% and 23%, excluding the impact of equity-
based compensation.

Segment Operating Results
The table below presents the net revenues, provision for
credit losses, operating expenses and pre-tax earnings by
segment.

$ 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
Provision for credit losses
Operating expenses
Pre-tax earnings

Investment Management
Net revenues
Operating expenses
Pre-tax earnings

Total net revenues
Provision for credit losses
Total operating expenses
Total pre-tax earnings

Year Ended December

2018

2017

2016

$ 7,862
4,346
$ 3,516

$13,482
10,351
$ 3,131

$ 8,250
674
3,365
$ 4,211

$ 7,022
5,267
$ 1,755

$36,616
674
23,461
$12,481

$ 7,371
3,526
$ 3,845

$11,902
9,692
$ 2,210

$ 7,238
657
2,796
$ 3,785

$ 6,219
4,800
$ 1,419

$32,730
657
20,941
$11,132

$ 6,273
3,437
$ 2,836

$14,467
9,713
$ 4,754

$ 4,262
182
2,386
$ 1,694

$ 5,788
4,654
$ 1,134

$30,790
182
20,304
$10,304

In the table above:
‰ Provision for credit

losses, previously reported in
is now
Investing & Lending segment net revenues,
reported as a separate line item. Previously reported
amounts
current
have been conformed to the
presentation.

‰ All operating expenses have been allocated to our
segments
contributions of
$132 million for 2018, $127 million for 2017 and
$114 million for 2016.

charitable

except

for

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

Our cost drivers
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, our overall performance, as well as the
individual businesses. Consequently,
performance of
pre-tax margins in one segment of our business may be
significantly affected by the performance of our other
business segments. A description of segment operating
results follows.

Goldman Sachs 2018 Form 10-K

T H E G O L D M A N S A C H S G R O U P ,
Management’s Discussion and Analysis

I N C . A N D S U B S I D I A R I E S

Investment Banking
Our Investment Banking segment consists 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 and acquisition
financing, of a wide range of securities and other financial
instruments, including loans, 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

2018

2017

2016

$3,507

$3,188

$2,932

1,646
2,709
4,355
7,862
4,346
$3,516

1,243
2,940
4,183
7,371
3,526
$3,845

891
2,450
3,341
6,273
3,437
$2,836

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

$ in billions

Year Ended December

2018

2017

2016

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

$1,292
$1,217
$
67
$ 257

$ 877
$ 942
$
69
$ 289

$ 901
$1,215
$
49
$ 271

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

‰ Equity and equity-related offerings includes Rule 144A
and public common stock offerings, convertible offerings
and rights offerings.

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

Goldman Sachs 2018 Form 10-K

Operating Environment. During 2018,
industry-wide
announced and completed mergers and acquisitions activity
was strong and volumes increased compared with 2017.

underwriting,

In
debt
industry-wide
underwriting transactions decreased compared with 2017,
reflecting a challenging market environment for financing
towards the end of 2018. However, demand for initial
public offerings increased compared with 2017.

equity

and

In the future, if industry-wide mergers and acquisitions
volumes decline, or
if equity or debt underwriting
transactions continue to decline, net revenues in Investment
Banking would likely be negatively impacted.

During 2017,
Investment Banking operated in an
environment characterized by solid industry-wide mergers
and acquisitions transactions, although volumes declined
compared with 2016. Industry-wide debt underwriting
offerings
equity
underwriting offerings increased significantly compared
with 2016.

remained strong and industry-wide

2018 versus 2017. Net revenues in Investment Banking
were $7.86 billion for 2018, 7% higher than 2017.

Net revenues in Financial Advisory were $3.51 billion,
10% higher than 2017, reflecting an increase in industry-
wide completed mergers and acquisitions volumes.

Net revenues in Underwriting were $4.36 billion, 4%
higher than 2017, due to significantly higher net revenues in
equity underwriting, driven by initial public offerings,
partially offset by lower net revenues in debt underwriting,
reflecting a decline in leveraged finance activity.

and

regulatory

proceedings,

Operating expenses were $4.35 billion for 2018, 23%
higher than 2017, primarily due to higher net provisions for
litigation
increased
compensation and benefits expenses, reflecting higher net
revenues, and the impact of the recently adopted revenue
recognition standard. Pre-tax earnings were $3.52 billion in
2018, 9% lower than 2017. See Note 3 to the consolidated
financial statements for further information about ASU
No. 2014-09, “Revenue from Contracts with Customers
(Topic 606).”

As of December 2018, our investment banking transaction
backlog increased compared with December 2017,
primarily due to significantly higher estimated net revenues
from potential advisory transactions. Estimated net
revenues from potential debt underwriting transactions
were also higher, while estimated net revenues from equity
underwriting transactions were essentially unchanged.

T H E G O L D M A N S A C H S G R O U P ,
Management’s Discussion and Analysis

I N C . A N D S U B S I D I A R I E S

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.

2017 versus 2016. Net revenues in Investment Banking
were $7.37 billion for 2017, 18% higher than 2016.

Net revenues in Financial Advisory were $3.19 billion, 9%
higher than 2016, reflecting an increase in completed
mergers and acquisitions transactions.

Net revenues in Underwriting were $4.18 billion, 25%
higher than 2016, due to significantly higher net revenues in
both debt underwriting, primarily reflecting an increase in
leveraged finance activity, and equity
industry-wide
underwriting,
reflecting an increase in industry-wide
secondary offerings.

Operating expenses were $3.53 billion for 2017, 3% higher
than 2016, due to increased compensation and benefits
expenses, reflecting higher net revenues. Pre-tax earnings
were $3.85 billion in 2017, 36% higher than 2016.

As of December 2017, our investment banking transaction
backlog increased compared with December 2016, due to
significantly higher estimated net revenues from potential
debt underwriting transactions and significantly higher
estimated net revenues from potential equity underwriting
transactions, primarily in initial public offerings. These
increases were partially offset by lower estimated net
revenues from potential advisory transactions, principally
related to mergers and acquisitions.

Institutional Client Services
Our Institutional Client Services segment consists of:

FICC Client Execution. Includes client execution activities
related to making markets in both cash and derivative
instruments for interest rate products, credit products,
mortgages, currencies and commodities.
‰ Interest Rate Products. Government bonds (including
across maturities, other
inflation-linked securities)
government-backed securities,
sold under
agreements to repurchase (repurchase agreements), and
interest rate swaps, options and other derivatives.

securities

‰ Credit Products. Investment-grade corporate securities,
high-yield securities, credit derivatives, exchange-traded
funds, bank and bridge loans, municipal securities,
emerging market and distressed debt, and trade claims.
‰ Mortgages. Commercial mortgage-related securities,
residential mortgage-related
loans and derivatives,
(including U.S.
derivatives
securities,
and
collateralized mortgage
agency-issued
government
obligations and other securities and loans), and other
asset-backed securities, loans and derivatives.

loans

‰ Currencies. Currency options, spot/forwards and other
derivatives on G-10 currencies and emerging-market
products.

‰ Commodities. Commodity derivatives and, to a lesser
extent, physical commodities, involving crude oil and
petroleum products, natural gas, base, precious and other
metals,
other
electricity,
commodity products.

agricultural

coal,

and

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
services to institutional clients,
including hedge funds,
funds, pension funds and foundations, and
mutual
generates revenues primarily in the form of interest rate
spreads or fees.

Goldman Sachs 2018 Form 10-K

T H E G O L D M A N S A C H S G R O U P ,
Management’s Discussion and Analysis

I N C . A N D S U B S I D I A R I E S

institutions,

Market-Making Activities
As a market maker, we facilitate transactions in both liquid
and less liquid markets, primarily for institutional clients,
such as corporations, financial
investment
funds and governments, to assist clients in meeting their
investment objectives and in managing their risks. In this
role, we seek to earn the difference between the price at
which a market participant is willing to sell an instrument
to us and the price at which another market participant is
willing to buy it from us, and vice versa (i.e., bid/offer
spread). In addition, we maintain inventory, typically for a
short period of time, in response to, or in anticipation of,
client demand. We also hold inventory to actively manage
our risk exposures that arise from these market-making
activities. Our market-making inventory is recorded in
financial instruments owned (long positions) or financial
instruments sold, but not yet purchased (short positions) in
our consolidated statements of financial condition.

results are

Our
influenced by a combination of
interconnected drivers, including (i) client activity levels and
transactional bid/offer spreads (collectively, client activity),
and (ii) changes in the fair value of our inventory and
interest income and interest expense related to the holding,
hedging and funding of our inventory (collectively, market-
making inventory changes). Due to the integrated nature of
our market-making activities, disaggregation of net
revenues into client activity and market-making inventory
changes is judgmental and has inherent complexities and
limitations.

affecting

The amount and composition of our net revenues vary over
time as these drivers are impacted by multiple interrelated
factors
conditions,
including volatility and liquidity in the market, changes in
interest rates, currency exchange rates, credit spreads,
equity prices and commodity prices, investor confidence,
and other macroeconomic concerns and uncertainties.

and market

economic

In general, assuming all other market-making conditions
remain constant, increases in client activity levels or bid/
offer spreads tend to result in increases in net revenues, and
decreases tend to have the opposite effect. However,
changes in market-making conditions can materially impact
client activity levels and bid/offer spreads, as well as the fair
value of our inventory. For example, a decrease in liquidity
in the market could have the impact of (i) increasing our
bid/offer spread, (ii) decreasing investor confidence and
thereby decreasing client activity levels, and (iii) wider
credit spreads on our inventory positions.

Goldman Sachs 2018 Form 10-K

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

Year Ended December

$ in millions

2018

2017

2016

FICC Client Execution

$ 5,882

$ 5,299

$ 7,556

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

2,835
3,055
1,710
7,600
13,482
10,351
$ 3,131

2,046
2,920
1,637
6,603
11,902
9,692
$ 2,210

2,194
3,078
1,639
6,911
14,467
9,713
$ 4,754

The table below presents
revenues of our
Institutional Client Services segment by line item in the
consolidated statements of earnings.

the net

$ in millions

Year Ended December 2018

Market making
Commissions and fees
Net interest income
Total net revenues

Year Ended December 2017

Market making
Commissions and fees
Net interest income
Total net revenues

Year Ended December 2016

Market making
Commissions and fees
Net interest income
Total net revenues

FICC Client
Execution

Total
Equities

Institutional
Client
Services

$ 5,211
–
671
$ 5,882

$ 4,240
3,055
305
$ 7,600

$ 4,403
–
896
$ 5,299

$ 3,257
2,920
426
$ 6,603

$ 6,803
–
753
$ 7,556

$ 3,130
3,078
703
$ 6,911

$ 9,451
3,055
976
$13,482

$ 7,660
2,920
1,322
$11,902

$ 9,933
3,078
1,456
$14,467

In the table above:
‰ The difference between commissions and fees and those
in the consolidated statements of earnings represents
commissions and fees
Investment
Management segment.

included in our

‰ See “Net Revenues” for further information about
market making revenues, commissions and fees, and net
interest income. See Note 25 to the consolidated financial
statements for net interest income by business segment.
‰ The primary driver of net revenues for FICC Client

Execution was client activity.

T H E G O L D M A N S A C H S G R O U P ,
Management’s Discussion and Analysis

I N C . A N D S U B S I D I A R I E S

Operating Environment. During 2018,
Institutional
Client Services operated in an environment characterized by
generally higher levels of volatility and improved client
activity, compared with a low volatility environment in
2017. The average daily VIX for 2018 increased to 17,
reflecting periods of high volatility in the first and fourth
quarters of 2018, compared with 11 for 2017. In 2018,
global equity markets generally decreased (with the MSCI
World Index down 11%) and in credit markets, spreads
generally widened (with U.S. high-yield credit spreads
wider by 139 basis points), both particularly towards the
end of the year. Oil prices decreased to $45 per barrel
(WTI), while natural gas prices were essentially unchanged
at $2.94 per million British thermal units compared to the
end of 2017. If activity levels decline, net revenues in
Institutional Client Services would likely be negatively
further
impacted.
information about economic and market conditions in the
global operating environment during the year.

See “Business Environment” for

for

Institutional Client

During 2017, low volatility levels in equity, fixed income,
currency and commodity markets impacted the operating
environment
Services. This
negatively affected client activity across businesses,
particularly in FICC Client Execution. Although market-
making conditions were challenged, global equity markets
increased compared with 2016, and credit spreads generally
tightened.

2018 versus 2017. Net revenues in Institutional Client
Services were $13.48 billion for 2018, 13% higher than
2017.

Net revenues in FICC Client Execution were $5.88 billion,
11% higher than 2017, primarily reflecting higher client
activity.

The following provides information about our FICC Client
Execution net revenues by business, compared with 2017
results:
‰ Net revenues in commodities were significantly higher,
reflecting the
improved market-making
conditions on our inventory, compared with challenging
conditions in 2017, and higher client activity.

impact of

‰ Net revenues in currencies were significantly higher,

primarily reflecting higher client activity.

‰ Net revenues in interest rate products and mortgages
were both slightly lower, reflecting lower client activity.

‰ Net

revenues

in credit products were

essentially
unchanged, reflecting the impact of challenging market-
making conditions on our inventory, particularly during
the fourth quarter of 2018, offset by higher client activity.

Execution were

For 2018, approximately 90% of the net revenues in FICC
Client
from market
intermediation and approximately 10% were generated
from financing. FICC Client Execution financing net
revenues include net revenues primarily from short-term
repurchase agreement activities.

generated

Net revenues in Equities were $7.60 billion, 15% higher
than 2017, primarily due to significantly higher net
revenues in equities client execution, reflecting significantly
higher net revenues in both cash products and derivatives.
In addition, commissions and fees were higher, reflecting an
increase in our listed cash equity and futures volumes,
generally consistent with market volumes. Net revenues in
securities services were slightly higher.

For 2018, approximately 60% of the net revenues in
Equities were generated from market intermediation and
approximately 40% were generated from financing.
Equities financing net revenues include net revenues from
prime brokerage and other financing activities, including
securities lending, margin lending and swaps.

Operating expenses were $10.35 billion for 2018, 7% higher
than 2017, primarily due to increased compensation and
benefits expenses, reflecting higher net revenues, higher net
provisions for litigation and regulatory proceedings, and
higher brokerage, clearing and exchange fees. Pre-tax
earnings were $3.13 billion in 2018, 42% higher than 2017.

2017 versus 2016. Net revenues in Institutional Client
Services were $11.90 billion for 2017, 18% lower than 2016.

Net revenues in FICC Client Execution were $5.30 billion,
30% lower than 2016, reflecting significantly lower client
activity. Approximately one-third of the decline in FICC
Client Execution net revenues was due to significantly
lower results in commodities.

The following provides information about our FICC Client
Execution net revenues by business, compared with 2016
results:
‰ Net revenues in commodities were significantly lower,
reflecting the impact of challenging market-making
conditions on our inventory.

‰ Net revenues in interest rate products were significantly

lower, reflecting lower client activity.

‰ Net revenues in currencies were significantly lower,
reflecting lower client activity and the impact of
challenging market-making conditions on our inventory.
‰ Net revenues in credit products were significantly lower,

reflecting lower client activity.

‰ Net revenues in mortgages were significantly higher,
reflecting the
favorable market-making
conditions on our inventory, including generally tighter
spreads, compared with a challenging 2016.

impact of

Goldman Sachs 2018 Form 10-K

T H E G O L D M A N S A C H S G R O U P ,
Management’s Discussion and Analysis

I N C . A N D S U B S I D I A R I E S

Net revenues in Equities were $6.60 billion, 4% lower than
2016, primarily due to lower commissions and fees,
reflecting a decline in our listed cash equity volumes in the
U.S. Market volumes in the U.S. also declined. In addition,
net revenues in equities client execution were lower,
reflecting lower net revenues in derivatives, partially offset
by higher net revenues in cash products. Net revenues in
securities services were essentially unchanged.

Operating expenses were $9.69 billion for 2017, essentially
unchanged compared with 2016, due to decreased
compensation and benefits expenses, reflecting lower net
revenues, largely offset by increased technology expenses,
reflecting higher expenses related to cloud-based services
and software depreciation, and increased consulting costs.
Pre-tax earnings were $2.21 billion in 2017, 54% lower
than 2016.

Investing & Lending
Investing & Lending includes our investing activities and
the origination of loans, including our relationship lending
activities, to provide financing to clients. These investments
and loans are typically longer-term in nature. We make
investments, some of which are consolidated, including
through our Merchant Banking business and our Special
Situations Group, in debt securities and loans, public and
private equity securities,
infrastructure and real estate
entities. Some of these investments are made indirectly
through funds that we manage. We also make unsecured
loans through our digital platform, Marcus: by Goldman
Sachs and secured loans through our digital platform,
Goldman Sachs Private Bank Select.

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

$ in millions

Equity securities
Debt securities and loans
Total net revenues
Provision for credit losses
Operating expenses
Pre-tax earnings

Year Ended December

2018

2017

2016

$4,455
3,795
8,250
674
3,365
$4,211

$4,578
2,660
7,238
657
2,796
$3,785

$2,573
1,689
4,262
182
2,386
$1,694

Operating Environment. During 2018, our investments
in private equities benefited from company-specific events,
including sales, and strong corporate performance, while
investments in public equities reflected losses, as global
equity prices generally decreased. Results
for our
investments in debt securities and loans reflected continued
growth in loans receivables, resulting in higher net interest
income.
If macroeconomic concerns negatively affect
corporate performance or the origination of loans, or if
global equity prices continue to decline, net revenues in
Investing & Lending would likely be negatively impacted.

Goldman Sachs 2018 Form 10-K

credit

spreads

During 2017, generally higher global equity prices and
tighter
favorable
environment for our equity and debt investments. Results
also reflected net gains from company-specific events,
including sales, and corporate performance.

contributed to a

2018 versus 2017. Net revenues in Investing & Lending
were $8.25 billion for 2018, 14% higher than 2017.

Net revenues in equity securities were $4.46 billion, 3%
lower than 2017, reflecting net losses from investments in
public equities (2018 included $183 million of net losses)
compared with net gains in the prior year, partially offset by
significantly higher net gains from investments in private
equities (2018 included $4.64 billion of net gains), driven
by company-specific events, including sales, and corporate
performance. For 2018, 60% of the net revenues in equity
securities were generated from corporate investments and
40% were generated from real estate.

revenues

in debt

securities

Net
and loans were
$3.80 billion, 43% higher than 2017, primarily driven by
significantly higher net interest income. 2018 included net
interest income of approximately $2.70 billion compared
with approximately $1.80 billion in 2017.

Operating expenses were $3.37 billion for 2018, 20%
higher than 2017, primarily due to increased expenses
related to consolidated investments and our digital lending
and deposit platform, and increased compensation and
benefits expenses, reflecting higher net revenues. Pre-tax
earnings were $4.21 billion in 2018, 11% higher than
2017.

2017 versus 2016. Net revenues in Investing & Lending
were $7.24 billion for 2017, 70% higher than 2016.

equities

from private

Net revenues in equity securities were $4.58 billion, 78%
higher than 2016, primarily reflecting a significant increase
in net gains
(2017 included
$3.82 billion of net gains), which were positively impacted
by company-specific events and corporate performance. In
addition, net gains from public equities (2017 included
$762 million of net gains) were significantly higher, as
global equity prices increased during the year. For 2017,
64% of the net revenues in equity securities were generated
from corporate investments and 36% were generated from
real estate.

revenues

in debt

and loans were
Net
$2.66 billion, 57% higher
reflecting
significantly higher net interest income (2017 included
approximately $1.80 billion of net interest income).

than 2016,

securities

T H E G O L D M A N S A C H S G R O U P ,
Management’s Discussion and Analysis

I N C . A N D S U B S I D I A R I E S

Operating expenses were $2.80 billion for 2017, 17%
higher than 2016, due to increased compensation and
benefits expenses, reflecting higher net revenues, increased
expenses related to consolidated investments, and increased
expenses
lending and deposit
platform. Pre-tax earnings were $3.79 billion in 2017
compared with $1.69 billion in 2016.

related to our digital

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
Investment Management also offers
individual clients.
wealth advisory services provided by our subsidiary, The
Ayco Company, L.P., including portfolio management and
financial planning and counseling, and brokerage and other
transaction services to high-net-worth individuals and
families.

Assets under supervision (AUS) 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. Assets under supervision also
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 market and bank deposit assets.

excluding

liquidity

Assets under supervision typically generate fees as a
percentage of net asset value, which vary by asset class,
distribution channel and the type of services provided, 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
(which excludes
non-asset-based fees) we earned on our assets under
supervision was 34 basis points for 2018 and 35 basis
points for both 2017 and 2016.

effective management

fee

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.

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

2018

2017

2016

$5,438
830
754
7,022
5,267
$1,755

$5,144
417
658
6,219
4,800
$1,419

$4,798
421
569
5,788
4,654
$1,134

The table below presents period-end assets under supervision
by asset class, distribution channel, region and vehicle.

$ in billions

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

Distribution Channel
Institutional
High-net-worth individuals
Third-party distributed
Total AUS

Region
Americas
Europe, Middle East and Africa
Asia
Total AUS

Vehicle
Separate accounts
Public funds
Private funds and other
Total AUS

As of December

2018

2017

2016

$ 167
301
677
1,145
397
$1,542

$ 168
321
660
1,149
345
$1,494

$ 154
266
601
1,021
358
$1,379

$ 575
455
512
$1,542

$ 576
458
460
$1,494

$ 511
413
455
$1,379

$1,151
239
152
$1,542

$1,120
229
145
$1,494

$1,042
211
126
$1,379

$ 867
506
169
$1,542

$ 857
482
155
$1,494

$ 763
469
147
$1,379

In the table above, alternative investments primarily includes
funds, private equity, real estate,
hedge funds, credit
currencies, commodities and asset allocation strategies.

The table below presents changes in assets under supervision.

$ in billions

Beginning balance
Net inflows/(outflows):

Alternative investments
Equity
Fixed income

Total long-term AUS net inflows/(outflows)
Liquidity products
Total AUS net inflows/(outflows)
Net market appreciation/(depreciation)
Ending balance

Year Ended December

2018

2017

2016

$1,494

$1,379

$1,252

1
13
23
37
52
89
(41)
$1,542

15
2
25
42
(13)
29
86
$1,494

5
(3)
40
42
52
94
33
$1,379

Goldman Sachs 2018 Form 10-K

T H E G O L D M A N S A C H S G R O U P ,
Management’s Discussion and Analysis

I N C . A N D S U B S I D I A R I E S

In the table above, total AUS net inflows/(outflows) for
2017 included $23 billion of inflows ($20 billion in long-
term AUS and $3 billion in liquidity products)
in
connection with the acquisition of a portion of Verus
investment officer business
Investors’ outsourced chief
(Verus acquisition) and $5 billion of equity asset outflows
in connection with the divestiture of our local Australian-
focused investment
and fund platform
capabilities
(Australian divestiture).

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

$ in billions

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

Average for the
Year Ended December

2018

2017

2016

$ 171
329
665
1,165
352
$1,517

$ 162
292
633
1,087
330
$1,417

$ 149
256
578
983
326
$1,309

Operating Environment. During 2018, our assets under
supervision increased reflecting net inflows in liquidity
products, fixed income assets and equity assets. This
increase was partially offset by depreciation in our client
assets, primarily in equity assets, as global equity prices
generally decreased in 2018, particularly towards the end of
the year. The mix of our average assets under supervision
between long-term assets under supervision and liquidity
products during 2018 was essentially unchanged compared
with 2017. In the future, if asset prices continue to decline,
or investors continue to favor assets that typically generate
lower fees or investors withdraw their assets, net revenues
in Investment Management would likely be negatively
impacted.

During 2017, Investment Management operated in an
environment characterized by generally higher asset prices,
resulting in appreciation in both equity and fixed income
assets. Our long-term assets under supervision increased
from net inflows primarily in fixed income and alternative
investment assets. These increases were partially offset by
net outflows in liquidity products. As a result, the mix of
our average assets under supervision during 2017 shifted
slightly from liquidity products to long-term assets under
supervision compared to the mix at the end of 2016.

Goldman Sachs 2018 Form 10-K

revenues

2018 versus 2017. Net
in Investment
Management were $7.02 billion for 2018, 13% higher than
2017, primarily due to significantly higher incentive fees, as
a result of harvesting. Management and other fees were also
higher, reflecting higher average assets under supervision
and the impact of the recently adopted revenue recognition
standard, partially offset by shifts in the mix of client assets
and strategies.
transaction revenues were
higher. See Note 3 to the consolidated financial statements
for further information about ASU No. 2014-09, “Revenue
from Contracts with Customers (Topic 606).”

In addition,

During 2018, total assets under supervision increased
$48 billion to $1.54 trillion. Long-term assets under
supervision decreased $4 billion,
including net market
depreciation of $41 billion primarily in equity assets,
largely offset by net inflows of $37 billion, primarily in
fixed income and equity assets. Liquidity products
increased $52 billion.

Operating expenses were $5.27 billion for 2018, 10%
higher than 2017, primarily due to the impact of the
recently adopted revenue
recognition standard and
increased compensation and benefits expenses, reflecting
higher net revenues. Pre-tax earnings were $1.76 billion in
than 2017. See Note 3 to the
2018, 24% higher
consolidated financial statements for further information
about ASU No. 2014-09, “Revenue from Contracts with
Customers (Topic 606).”

revenues

2017 versus 2016. Net
in Investment
Management were $6.22 billion for 2017, 7% higher than
2016, due to higher management and other fees, reflecting
higher average assets under
supervision, and higher
transaction revenues.

During 2017, total assets under supervision increased
$115 billion to $1.49 trillion. Long-term assets under
supervision increased $128 billion, including net market
appreciation of $86 billion, primarily in equity and fixed
income assets, and net inflows of $42 billion (which
includes $20 billion of inflows in connection with the Verus
acquisition and $5 billion of equity asset outflows in
connection with the Australian divestiture), primarily in
fixed income and alternative investment assets. Liquidity
products decreased $13 billion (which includes $3 billion of
inflows in connection with the Verus acquisition).

Operating expenses were $4.80 billion for 2017, 3% higher
than 2016, primarily due to increased compensation and
benefits expenses, reflecting higher net revenues. Pre-tax
earnings were $1.42 billion in 2017, 25% higher than
2016.

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.

T H E G O L D M A N S A C H S G R O U P ,
Management’s Discussion and Analysis

I N C . A N D S U B S I D I A R I E S

Balance Sheet and Funding Sources

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

Although our balance sheet fluctuates on a day-to-day
basis, our total assets at quarter-end 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 sufficiently liquid balance sheet and have
processes in place to dynamically manage our assets and
liabilities, which include (i) balance sheet planning,
(ii) balance sheet limits, (iii) monitoring of key metrics and
(iv) scenario analyses.

Balance Sheet Planning. We prepare a balance sheet plan
that combines our projected total assets and composition of
assets with our expected funding sources over a three-year
time horizon. This plan is reviewed quarterly and may be
adjusted in response to changing business needs or market
conditions. The objectives of this planning process are:
‰ To develop our balance sheet projections, taking into
account the general state of the financial markets and
expected business activity levels, as well as regulatory
requirements;

‰ To allow Treasury and our independent risk oversight
and control functions to objectively evaluate balance
sheet limit requests from our revenue-producing units in
the context of our overall balance sheet constraints,
including our liability profile and equity capital levels,
and key metrics; and

‰ To inform the target amount, tenor and type of funding to
raise, based on our projected assets and contractual
maturities.

Treasury and our independent risk oversight and control
functions, along with our revenue-producing units, review
current and prior period information and expectations for
the year to prepare our balance sheet plan. The specific
information reviewed includes asset and liability size and
composition,
risk and performance
measures, and capital usage.

limit utilization,

Our consolidated balance sheet plan, including our balance
sheets by business, funding projections and projected key
metrics, is reviewed and approved by the Firmwide Asset
Liability Committee and the Risk Governance Committee.
See “Risk Management — Overview and Structure of Risk
Management” for an overview of our risk management
structure.

Balance Sheet Limits. The Firmwide Asset Liability
Committee and the Risk Governance Committee have the
responsibility of reviewing and approving balance sheet
limits. These limits are set at levels which are close to actual
operating levels, rather than at levels which reflect our
maximum risk appetite,
in order to ensure prompt
escalation and discussion among our revenue-producing
units, Treasury and our independent risk oversight and
control functions on a routine basis. The Firmwide Asset
Liability Committee and the Risk Governance Committee
review and approve balance sheet limits. In addition, the
Risk Governance Committee sets aged inventory limits for
certain financial
instruments as a disincentive to hold
inventory over longer periods of time. Requests for changes
in limits are evaluated after giving consideration to their
impact on our key metrics. Compliance with limits is
monitored by our revenue-producing units and Treasury, as
well as our
risk oversight and control
functions.

independent

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

Scenario Analyses. We conduct various 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.
See “Equity Capital Management
and Regulatory
Capital — Equity Capital Management” for further
information about these scenario analyses. 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
sheet
management 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

developing

our

Goldman Sachs 2018 Form 10-K

T H E G O L D M A N S A C H S G R O U P ,
Management’s Discussion and Analysis

I N C . A N D S U B S I D I A R I E S

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 our
assets and better enables investors to assess the liquidity of
our assets.

The table below presents our balance sheet allocation.

$ in millions

As of December

2018

2017

GCLA, segregated assets and other

$313,138

$285,270

Secured client financing

145,232

164,123

Inventory
Secured financing agreements
Receivables
Institutional Client Services

Public equity
Private equity
Total equity
Loans receivable
Loans, at fair value
Total loans
Debt securities
Other
Investing & Lending

204,584
61,632
42,006
308,222

1,445
19,985
21,430
80,590
13,416
94,006
11,215
7,913
134,564

216,883
64,991
36,750
318,624

2,072
20,253
22,325
65,933
14,877
80,810
8,797
8,481
120,413

Total inventory and related assets

442,786

439,037

Other assets
Total assets

30,640
$931,796

28,346
$916,776

See

stressed

environment.

The following is a description of the captions in the table
above:
‰ Global Core Liquid Assets (GCLA), Segregated
Assets and Other. We maintain liquidity to meet a
broad range of potential cash outflows and collateral
needs
“Risk
Management — Liquidity Risk Management” for
information about the composition and sizing of our
GCLA. We also segregate cash and securities for
regulatory and other purposes related to client activity.
Securities are segregated from our own inventory, as well
as from collateral obtained through securities borrowed
or securities purchased under agreements to resell (resale
agreements). In addition, we maintain other unrestricted
operating cash balances, primarily for use in specific
currencies, entities or jurisdictions where we do not have
immediate access to parent company liquidity.

Goldman Sachs 2018 Form 10-K

‰ 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. Our secured client financing arrangements,
which are generally short-term, are accounted for at fair
value or at amounts that approximate fair value, and
to mitigate
daily margin
include
counterparty credit risk.

requirements

‰ 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
or use our own inventory 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. We invest in and originate loans
to provide financing to clients. These investments and
loans are typically longer-term in nature. We make
investments, through our Merchant Banking business and
our Special Situations Group, in debt securities, loans and
public and private equity. We also originate secured and
unsecured loans through our digital platforms. Other
Investing & Lending primarily includes customer and
other receivables.

Equity. We make equity investments in corporate and
real estate entities. As of December 2018, 30% of total
equity was in investments made in 2011 or earlier, 23%
was in investments made during 2012 through 2014, and
47% was in investments made since the beginning of
2015.

The table below presents equity by type and region.

$ in millions

Equity Type
Corporate
Real Estate
Total

Region
Americas
Europe, Middle East and Africa
Asia
Total

As of December

2018

2017

$17,262
4,168
$21,430

$18,194
4,131
$22,325

53%
16%
31%
100%

54%
18%
28%
100%

T H E G O L D M A N S A C H S G R O U P ,
Management’s Discussion and Analysis

I N C . A N D S U B S I D I A R I E S

Loans. The table below presents loans by type and region.

$ in millions

As of December 2018
Loan Type
Corporate loans
PWM loans
Commercial real estate loans
Residential real estate loans
Consumer loans
Other loans
Allowance for loan losses
Total

Region
Americas
Europe, Middle East and Africa
Asia
Total

As of December 2017
Loan Type
Corporate loans
PWM loans
Commercial real estate loans
Residential real estate loans
Consumer loans
Other loans
Allowance for loan losses
Total

Region
Americas
Europe, Middle East and Africa
Asia
Total

Loans
Receivable

Loans, at
Fair Value

Total

$37,283
17,219
11,441
7,284
4,536
3,893
(1,066)
$80,590

67%
16%
3%
86%

$30,749
16,591
7,987
6,234
1,912
3,263
(803)
$65,933

64%
14%
4%
82%

$ 2,819
7,250
1,718
973
–
656
–
$13,416

11%
2%
1%
14%

$ 3,924
7,102
1,825
1,043
–
983
–
$14,877

13%
4%
1%
18%

$40,102
24,469
13,159
8,257
4,536
4,549
(1,066)
$94,006

78%
18%
4%
100%

$34,673
23,693
9,812
7,277
1,912
4,246
(803)
$80,810

77%
18%
5%
100%

In the table above:
‰ As of December 2018,

loans

corporate

included
$15.50 billion of loans relating to our relationship lending
and investment banking activities, $6.99 billion relating
to collateralized inventory financing and the remainder of
the loans related to other corporate lending activities,
including middle market lending. As of December 2017,
corporate loans included $11.96 billion of loans relating
to our relationship lending and investment banking
activities, $5.49 billion relating to collateralized inventory
financing and the remainder of the loans related to other
including middle market
corporate lending activities,
lending.

‰ Approximately 85% of total loans were secured as of

both December 2018 and December 2017.

‰ See Note 9 to the consolidated financial statements for

further information about loans receivable.

assets

assets,

receivables. Other

including property,

‰ Other Assets. Other assets are generally less liquid,
nonfinancial
leasehold
improvements and equipment, goodwill and identifiable
income tax-related receivables and
intangible assets,
included
miscellaneous
$13.21 billion as of December 2018 and $9.42 billion as
of December 2017, held by consolidated investment
entities (CIEs)
in connection with our Investing &
Lending segment activities. Substantially all of such assets
relate to CIEs engaged in real estate investment activities.
These
of
approximately $6 billion as of December 2018 and
$4 billion as of December 2017. Substantially all such
liabilities were nonrecourse, thereby reducing our equity
at risk.

entities were

funded with

liabilities

The table below presents the reconciliation of our balance
sheet allocation to our U.S. GAAP balance sheet.

GCLA,
Segregated
Assets
and Other

Secured
Client
Financing

Institutional
Client
Services

Investing
&
Lending

Total

$ in millions

As of December 2018
Cash and cash
equivalents

Resale agreements
Securities borrowed
Loans receivable
Customer and

other receivables
Financial instruments

owned
Subtotal
Other assets
Total assets

As of December 2017
Cash and cash
equivalents

Resale agreements
Securities borrowed
Loans receivable
Customer and

other receivables
Financial instruments

owned
Subtotal
Other assets
Total assets

$130,547 $
87,022
10,382
–

– $

32,389
83,079
–

19,808
41,824
–

– $130,547
39 139,258
– 135,285
80,590

80,590

–

29,764

42,006

7,545

79,315

–

85,187

204,584

46,390 336,161
$313,138 $145,232 $308,222 $134,564 $901,156
30,640
$931,796

$110,051 $
73,277
49,242
–

– $

26,202
97,546
–

20,931
44,060
–

– $110,051
412 120,822
– 190,848
65,933

65,933

–

40,375

36,750

7,663

84,788

–

52,700

216,883

46,405 315,988
$285,270 $164,123 $318,624 $120,413 $888,430
28,346
$916,776

In the table above:
‰ 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, segregated
assets and other, secured client financing and other assets.

‰ See “Balance

and Metrics” for
explanations on the changes in our balance sheet from
December 2017 to December 2018.

Sheet Analysis

Goldman Sachs 2018 Form 10-K

T H E G O L D M A N S A C H S G R O U P ,
Management’s Discussion and Analysis

I N C . A N D S U B S I D I A R I E S

Balance Sheet Analysis and Metrics
As of December 2018, total assets in our consolidated
statements of financial condition were $931.80 billion, an
increase of $15.02 billion from December 2017, reflecting
increases in cash and cash equivalents of $20.50 billion,
financial instruments owned of $20.17 billion, and loans
receivable of $14.66 billion, partially offset by a net
decrease in collateralized agreements of $37.13 billion. The
increase in cash and cash equivalents reflected the impact of
our and clients’ activities. The increase in financial
instruments owned primarily reflected higher client activity
in government and agency obligations, partially offset by
lower activity in equity securities by us and our clients. The
increase in loans receivable primarily reflected an increase
in corporate and commercial real estate loans. The net
decrease in collateralized agreements reflected the impact of
our and clients’ activities.

As of December 2018, total liabilities in our consolidated
statements of financial condition were $841.61 billion, an
increase of $7.08 billion from December 2017, primarily
reflecting increases in deposits of $19.65 billion and
unsecured long-term borrowings of $6.46 billion, partially
offset by decreases
in collateralized financings of
$12.34 billion and unsecured short term borrowings of
$6.42 billion. The increase in deposits primarily reflected
an increase in consumer deposits. The increase in unsecured
long-term borrowings was primarily due to net new
issuances. The decrease in collateralized financings reflected
the impact of our and clients’ activities. The decrease in
unsecured short term borrowings was primarily due to
maturities and early retirements.

total

Our
repurchase agreements, accounted for as
collateralized financings, were $78.72 billion as of
December 2018 and $84.72 billion as of December 2017,
which were 1% higher as of December 2018 and 2% lower
as of December 2017 than the daily average amount of
repurchase agreements over the respective quarters, and
12% lower as of December 2018 and 1% lower as of
December 2017 than the daily average amount of
repurchase agreements over the respective years. As of
December 2018, the increase in our repurchase agreements
relative to the daily average during the quarter, and
decrease in our repurchase agreements relative to the daily
average during the year, resulted from client and our
activity at the end of the period.

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

Goldman Sachs 2018 Form 10-K

The table below presents information about the balance
sheet and the leverage ratios.

$ in millions

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

As of December

2018

2017

$931,796
$224,149
$ 90,185
10.3x
2.5x

$916,776
$217,687
$ 82,243
11.1x
2.6x

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

‰ The debt to equity ratio equals unsecured long-term

borrowings divided by total shareholders’ equity.

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

As of December

$ in millions, except per share amounts

2018

2017

Total shareholders’ equity
Preferred stock
Common shareholders’ equity
Goodwill and identifiable intangible assets
Tangible common shareholders’ equity

$ 90,185
(11,203)
78,982
(4,082)
$ 74,900

$ 82,243
(11,853)
70,390
(4,038)
$ 66,352

Book value per common share
Tangible book value per common share

$ 207.36
$ 196.64

$ 181.00
$ 170.61

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 outstanding
and restricted stock units granted to employees with no
future service requirements (collectively, basic shares) of
380.9 million as of December 2018 and 388.9 million as of
December 2017. We believe that tangible book value per
common share (tangible common shareholders’ equity
divided by basic shares) is meaningful because it is a
measure that we and investors use to assess capital
adequacy. Tangible book value per common share is a
non-GAAP measure and may not be comparable to similar
non-GAAP measures used by other companies.

T H E G O L D M A N S A C H S G R O U P ,
Management’s Discussion and Analysis

I N C . A N D S U B S I D I A R I E S

unsecured

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

short-term and

The table below presents information about our funding
sources.

$ in millions

Deposits
Collateralized financings:

As of December

2018

2017

$158,257

25% $138,604

23%

Repurchase agreements
Securities loaned
Other secured financings
Total collateralized financings
Unsecured short-term borrowings
Unsecured long-term borrowings
Total shareholders’ equity
Total funding sources

78,723
11,808
21,433
111,964
40,502
224,149
90,185
$625,057

13%
2%
3%
18%
7%
36%
14%

84,718
14,793
24,788
124,299
46,922
217,687
82,243
100% $609,755

14%
2%
4%
20%
8%
36%
13%
100%

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

Deposits. Our deposits provide us with a diversified source
of funding and reduce our reliance on wholesale funding. A
growing portion of our deposit base consists of consumer
deposits. Deposits are primarily used to finance lending
activity, other inventory and a portion of our GCLA. We
raise deposits, including savings, demand and time deposits,
through internal and third-party broker-dealers, and from
consumers and institutional clients, and primarily through
Goldman Sachs Bank USA (GS Bank USA) and Goldman
Sachs International Bank (GSIB). In September 2018, we
launched Marcus: by Goldman Sachs in the U.K. to accept
deposits. See Note 14 to the consolidated financial
statements for further information about our deposits.

Secured Funding. We fund a significant amount of
inventory on a secured basis. Secured funding includes
collateralized financings in the consolidated statements of
financial condition. We may also pledge our inventory as
collateral for securities borrowed under a securities lending
agreement. We also use our own inventory to cover
transactions in which we or our clients have sold securities
that have not yet been purchased. 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
over
probabilities. We seek to mitigate our refinancing risk by
staggered maturities,
executing
diversifying counterparties, raising excess secured funding,
and pre-funding residual risk through our GCLA.

term trades with

counterparty

eligibility

and

roll

We seek to raise secured funding with a term appropriate
for the liquidity of the assets that are being financed, and we
seek longer maturities for secured funding collateralized by
asset classes that may be harder to fund on a secured basis,
especially during times of market stress. Our secured
excluding funding collateralized by liquid
funding,
government and agency obligations, is primarily executed
for tenors of one month or greater and is primarily executed
through term repurchase agreements and securities loaned
contracts.

The weighted average maturity of our secured funding
included in collateralized financings in the consolidated
statements of financial condition, excluding funding that
can only be collateralized by liquid government and agency
obligations, exceeded 120 days as of December 2018.

and

loans

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
non-investment-grade
securities,
corporate debt securities, equity securities and emerging
market securities. Assets that are classified in level 3 of the
fair value hierarchy are generally funded on an unsecured
basis. See Notes 5 and 6 to the consolidated financial
statements for further information about the classification
of financial instruments in the fair value hierarchy and
“Unsecured Long-Term Borrowings” below for further
information about
the use of unsecured long-term
borrowings as a source of funding.

financing

also raise

through other

types of
We
collateralized financings, such as secured loans and notes.
GS Bank USA has access to funding from the Federal Home
Loan Bank. Our outstanding borrowings against
the
Federal Home Loan Bank were $528 million as of
December 2018 and $3.40 billion as of December 2017.

Goldman Sachs 2018 Form 10-K

Equity Capital Management and Regulatory
Capital

Capital adequacy is of critical importance to us. We have in
place a comprehensive capital management policy that
provides a framework, defines objectives and establishes
guidelines to assist us in maintaining the appropriate level
and composition of capital in both business-as-usual and
stressed conditions.

Equity Capital Management
We determine the appropriate amount and composition of
our equity capital by considering multiple factors, including
our current and future regulatory capital requirements, the
results of our capital planning and stress testing process, the
results of resolution capital models and other factors, such
as rating agency guidelines, subsidiary capital requirements,
the business environment and conditions in the financial
markets.

We manage our capital requirements and the levels of our
capital usage principally by setting limits on balance sheet
in each case at both the
assets and/or limits on risk,
firmwide and business levels.

We principally manage the level and composition of our
equity capital through issuances and repurchases of our
common stock. We may also, from time to time, issue or
repurchase our preferred stock, junior subordinated debt
issued to trusts, and other subordinated debt or other forms
of capital as business conditions warrant. Prior to any
repurchases, we must receive confirmation that the Board
of Governors of the Federal Reserve System (FRB) does not
object to such capital action. See Notes 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.

T H E G O L D M A N S A C H S G R O U P ,
Management’s Discussion and Analysis

I N C . A N D S U B S I D I A R I E S

GS Bank USA also 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.

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, including U.S. and non-U.S. hybrid financial
instruments, to finance liquid assets and for other cash
management purposes. In light of regulatory developments,
Group Inc. no longer issues debt with an original maturity
of less than one year, other than to its subsidiaries. See
Note 15 to the consolidated financial statements for further
information about our unsecured short-term borrowings.

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.
including structured
Unsecured long-term borrowings,
notes, are raised 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. We issue in different tenors, currencies and
products to maximize the diversification of our investor
base.

The table below presents the quarterly unsecured long-term
borrowings maturity profile as of December 2018.

$ in millions

2020
2021
2022
2023
2024 - thereafter
Total

First
Quarter

Second
Quarter

Third
Quarter

Fourth
Quarter

Total

$ 6,740
$ 3,288
$ 6,151
$10,076

$9,744
$4,162
$6,067
$4,958

$6,308
$7,790
$5,365
$8,343

$6,579 $ 29,371
22,964
$7,724
23,459
$5,876
27,872
$4,495
120,483
$224,149

The weighted average maturity of our unsecured long-term
borrowings as of December 2018 was approximately eight
years. To mitigate refinancing risk, we seek to limit the
principal amount of debt maturing over the course of any
monthly, quarterly or annual time horizon. We enter into
interest rate swaps to convert a portion of our unsecured
long-term borrowings into floating-rate obligations to
manage our exposure to interest rates. See Note 16 to the
consolidated financial statements for further information
about our unsecured long-term borrowings.

Shareholders’ Equity. Shareholders’ equity is a stable and
perpetual
funding. See Note 19 to the
consolidated financial statements for further information
about our shareholders’ equity.

source of

Goldman Sachs 2018 Form 10-K

T H E G O L D M A N S A C H S G R O U P ,
Management’s Discussion and Analysis

I N C . A N D S U B S I D I A R I E S

Capital Planning and Stress Testing Process. As part of
capital planning, we project sources and uses of capital
given a range of business environments, including stressed
conditions. Our stress testing process is designed to identify
and measure material risks associated with our business
activities, including market risk, credit risk and operational
risk, as well as our ability to generate revenues.

The following is a description of our capital planning and
stress testing process:
‰ Capital Planning. Our

capital planning process
incorporates an internal capital adequacy assessment
with the objective of ensuring that we are appropriately
capitalized relative to the risks in our businesses. We
incorporate stress scenarios into our capital planning
process with a goal of holding sufficient capital to ensure
we remain adequately capitalized after experiencing a
severe stress event. Our assessment of capital adequacy is
liquidity
viewed in tandem with our assessment of
risk
adequacy and is
policy
management
framework.

integrated into our overall

governance

structure,

and

This

capital

Our capital planning process also includes an internal
risk-based
assessment
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
counterparties’
about
utilizes
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 considering internal and external
actual loss experience. Backtesting for market risk and
credit risk is used to gauge the effectiveness of models at
capturing and measuring relevant risks.

assumptions

our

‰ Stress Testing. Our

stress

tests
scenarios,

incorporate our
internally designed stress
including our
internally developed severely adverse scenario, and those
required under CCAR and DFAST, and are designed to
capture our specific vulnerabilities and risks. We provide
further information about our stress test processes and a
summary of the results on our website as described in
“Business — Available Information” in Part I, Item 1 of
this Form 10-K.

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

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

In addition, the DFAST rules currently require us to
conduct stress tests on a semi-annual basis and publish a
summary of results. The FRB also conducts its own annual
stress tests and publishes a summary of certain results.

With respect to our 2018 CCAR submission, the FRB
informed us that it did not object to our capital plan,
conditioned upon us returning not more than $6.30 billion
of capital from the third quarter of 2018 through the
second quarter of 2019. The capital plan provides for up to
$5.00 billion in repurchases of outstanding common stock
and $1.30 billion in total common stock dividends,
including an increase in our common stock dividend of
$0.05 from $0.80 to $0.85 per share in the second quarter
of 2019, subject to the approval by the Board of Directors
of Group Inc. (Board). The amount and timing of our
capital actions will be based on, among other things, our
current and projected capital position, and capital
deployment opportunities. We published a summary of our
annual DFAST results in June 2018. See “Business —
Available Information” in Part I, Item 1 of this Form 10-K.

In October 2018, we submitted our semi-annual DFAST
results to the FRB and published a summary of the results of
our internally developed severely adverse scenario. See
“Business — Available Information” in Part I, Item 1 of this
Form 10-K.

In addition, GS Bank USA submitted its 2018 annual
DFAST results to the FRB in April 2018 and published a
summary of its annual DFAST results in June 2018. GS
Bank USA will not be required to conduct the annual
company-run stress test in 2019. See “Business — Available
Information” in Part I, Item 1 of this Form 10-K.

Goldman Sachs International (GSI) and GSIB also have
their own capital planning and stress testing process, which
incorporates internally designed stress tests and those
required under the Prudential Regulation Authority’s
(PRA) Internal Capital Adequacy Assessment Process.

Goldman Sachs 2018 Form 10-K

T H E G O L D M A N S A C H S G R O U P ,
Management’s Discussion and Analysis

I N C . A N D S U B S I D I A R I E S

Contingency Capital Plan. As part of 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
including, but not limited to,
actual capital deficiency,
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.

Capital Attribution. We assess each of our businesses’
capital usage based upon our internal assessment of risks,
which incorporates an attribution of all of our relevant
regulatory capital requirements. These regulatory capital
requirements are allocated using our attributed equity
framework, which takes into consideration our most
binding capital constraints. Our most binding capital
constraint is based on the results of the FRB’s annual stress
test scenarios which include the Standardized risk-based
capital and leverage ratios.

We also attribute risk-weighted assets (RWAs) to our
business segments. As of December 2018, approximately
60% of RWAs calculated in accordance with the
Standardized Capital Rules and approximately 50% of
RWAs calculated in accordance with the Basel III Advanced
Rules, were attributed to our Institutional Client Services
segment and substantially all of the remaining RWAs were
attributed to our Investing & Lending segment. 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.

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 and our capital plan submitted to the FRB as part
of CCAR. The amounts and timing of the repurchases may
also be influenced by general market conditions and the
prevailing price and trading volumes of our common stock.

Goldman Sachs 2018 Form 10-K

As of December 2018, the remaining share authorization
under our existing repurchase program was 33.7 million
shares; however, we are only permitted to make
repurchases to the extent that such repurchases have not
been objected to by the FRB. See “Market for Registrant’s
Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities” in Part II, Item 5 of this
Form 10-K and Note 19 to the consolidated financial
share
statements
repurchase program, and see above for information about
our capital planning and stress testing process.

information about our

further

for

Resolution Capital Models.
In connection with our
established a
resolution planning efforts, we have
Resolution Capital Adequacy and Positioning framework,
which is designed to ensure that our major subsidiaries (GS
Bank USA, Goldman Sachs & Co. LLC (GS&Co.), GSI,
GSIB, Goldman Sachs Japan Co., Ltd. (GSJCL), Goldman
Sachs Asset Management, L.P. and Goldman Sachs Asset
Management
to
sufficient loss-absorbing capacity (in the form of equity,
subordinated debt and unsecured senior debt) so that they
are able to wind-down following a Group Inc. bankruptcy
filing in accordance with our preferred resolution strategy.

(GSAMI)) have access

International

In addition, we have established a triggers and alerts
framework, which is designed to provide the Board with
information needed to make an informed decision on
whether and when to commence bankruptcy proceedings
for Group Inc.

Rating Agency Guidelines
The credit rating agencies assign credit ratings to the
obligations of Group Inc., which directly issues or
guarantees substantially all of our senior unsecured debt
obligations. GS&Co. and GSI have been assigned long- and
short-term issuer ratings by certain credit rating agencies.
GS Bank USA and GSIB have also been assigned long- and
short-term issuer ratings, as well as ratings on their long-
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
than a single calculation. See “Risk
Management — Liquidity Risk Management — Credit
Ratings” for further information about credit ratings of
Group Inc., GS Bank USA, GSIB, GS&Co. and GSI.

rather

T H E G O L D M A N S A C H S G R O U P ,
Management’s Discussion and Analysis

I N C . A N D S U B S I D I A R I E S

subject

Consolidated Regulatory Capital
We are
to consolidated regulatory capital
requirements which are calculated in accordance with the
regulations of the FRB (Capital Framework). Under the
Capital Framework, we are an “Advanced approach”
banking organization and have been designated as a global
systemically important bank (G-SIB).

The Capital Framework includes risk-based capital buffers
that phased in ratably and became fully effective on
January 1, 2019. The minimum risk-based capital ratios
applicable to us as of January 2019 reflected the fully
phased-in capital conservation buffer of 2.5% and the
countercyclical capital buffer, if any, determined by the
FRB.
the fully phased-in G-SIB buffer
applicable to us as of January 2019 is 2.5% based on 2017
financial data. The G-SIB buffer applicable to us as of
January 2020 is 2.5% based on 2018 financial data. The
G-SIB and countercyclical buffers in the future may differ
due to additional guidance from our regulators and/or
positional changes.

In addition,

See Note 20 to the consolidated financial statements for
further information about our risk-based capital ratios and
leverage ratios, and the Capital Framework.

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

Bank Subsidiaries. GS Bank USA is our primary U.S.
banking subsidiary and GSIB is our primary non-U.S.
banking subsidiary. These entities are subject to regulatory
capital requirements.

See Note 20 to the consolidated financial statements for
further
capital
requirements of our bank subsidiaries.

information

regulatory

about

the

U.S. Regulated Broker-Dealer Subsidiaries. GS&Co. is
our primary U.S. regulated broker-dealer subsidiary and is
subject to regulatory capital requirements, including those
imposed by the SEC and the Financial Industry Regulatory
Authority, Inc. In addition, GS&Co. is a registered futures
commission merchant and is subject to regulatory capital
requirements
the Chicago
imposed by the CFTC,
Mercantile Exchange 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. has elected to calculate its minimum
capital requirements in accordance with the “Alternative
Net Capital Requirement” as permitted by Rule 15c3-1.

GS&Co. had regulatory net capital, as defined by
Rule 15c3-1, of $17.45 billion as of December 2018 and
$15.57 billion as of December 2017, which exceeded the
amount required by $15.00 billion as of December 2018
and $13.15 billion as of December 2017. In addition to its
alternative minimum net capital requirements, GS&Co. is
also required to hold tentative net capital in excess of
$1 billion and net capital in excess of $500 million in
accordance with the market and credit risk standards of
Appendix E of Rule 15c3-1. GS&Co. is also required to
notify the SEC in the event that its tentative net capital is
less than $5 billion. As of both December 2018 and
December 2017, GS&Co. had tentative net capital and net
capital in excess of both the minimum and the notification
requirements.

Non-U.S. Regulated Broker-Dealer Subsidiaries. Our
principal non-U.S. regulated broker-dealer subsidiaries
include GSI and GSJCL.

GSI, our U.K. broker-dealer, is regulated by the PRA and the
Financial Conduct Authority (FCA). GSI is subject to the
capital framework for E.U.-regulated financial institutions
prescribed in the E.U. Fourth Capital Requirements Directive
and the E.U. Capital Requirements Regulation (CRR). These
capital regulations are largely based on Basel III.

The table below presents information about GSI’s risk-
based capital ratios and minimum ratios.

$ in millions

Risk-based capital and RWAs
CET1
Tier 1 capital
Tier 2 capital
Total capital
RWAs

Risk-based capital ratios
CET1 ratio
Tier 1 capital ratio
Total capital ratio

Risk-based minimum ratios
CET1 ratio
Tier 1 capital ratio
Total capital ratio

As of December

2018

2017

$ 23,956
$ 32,256
5,377
$
$ 37,633
$200,089

$ 24,871
$ 30,671
5,377
$
$ 36,048
$225,942

12.0%
16.1%
18.8%

8.1%
10.1%
12.7%

11.0%
13.6%
16.0%

7.2%
9.1%
11.8%

In the table above:
‰ CET1, Tier 1 capital and Total

capital as of
December 2018 included amounts which will be finalized
upon the issuance of GSI’s 2018 annual audited financial
statements and contributed approximately 114 basis
points to the risk-based capital ratios.
‰ The minimum risk-based capital

incorporate
capital guidance received from the PRA and could change
in the future. GSI’s future capital requirements may also
be impacted by developments such as the introduction of
risk-based capital buffers.

ratios

Goldman Sachs 2018 Form 10-K

T H E G O L D M A N S A C H S G R O U P ,
Management’s Discussion and Analysis

I N C . A N D S U B S I D I A R I E S

for certain E.U.

In November 2016, the European Commission proposed
amendments to the CRR to implement a 3% minimum
leverage ratio requirement
financial
institutions. This leverage ratio compares the CRR’s
definition of Tier 1 capital to a measure of leverage
exposure, defined as the sum of certain assets plus certain
off-balance-sheet exposures (which include a measure of
derivatives, securities financing transactions, commitments
less Tier 1 capital deductions. Any
and guarantees),
required minimum leverage ratio is expected to become
effective for GSI no earlier than January 1, 2021. GSI had a
leverage ratio of 4.4% as of December 2018 and 4.1% as of
December 2017. Tier 1 capital as of December 2018
included amounts which will be finalized upon the issuance
of GSI’s 2018 annual audited financial statements and these
amounts contributed approximately 31 basis points to the
leverage ratio. This leverage ratio is based on our current
interpretation and understanding of this rule and may
evolve as we discuss the interpretation and application of
this rule with GSI’s regulators.

GSJCL, our Japanese broker-dealer, is regulated by Japan’s
Financial Services Agency. GSJCL and certain other
non-U.S. subsidiaries are also subject to capital adequacy
requirements promulgated by authorities of the countries in
which they operate. As of both December 2018 and
December 2017, these subsidiaries were in compliance with
their local capital adequacy requirements.

Regulatory
Developments

Matters

and

Other

Regulatory Matters
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 regulators and policy
makers worldwide. Given that many of the new and
proposed rules are highly complex, the full
impact of
regulatory reform will not be known until the rules are
implemented and market practices develop under the final
regulations.

See “Business — Regulation” in Part I, Item 1 of this
Form 10-K for further information about the laws, rules
and regulations and proposed laws, rules and regulations
that apply to us and our operations.

Goldman Sachs 2018 Form 10-K

Resolution and Recovery Plans. We are required by the
FRB and the FDIC to submit a periodic 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 FRB to submit a periodic recovery
plan that outlines the steps that management could take to
reduce risk, maintain sufficient liquidity, and conserve
capital in times of prolonged stress.

In December 2017, the FRB and the FDIC provided
feedback on our 2017 resolution plan and determined that
it satisfactorily addressed the shortcomings identified in our
prior submissions. The FRB and the FDIC did not identify
deficiencies in our 2017 resolution plan, but the FRB and
the FDIC did note one shortcoming that must be addressed
in our next resolution plan submission. Our next resolution
plan is due on July 1, 2019. In December 2018, the FRB
for Resolution Plan
and FDIC finalized guidance
submissions which consolidated or superseded all prior
guidance. See “Business — Available Information” in
Part I, Item 1 of this Form 10-K.

In addition, GS Bank USA is required to submit periodic
resolution plans to the FDIC. GS Bank USA’s 2018
resolution plan was submitted on June 28, 2018. In
August 2018, the FDIC extended the next resolution plan
filing deadline to no sooner than July 1, 2020.

TLAC. In December 2016, the FRB adopted a final rule,
establishing new TLAC and related requirements for U.S.
BHCs designated as G-SIBs. The rule became effective in
January 2019, with no phase-in period. Failure to comply
with the TLAC requirements could result in restrictions
being imposed by the FRB and could limit our ability to
distribute capital, including share repurchases and dividend
payments, and to make certain discretionary compensation
payments.

The table below presents information about our TLAC and
external long-term debt ratios.

$ in millions

As of December 2018

TLAC
External long-term debt
RWAs
Leverage exposure

TLAC to RWAs
TLAC to leverage exposure
External long-term debt to RWAs
External long-term debt to leverage exposure

As of January 2019

Minimum TLAC to RWAs
Minimum TLAC to leverage exposure
Minimum external long-term debt to RWAs
Minimum external long-term debt to leverage exposure

TLAC and External
Long-Term Debt

$ 254,836
$ 160,493
$ 558,111
$1,342,906

45.7%
19.0%
28.8%
12.0%

22.0%
9.5%
8.5%
4.5%

T H E G O L D M A N S A C H S G R O U P ,
Management’s Discussion and Analysis

I N C . A N D S U B S I D I A R I E S

In the table above:
‰ TLAC includes common and preferred stock, and eligible
long-term debt issued by Group Inc. Eligible long-term
debt represents unsecured debt, which has a remaining
maturity of at least one year and satisfies additional
requirements.

‰ External long-term debt consists of eligible long-term
debt subject to a haircut if it is due to be paid between one
and two years.

‰ RWAs

represent Basel

III Advanced RWAs.

In
accordance with the TLAC rules, the higher of Basel III
Advanced or Standardized RWAs are used in the
calculation of TLAC and external long-term debt ratios.
‰ Leverage exposure consists of average adjusted total

assets and certain off-balance-sheet exposures.

See “Business — Regulation” in Part I, Item 1 of this
Form 10-K for further information about TLAC.

Other Developments
Brexit. In March 2017, the U.K. government commenced
the formal proceedings to end the U.K.’s membership in the
E.U. There is a two year window during which the terms of
the U.K.’s exit from the E.U. may be negotiated. This period
expires on March 29, 2019.

The E.U. and the U.K. had negotiated a withdrawal
agreement which both the U.K. and the E.U. Parliaments
ratify (the Withdrawal Agreement). The U.K.
must
Parliament has not yet approved the Withdrawal
Agreement. As a result, there is a possibility that the U.K.
will
leave the E.U. on March 29, 2019 without any
transitional arrangements in place and firms based in the
U.K. will lose their existing access arrangements to the E.U.
markets; such a scenario is referred to as a “hard” Brexit.

We have been preparing for anticipated outcomes,
including a hard Brexit, with the goal of ensuring that we
maintain access to E.U. markets and are able to continue to
provide products and services to our E.U. clients. In order
for us to continue to serve our E.U. clients, clients may need
to face an entity within one of the remaining E.U. member
states, unless national laws in the applicable member state
permit cross-border services from non-E.U. entities (for
example, based on specific licenses or exemptions).

Our plan to manage a hard Brexit scenario involves
transition of certain activities to new and/or different legal
entities; working with clients and counterparties
to
redocument transactions so they face one of our E.U. legal
entities; changes to our infrastructure; obtaining and
developing new real estate; and, in some cases, moving our
people to offices in the E.U.

In a hard Brexit scenario or as otherwise necessary, our plan
is to service our E.U. client base in the following manner:
‰ Our German bank subsidiary, Goldman Sachs Bank
Europe SE (GSBE), will act as our main operating
subsidiary in the E.U. and will assume certain functions
that can no longer be efficiently and effectively performed
by our U.K. operating subsidiaries, including GSI, GSIB
and GSAMI.

‰ Consistent with our global approach of being closer to
our clients, we are also setting up branches of GSBE in a
number of jurisdictions in the E.U. to enable Investment
and PWM
Banking,
investment personnel to be situated in our offices in those
countries.

Institutional Client

Services

‰ We have received approval from the German financial
regulator, BaFin, for a licensed investment firm, Goldman
Sachs Europe SE, which will be able to conduct certain
activities
related to physical
activities
commodities and related products) that GSBE may be
prevented from undertaking.

(such as

‰ In order to service our Investment Management business,
we have received approval from the Irish Financial
Regulator, the Central Bank of Ireland, for a Collective
Investment Fund and Alternative Investment Fund
Manager in Ireland,
to replace the similar existing
London-based Alternative Investment Fund Manager,
which will lose its E.U. passport post-Brexit.

‰ A large portion of our Institutional Client Services and
Investment Banking clients are classified as professionals
or eligible counterparties in specific jurisdictions and may
choose to continue being serviced by, and to continue to
transact with, the U.K. service providers and entities
under domestic arrangements provided by individual
member states (licenses or exemptions). We expect to
continue providing products and services in this manner
to the extent that clients prefer such coverage and it is
available. This would mean those clients who choose to
do so in certain jurisdictions could continue to face GSI.
‰ We are also in the process of opening accounts to enable
clients to transact with GSBE and/or Goldman Sachs
Europe SE, as applicable.

‰ The

internal

infrastructure build-out and external
connectivity to Financial Market Infrastructure required
for the new E.U. entities continues to progress, with
substantial
elements already in place. GSBE has
connected to settlement and clearing systems and is
testing exchange connectivity.

Goldman Sachs 2018 Form 10-K

T H E G O L D M A N S A C H S G R O U P ,
Management’s Discussion and Analysis

I N C . A N D S U B S I D I A R I E S

(Fitch), A1/P-1 by Moody’s

‰ GSBE has been assigned a credit rating of A/F1 by Fitch,
Inc.
Investors Service
(Moody’s) and A+/A-1 by Standard & Poor’s Ratings
Services (S&P), which are consistent with those issued to
GSI.

‰ Headcount in our E.U. offices has increased over the
course of last year, with several hundred roles expected to
transition into the E.U. under our current planning
assumptions.

‰ We have secured and are developing additional real estate
capacity in Frankfurt, Stockholm, Milan and Dublin.

Interbank Offered Rates (IBORs),
Replacement of
including LIBOR. Central banks and regulators in a
number of major jurisdictions (for example, U.S., U.K.,
E.U., Switzerland and Japan) have convened working
groups to find, and implement the transition to, suitable
replacements for IBORs. The U.K. FCA, which regulates
LIBOR, has announced that it will not compel panel banks
to contribute to LIBOR after 2021. The E.U. Benchmarks
Regulation imposed conditions under which only
compliant benchmarks may be used in new contracts after
2021.

Market-led working groups in major jurisdictions, noted
above, have already selected their preferred alternative risk-
free reference rates and have published and will continue to
publish consultations on issues, including methodologies
in contracts and financial
for
instruments linked to IBORs and the development of term
structures for alternative risk-free reference rates, which
will be critical for financial markets to transition to the use
of alternative risk-free reference rates in place of IBORs.

fallback provisions

We have exposure to IBORs,
including in financial
instruments and contracts that mature after 2021. Our
exposures arise from securities and loans we hold for
investment or in connection with market-making activities,
as well as derivatives we enter into to make markets for our
clients and hedge our risks. We also have exposure to
IBORs in the floating-rate securities and other funding
products we issue.

The markets for alternative risk-free reference rates are
developing and as they develop we expect to transition to
these alternative risk-free reference rates.

We are seeking to facilitate an orderly transition from
IBORs to alternative risk-free reference rates for us and our
clients. Accordingly, we have created a program that
focuses on:
‰ Evaluating and monitoring the impacts across our

businesses, including transactions and products;

Goldman Sachs 2018 Form 10-K

‰ Identifying and evaluating the scope of existing financial
instruments and contracts that may be affected, and the
extent to which those financial instruments and contracts
already contain appropriate fallback language or would
require amendment, either through bilateral negotiation
or using industry-wide tools, such as protocols;

‰ Enhancements to infrastructure (for example, models and
systems) to prepare for a smooth transition to alternative
risk-free reference rates;

‰ Active participation in central bank and sector working
groups, including responding to industry consultations;
and

‰ Client education and communication.

their

positions)

transitioning

As part of this program, we have sought to systematically
including
identify the risks inherent in this transition,
financial risks (for example, earnings volatility under stress
due to widening swap spreads and the loss of funding
reluctance to
sources as a result of counterparties’
and
participate
nonfinancial risks (for example, the inability to negotiate
fallbacks with clients and/or counterparties and operational
impediments to the transition). We are engaged with a
range of industry and regulatory working groups (for
example, ISDA, the Bank of England’s Working Group on
Sterling Risk Free Reference Rates and the Federal
Reserve’s Alternative Reference Rates Committee) and will
continue to engage with our clients and counterparties to
facilitate an orderly transition to alternative risk-free
reference rates.

Off-Balance-Sheet
Contractual Obligations

Arrangements

and

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

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

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

‰ Entering into operating leases; and
‰ Providing guarantees,

indemnifications, commitments,

letters of credit and representations and warranties.

T H E G O L D M A N S A C H S G R O U P ,
Management’s Discussion and Analysis

I N C . A N D S U B S I D I A R I E S

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

investor markets,

asset-backed

investments

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

performing

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

information

about

for

Type of Off-Balance-Sheet
Arrangement

and

interests

Variable
other
obligations, including contingent
obligations, arising from variable
nonconsolidated
interests
variable interest entities (VIEs)

Disclosure in Form 10-K

See Note 12 to the consolidated
financial statements.

Leases

See “Contractual Obligations” and
Note 18 to the consolidated
financial statements.

Guarantees, letters of credit, and
lending and other commitments

See Note 18 to the consolidated
financial statements.

Derivatives

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

Contractual Obligations
We have certain contractual obligations which require us to
make future cash payments. These contractual obligations
include our time deposits, secured long-term financings,
interest
unsecured long-term borrowings, contractual
payments
under
payments
and minimum rental
noncancelable leases.

Our obligations to make future cash payments also include
our commitments and guarantees related to off-balance-sheet
arrangements, which are excluded from the table below. See
Note 18 to the consolidated financial statements for further
information about such commitments and guarantees.

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

The table below presents contractual obligations by type.

$ in millions

Time deposits
Secured long-term financings
Unsecured long-term borrowings
Contractual interest payments
Minimum rental payments

As of December

2018

2017

$ 28,413
$ 11,878
$224,149
$ 54,594
2,399
$

$ 30,075
$
9,892
$217,687
$ 54,489
1,964
$

The table below presents contractual obligations by
expiration.

$ in millions

2019

Time deposits
Secured long-term

financings

Unsecured long-term

borrowings

Contractual interest

–

As of December 2018

2020 -
2021

$13,822

$ 5,711

2022 -
2023

9,828

3,163

2024 -
Thereafter

4,763

3,004

$52,335

$ 51,331

$120,483

payments

$6,695
Minimum rental payments $ 281

$12,015
489
$

$
$

8,568
319

$ 27,316
1,310
$

In the table above:
‰ Obligations maturing within one year of our financial
statement date or redeemable within one year of our
financial statement date at the option of the holders are
excluded as they are treated as short-term obligations. See
Note 15 to the consolidated financial statements for
further information about our short-term borrowings.
‰ Obligations that are repayable prior to maturity at our
option are reflected at their contractual maturity dates
and obligations that are redeemable prior to maturity at
the option of the holders are reflected at the earliest dates
such options become exercisable.

senior

‰ As of December 2018, unsecured long-term borrowings
had maturities extending through 2067, consisted
included
principally
$4.24 billion of adjustments to the carrying value of
certain unsecured long-term borrowings resulting from
the application of hedge accounting. See Note 16 to the
consolidated financial statements for further information
about our unsecured long-term borrowings.

borrowings,

and

‰ As of December 2018,

the difference between the
aggregate contractual principal amount and the related
fair value of long-term other secured financings for which
the fair value option was elected was not material.

‰ As of December 2018, the aggregate contractual principal
amount of unsecured long-term borrowings for which the
fair value option was elected exceeded the related fair
value by $2.38 billion.

Goldman Sachs 2018 Form 10-K

T H E G O L D M A N S A C H S G R O U P ,
Management’s Discussion and Analysis

I N C . A N D S U B S I D I A R I E S

‰ Contractual interest payments represents estimated future
related to unsecured long-term
interest payments
secured long-term financings and time
borrowings,
deposits based on applicable interest
rates as of
December 2018, and includes stated coupons, if any, on
structured notes.

‰ Future minimum rental payments are net of minimum
sublease rentals under noncancelable leases. These lease
commitments 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.

Risk Management

Risks are inherent in our businesses and include liquidity,
market, credit, operational, model,
legal, compliance,
conduct, regulatory and reputational risks. For further
information about our risk management processes, see
“Overview and Structure of Risk Management.” Our risks
include the risks across our risk categories, regions or global
businesses, as well as those which have uncertain outcomes
and have the potential to materially impact our financial
results, our liquidity and our reputation. For further
information about our areas of risk, see “Liquidity Risk
Management,” “Market Risk Management,” “Credit Risk
Management,” “Operational Risk Management” and
“Model Risk Management” and “Risk Factors” in Part I,
Item 1A of this Form 10-K.

Overview and Structure of Risk Management

Overview
We believe that effective risk management is critical to our
success. Accordingly, we have established an enterprise risk
management framework that employs a comprehensive,
integrated approach to risk management, and is designed to
enable comprehensive risk management processes through
which we identify, assess, monitor and manage the risks we
assume in conducting our activities. These risks include
liquidity, market,
legal,
compliance, conduct, regulatory and reputational risk
exposures. Our risk management structure is built around
three core components: governance, processes and people.

credit, operational, model,

Goldman Sachs 2018 Form 10-K

its Risk Committee, oversees our

Governance. Risk management governance starts with the
Board, which both directly and through its committees,
including
risk
management policies and practices implemented through
the enterprise risk management framework. The Board is
also responsible for the annual review and approval of our
risk appetite statement. The risk appetite statement
describes the levels and types of risk we are willing to accept
or to avoid, in order to achieve our strategic business
objectives, while remaining in compliance with regulatory
requirements.

The Board receives regular briefings on firmwide risks,
including liquidity risk, market risk, credit risk, operational
risk and model risk from our independent risk oversight
and control functions, including the chief risk officer, and
on compliance risk and conduct risk from the head of
Compliance, on legal and regulatory matters from the
general counsel, and on other matters impacting our
reputation from the chair of our Firmwide Client and
Business
and our Firmwide
Reputational Risk Committee. The chief risk officer reports
to our chief executive officer and to the Risk Committee of
the Board. As part of the review of the firmwide risk
portfolio, the chief risk officer regularly advises the Risk
Committee of the Board of relevant risk metrics and
material exposures, including risk limits and thresholds
established in our risk appetite statement.

Standards Committee

our

chief

officer,

The Enterprise Risk Management department, which
reports
the
risk
implementation of our risk governance structure and core
risk management processes and is responsible for ensuring
that our enterprise risk management framework provides
the Board, our risk committees and senior management
with a consistent and integrated approach to managing our
various risks in a manner consistent with our risk appetite.

oversees

revenue-producing units, as well as Treasury,
Our
Operations and Technology, are our first line of defense
and are accountable for the outcomes of our risk-generating
activities, as well as for assessing and managing those risks
within our risk appetite.

Our independent risk oversight and control functions are
considered our
second line of defense and provide
independent assessment, oversight and challenge of the
risks taken by our first line of defense, as well as lead and
participate in risk-oriented committees. Independent risk
include Compliance,
oversight and control
functions
Conflicts
Risk
Credit
Resolution,
Management, Enterprise Risk Management, Human
Capital Management, Legal, Liquidity Risk Management,
Market Risk Management, Model Risk Management,
Operational Risk Management and Tax.

Controllers,

T H E G O L D M A N S A C H S G R O U P ,
Management’s Discussion and Analysis

I N C . A N D S U B S I D I A R I E S

the Board.

Internal Audit

Internal Audit is considered our third line of defense and
reports to our chief executive officer and the Audit
Committee of
includes
professionals with a broad range of audit and industry
experience, including risk management expertise. Internal
Audit
is responsible for independently assessing and
validating the effectiveness of key controls, including those
within the risk management framework, and providing
timely reporting to the Audit Committee of the Board,
senior management and regulators.

the
The three lines of defense structure promotes
accountability of
risk takers, provides a
line
framework for effective challenge by the second line and
empowers independent review from the third line.

first

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 manage and mitigate risks.

We maintain strong communication about risk and we have
a culture of collaboration in decision-making among our
first and second lines of defense, committees and senior
management. While our first line of defense is responsible
for management of
their risk, we dedicate extensive
resources to our second line of defense in order to ensure a
strong oversight structure and an appropriate segregation
of duties. We regularly reinforce our strong culture of
escalation and accountability across all functions.

Processes. We maintain various processes that are critical
components of our risk management framework, including
identifying, assessing, monitoring and limiting our risks.

To effectively assess and monitor our risks, we maintain a
daily discipline of marking substantially all of our inventory
to current market levels. We carry our inventory at fair
value, with changes in valuation reflected immediately in
our risk management systems and in net revenues. We do so
because we believe this discipline is one of the most effective
tools for assessing and managing risk and that it provides
transparent and realistic insight
inventory
exposures.

into our

We also apply a rigorous framework of
limits and
thresholds to control and monitor risk across transactions,
products, businesses and markets. The Board, directly or
indirectly through its Risk Committee, approves limits and
thresholds included in our risk appetite statement at
firmwide, business and product levels. In addition, the
Firmwide Enterprise Risk Committee is responsible for
approving our risk limits framework, subject to the overall
limits approved by the Risk Committee of the Board, at a
variety of levels and monitoring these limits on a daily basis.

responsible for
The Risk Governance Committee is
approving limits at firmwide, business and product levels.
Certain limits may be set at levels that will require periodic
adjustment, rather than at levels that reflect our maximum
risk appetite. This fosters an ongoing dialogue about risk
among our first and second lines of defense, committees
and senior management, as well as rapid escalation of
risk-related matters. See “Liquidity Risk Management,”
“Market Risk Management,” “Credit Risk Management”
and “Operational Risk Management” for
further
information.

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.

Effective risk reporting and risk decision-making depends
on our ability to get the right information to the right
people at the right time. As such, we focus on the rigor and
effectiveness of our risk systems, with the objective of
ensuring that our risk management technology systems are
comprehensive, reliable and timely. We devote significant
time and resources to our risk management technology to
ensure that it consistently provides us with complete,
accurate and timely information.

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

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

Goldman Sachs 2018 Form 10-K

T H E G O L D M A N S A C H S G R O U P ,
Management’s Discussion and Analysis

I N C . A N D S U B S I D I A R I E S

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

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

The chart below presents an overview of our
risk
management governance structure, our three lines of
defense and our reporting relationships.

Corporate Oversight
Board of Directors
Board Commi(cid:3)ees

Senior Management Oversight

Chief Execu(cid:2)ve Oﬃcer
President/Chief Opera(cid:2)ng Oﬃcer

Chief Financial Oﬃcer

Commi(cid:3)ee Oversight

Management Commi(cid:3)ee

Chief Risk Oﬃcer

Firmwide Enterprise Risk
Commi(cid:3)ee

Firmwide Client and Business
Standards Commi(cid:3)ee

Firmwide Asset Liability
Commi(cid:3)ee

President/Chief Opera(cid:2)ng Oﬃcer

Chief Financial Oﬃcer

First Line of Defense
Revenue-Producing Units
Treasury

Opera(cid:2)ons

Technology

Second Line of Defense
Independent Risk Oversight and Control Func(cid:2)ons

Chief Execu(cid:2)ve Oﬃcer
President/Chief Opera(cid:2)ng Oﬃcer

Compliance

Legal

Conﬂicts Resolu(cid:2)on

Chief Financial Oﬃcer

Controllers

Human Capital Management

Tax

Chief Risk Oﬃcer

Credit Risk Management
Liquidity Risk Management
Model Risk Management

Enterprise Risk Management
Market Risk Management
Opera(cid:2)onal Risk Management

Board Commi(cid:3)ees/
Chief Execu(cid:2)ve Oﬃcer

Third Line of Defense
Internal Audit

Goldman Sachs 2018 Form 10-K

Management Committee. The Management Committee
oversees our global activities. It provides this oversight
directly and through authority delegated to committees it
has established. This committee consists of our most senior
leaders, and is chaired by our chief executive officer. Most
members of the Management Committee are also members
of other committees. The following are the committees that
are principally involved in firmwide risk management.

Firmwide Enterprise Risk Committee. The Firmwide
Enterprise Risk Committee is responsible for the ongoing
review, approval and monitoring of the enterprise risk
management framework and for providing oversight of our
aggregate financial and nonfinancial risks. As a part of such
oversight, the committee is responsible for the ongoing
approval and monitoring of our risk limits framework at
the firmwide, business and product levels. This committee
is co-chaired by our chief financial officer and our chief risk
officer, who are appointed as chairs by our chief executive
officer, and reports to the Management Committee. The
following are the primary committees that report to the
Firmwide Enterprise Risk Committee:
‰ Firmwide Risk Committee. The Firmwide Risk
Committee is globally responsible for the ongoing
monitoring of relevant financial risks and related risk
limits at the firmwide, business and product levels. This
committee is co-chaired by the chairs of the Firmwide
Enterprise Risk Committee.

‰ Firmwide New Activity Committee. The Firmwide
New Activity Committee is responsible for reviewing new
activities and for establishing a process to identify and
review previously approved activities that are significant
and that have changed in complexity and/or structure or
present different reputational and suitability concerns
over time to consider whether these activities remain
appropriate. This committee is co-chaired by the head of
regulatory controllers and the co-head of Europe, Middle
East and Africa FICC sales, who are appointed as chairs
by the chairs of the Firmwide Enterprise Risk Committee.
‰ 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 deputy chief
risk officer, who is appointed as chair by the chairs of the
Firmwide Enterprise Risk Committee.

T H E G O L D M A N S A C H S G R O U P ,
Management’s Discussion and Analysis

I N C . A N D S U B S I D I A R I E S

‰ Firmwide

Conduct

Operational

Risk
and
Committee. The Firmwide Conduct and Operational
Risk Committee is globally responsible for the ongoing
approval and monitoring of the frameworks, policies,
parameters and limits which govern our conduct and
operational risks. This committee is co-chaired by a
managing director in Global Compliance and our deputy
chief risk officer, who are appointed as chairs by the
chairs of the Firmwide Enterprise Risk Committee.

‰ 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
matters, as well as
technology risk management
frameworks and methodologies, and monitors their
effectiveness. This committee is co-chaired by our chief
information officer and the head of Global Investment
Research, who are appointed as chairs by the chairs of the
Firmwide Enterprise Risk Committee.

‰ 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,
who is appointed as chair by the chairs of the Firmwide
Enterprise Risk Committee.

responsible

‰ Risk Governance Committee. The Risk Governance
Committee (through delegated authority from the
Firmwide Enterprise Risk Committee)
is globally
responsible for the ongoing approval and monitoring of
risk frameworks, policies, parameters and limits, at
firmwide, business and product levels. In addition, this
committee reviews the results of stress tests and scenario
analyses. This committee is chaired by our chief risk
officer, who is appointed as chair by the chairs of the
Firmwide Enterprise Risk Committee.

‰ Firmwide Volcker Oversight Committee. The
Firmwide Volcker Oversight Committee is responsible for
the oversight and periodic review of the implementation
of our Volcker Rule compliance program, as approved by
the Board, and other Volcker Rule-related matters. This
committee is co-chaired by the head of Market Risk
Management and the deputy head of Compliance, who
are appointed as chairs by the chairs of the Firmwide
Enterprise Risk Committee.

Firmwide Client and Business Standards Committee.
The Firmwide Client and Business Standards Committee
assesses and makes determinations regarding relationships
with our clients, client service and experience, and related
business standards and reputational risk. This committee is
chaired by our president and chief operating officer, who is
appointed as chair by the chief executive officer, and
reports to the Management Committee. This committee
periodically provides updates to, and receives guidance
from, the Public Responsibilities Committee of the Board.

The following committees report jointly to the Firmwide
Enterprise Risk Committee and the Firmwide Client and
Business Standards Committee:
‰ Firmwide Reputational Risk Committee. The
Firmwide Reputational Risk Committee is responsible for
assessing reputational risks arising from transactions that
have been identified as having potential heightened
reputational risk pursuant to the criteria established by
the Firmwide Reputational Risk Committee. This
committee is chaired by our president and chief operating
officer, and the vice-chairs are the head of Compliance
and the head of Conflicts Resolution, who are appointed
as vice-chairs by the chair of the Firmwide Reputational
Risk Committee.

‰ 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 functions,
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 Compliance, and the co-head of Europe,
Middle East and Africa FICC sales, who are appointed as
chairs by the chair of the Firmwide Client and Business
Standards Committee.

Investment

Policy Committee

‰ Firmwide Investment Policy Committee. The
Firmwide
reviews,
approves, sets policies, and provides oversight for certain
illiquid principal investments, including review of risk
management and controls for these types of investments.
This committee is co-chaired by the head of our Merchant
Banking Division and the head of the Special Situations
Group, who are appointed as chairs by our president and
chief operating officer and our chief financial officer.

Goldman Sachs 2018 Form 10-K

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

We have a multilayered approach to resolving conflicts and
addressing reputational risk. Our senior management
oversees policies related to conflicts resolution, and, in
and
conjunction with Conflicts Resolution, Legal
Compliance, the Firmwide Client and Business Standards
Committee, and other internal committees, formulates
policies, standards and principles, and assists in making
resolution of
judgments
particular
conflicts
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

have

transaction

As a general matter, Conflicts Resolution reviews financing
and advisory assignments in Investment Banking and
certain of our investing, lending and other activities. In
addition, we
oversight
various
committees, such as the Firmwide Capital, Commitments
and Suitability Committees and other committees that also
and
review new underwritings,
structured products. These groups and committees work
with internal and external counsel and Compliance to
evaluate and address any actual or potential conflicts.
Conflicts Resolution reports to our president and chief
operating officer.

investments

loans,

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.

T H E G O L D M A N S A C H S G R O U P ,
Management’s Discussion and Analysis

I N C . A N D S U B S I D I A R I E S

‰ 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,
reputational and suitability standards for underwritings
and capital commitments are maintained on a global
basis. This committee is co-chaired by the head of Credit
Risk Management and a co-head of the Financing Group,
who are appointed as chairs by the chairs of the Firmwide
Enterprise Risk Committee.

that

ensure

designed

procedures

‰ 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 the co-head of
the Industrials Group in our
Investment Banking
Division, an advisory director and a managing director in
Risk Management, who are appointed as chairs by the
chair of the Firmwide Client and Business Standards
Committee.

transactions,

committee

liquidity,

funding and balance

Firmwide Asset Liability Committee. The Firmwide
Asset Liability Committee reviews and approves the
strategic direction for our financial resources, including
capital,
sheet. This
committee has oversight responsibility for asset liability
management,
including interest rate and currency risk,
funds transfer pricing, capital allocation and incentives, and
credit ratings. This committee makes recommendations as
to any adjustments to asset liability management and
financial resource allocation in light of current events, risks,
exposures, and regulatory requirements and approves
related policies. This committee is co-chaired by our chief
financial officer and our global
treasurer, who are
appointed as chairs by our chief executive officer, and
reports to the Management Committee.

Goldman Sachs 2018 Form 10-K

T H E G O L D M A N S A C H S G R O U P ,
Management’s Discussion and Analysis

I N C . A N D S U B S I D I A R I E S

Liquidity Risk Management

Overview
Liquidity risk is the risk that we will be unable to fund
ourselves or meet our liquidity needs in the event of firm-
specific, broader industry or market liquidity stress events.
We have in place a comprehensive and conservative set of
liquidity and funding policies. Our principal objective is to
be able to fund ourselves and to enable our core businesses
to continue to serve clients and generate revenues, even
under adverse circumstances.

Treasury, which reports to our chief financial officer, has
primary responsibility for developing, managing and
executing our liquidity and funding strategy within our risk
appetite.

Liquidity Risk Management, which is independent of our
revenue-producing units and Treasury, and reports to our
chief risk officer, has primary responsibility for assessing,
monitoring and managing our liquidity risk through
firmwide oversight across our global businesses and the
establishment of stress testing and limits frameworks.

Liquidity Risk Management Principles
We manage liquidity risk according to three principles:
(i) hold sufficient excess liquidity in the form of GCLA to
cover outflows during a stressed period, (ii) maintain
appropriate Asset-Liability Management and (iii) maintain
a viable Contingency Funding Plan.

GCLA. GCLA is liquidity that we maintain to meet a broad
range of potential cash outflows and collateral needs in a
stressed environment. A primary liquidity principle 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.

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

critical to a company’s survival;

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

requirements

collateral

and

credit-sensitive

‰ During a liquidity crisis,

funding,
including unsecured debt, certain deposits and some types
of secured financing agreements, may be unavailable, and
the terms (e.g., interest rates, collateral provisions and
tenor) or availability of other types of secured financing
may change and certain deposits may be withdrawn; and
‰ As a result of our policy to pre-fund liquidity that we
estimate may be needed in a crisis, we hold more
unencumbered securities and have larger 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 maintain our GCLA across Group Inc., Goldman Sachs
Funding LLC (Funding IHC) and Group Inc.’s major
broker-dealer and bank subsidiaries, asset
types, and
clearing agents to provide us with sufficient operating
liquidity to ensure timely settlement in all major markets,
even in a difficult funding environment. In addition to the
GCLA, we maintain cash balances and securities in several
of our other entities, primarily for use in specific currencies,
entities or jurisdictions where we do not have immediate
access to parent company liquidity.

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.

liquidity

Asset-Liability Management. Our
risk
management policies are designed to ensure we have a
sufficient amount of financing, even when funding markets
experience persistent stress. We manage the maturities and
diversity of our funding across markets, products and
counterparties, and seek to maintain a diversified funding
profile with an appropriate tenor, 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 further information;

Goldman Sachs 2018 Form 10-K

T H E G O L D M A N S A C H S G R O U P ,
Management’s Discussion and Analysis

I N C . A N D S U B S I D I A R I E S

‰ 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. We assess our
funding requirements and our ability to liquidate assets in
a stressed environment while appropriately managing
risk. This enables us to determine the most appropriate
funding products and tenors. See “Balance Sheet and
Funding Sources — Balance Sheet Management” for
further information about our balance sheet management
process and “— Funding Sources — Secured Funding”
for further information about asset classes that may be
harder to fund on a secured basis; and

‰ Raising secured and unsecured financing that has a long
tenor relative to the liquidity profile of our assets. This
reduces the risk that our liabilities will come due in
advance of our ability to generate liquidity from the sale
of our assets. Because we maintain a highly liquid balance
sheet, the holding period of certain of our assets may be
materially shorter than their contractual maturity dates.

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

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

including deposits,

secured funding

to meet

their

Goldman Sachs 2018 Form 10-K

intercompany funding policies assume

that a
Our
subsidiary’s funds or securities are not freely available to its
parent, Funding IHC or other subsidiaries unless (i) legally
provided for and (ii) there are no additional regulatory, tax
or other restrictions. In particular, many of our subsidiaries
are subject to laws that authorize regulatory bodies to block
or reduce the flow of funds from those subsidiaries to
Group Inc. or Funding IHC. Regulatory action of that kind
could impede access to funds that Group Inc. needs to make
payments on its obligations. Accordingly, we assume that
the capital provided to our regulated subsidiaries is not
available to Group Inc. or other subsidiaries and any other
financing provided to our regulated subsidiaries is not
available to Group Inc. or Funding IHC until the maturity
of such financing.

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 2018,
Group Inc. had $29.05 billion of equity and subordinated
indebtedness
its principal U.S.
registered broker-dealer; $39.69 billion invested in GSI, a
regulated U.K. broker-dealer; $2.76 billion invested in
GSJCL, a regulated Japanese broker-dealer; $31.98 billion
invested in GS Bank USA, a regulated New York State-
chartered bank; and $3.93 billion invested in GSIB, a
regulated U.K. bank. Group Inc. also provided, directly or
indirectly, $114.38 billion of unsubordinated loans
(including
and
$18.09 billion of collateral and cash deposits to these
entities, substantially all of which was to GS&Co., GSI,
GSJCL and GS Bank USA, as of December 2018. In
addition, as of December 2018, Group Inc. had significant
invested in and loans to its other
amounts of capital
regulated subsidiaries.

secured loans of $28.72 billion),

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. Our 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
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.

in detail our potential

responses

T H E G O L D M A N S A C H S G R O U P ,
Management’s Discussion and Analysis

I N C . A N D S U B S I D I A R I E S

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 provides information about
the responsibilities of these groups and individuals, which
decisions,
include making
the
coordinating all contingency activities throughout
stress,
duration of
implementing
and
managing internal and external communication.

the crisis or period of market

liquidity maintenance

disseminating

activities

and

key

internal

long-term stress

Stress Tests
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, the
results of our
testing models, our
resolution liquidity models and other applicable regulatory
requirements and a qualitative assessment of our condition,
as well as the financial markets. The results of the Modeled
Liquidity Outflow, the Intraday Liquidity Model, the long-
term stress testing models and the resolution liquidity
models are reported to senior management on a regular
basis. We also perform stress tests that are designed to
ensure a comprehensive analysis of our vulnerabilities and
idiosyncratic risks combining financial and nonfinancial
risks, including, but not limited to, credit, market, liquidity
and funding, operational and compliance,
strategic,
systemic and emerging risks into a single combined
scenario.

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
financial and
consumer and corporate confidence,
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 key modeling elements 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 additional government

funding
facilities. Although we have access to various central bank
funding programs, we do not assume reliance on
additional sources of funding in a liquidity crisis; and

‰ No asset liquidation, other than the GCLA.

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

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

‰ Contingent: Partial withdrawals of 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 the value of financial
assets pledged as collateral for financing transactions,
which would necessitate additional collateral postings
under those transactions.

Goldman Sachs 2018 Form 10-K

T H E G O L D M A N S A C H S G R O U P ,
Management’s Discussion and Analysis

I N C . A N D S U B S I D I A R I E S

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

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.

Securities
‰ Contingent: Liquidity outflows associated with a
reduction or composition change in our 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.

Goldman Sachs 2018 Form 10-K

Long-Term Stress Testing. We utilize longer-term stress
tests to take a forward view on our liquidity position
through prolonged stress periods in which we experience a
severe liquidity stress and recover in an environment that
continues to be challenging. We are focused on ensuring
conservative asset-liability management to prepare for a
prolonged period of potential stress, seeking to maintain a
diversified funding profile with an appropriate tenor,
taking into consideration the characteristics and liquidity
profile of our assets.

We also perform stress tests on a regular basis as part of our
routine risk management processes and conduct tailored
stress tests on an ad hoc or product-specific basis in
response to market developments.

and

Liquidity

Adequacy

Resolution Liquidity Models. In connection with our
resolution planning efforts, we have established our
Resolution
Positioning
framework, which estimates liquidity needs of our major
subsidiaries in a stressed environment. The liquidity needs
are measured using our Modeled Liquidity Outflow
assumptions and include certain additional inter-affiliate
exposures. We have also established our Resolution
Liquidity Execution Need framework, which measures the
liquidity needs of our major subsidiaries to stabilize and
wind-down following a Group Inc. bankruptcy filing in
accordance with our preferred resolution strategy.

Model Review and Validation
We regularly refine our Modeled Liquidity Outflow,
Intraday Liquidity Model and our other stress testing
models to reflect changes in market or economic conditions
including model
and our business mix. Any changes,
assumptions, are approved by Liquidity Risk Management.
Significant changes to these models are also approved by
the Risk Governance Committee.

These models are independently reviewed, validated and
approved by Model Risk Management. See “Model Risk
Management” for further information.

Limits
We use liquidity limits at various levels and across liquidity
risk types to manage the size of our liquidity exposures.
Limits are measured relative to acceptable levels of risk
given our liquidity risk tolerance. The purpose of the
firmwide limits
in
senior management
to assist
monitoring and controlling our overall liquidity profile.

T H E G O L D M A N S A C H S G R O U P ,
Management’s Discussion and Analysis

I N C . A N D S U B S I D I A R I E S

The Risk Committee of the Board and the Risk Governance
Committee approve liquidity risk limits at the firmwide
level, consistent with our risk appetite statement. Limits are
reviewed frequently and amended, with required approvals,
on a permanent and temporary basis, as appropriate, to
reflect changing market or business conditions.

Our liquidity risk limits are monitored by Treasury and
Liquidity Risk Management. Liquidity Risk Management is
identifying and escalating to senior
responsible for
management and/or the appropriate risk committee, on a
timely basis, instances where limits have been exceeded.

GCLA and Unencumbered Metrics
GCLA. Based on the results of our internal liquidity risk
models, described above, 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 our condition, as well as the financial markets,
we believe our liquidity position as of both December 2018
and December 2017 was appropriate. We strictly limit our
GCLA to a 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
liquid
unencumbered securities or committed credit facilities.

liquidity in our GCLA,

such as

less

The table below presents information about our average GCLA.

$ in millions

Denomination
U.S. dollar
Non-U.S. dollar
Total

Asset Class
Overnight cash deposits
U.S. government obligations
U.S. agency obligations
Non-U.S. government obligations
Total

Entity Type
Group Inc. and Funding IHC
Major broker-dealer subsidiaries
Major bank subsidiaries
Total

Average for the
Year Ended December

2018

2017

$155,348
77,995
$233,343

$155,020
63,528
$218,548

$ 98,811
79,810
12,171
42,551
$233,343

$ 40,920
104,364
88,059
$233,343

$ 93,617
75,108
11,813
38,010
$218,548

$ 37,507
98,160
82,881
$218,548

unencumbered U.S.

In the table above:
‰ The U.S. dollar-denominated GCLA consists of
agency
(i)
obligations
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.

and
liquid U.S.

(including highly

government

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. Funding IHC is required to provide
the necessary liquidity to Group Inc. during the ordinary
course of business, and is also obligated to provide capital
and liquidity support to major subsidiaries in the event of our
material financial distress or failure. Liquidity held directly in
each of our major broker-dealer and bank subsidiaries is
intended for use only by that subsidiary to meet its liquidity
requirements and is assumed not to be available to Group
Inc. or Funding IHC unless (i) legally provided for and
(ii)
tax or other
restrictions. In addition, the Modeled Liquidity Outflow and
Intraday Liquidity Model also incorporate a broader
assessment of standalone liquidity requirements for other
subsidiaries and we hold a portion of our GCLA directly at
Group Inc. or Funding IHC to support such requirements.

there are no additional regulatory,

instruments,

Other Unencumbered Assets. In addition to our GCLA,
we have a significant amount of other unencumbered cash
and financial
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 our
unencumbered assets averaged $177.08 billion for 2018
and $158.41 billion for 2017. We do not consider these
assets liquid enough to be eligible for our GCLA.

Liquidity Regulatory Framework
As a BHC, we are subject to a minimum Liquidity Coverage
Ratio (LCR) under the LCR rule approved by the U.S.
federal bank regulatory agencies. The LCR rule requires
organizations to maintain an adequate ratio of eligible
high-quality liquid assets (HQLA) to expected net cash
outflows under an acute short-term liquidity stress
scenario. Eligible HQLA excludes HQLA held by
subsidiaries that is in excess of their minimum requirement
and is subject to transfer restrictions. We are required to
maintain a minimum LCR of 100%. We expect that
fluctuations in client activity, business mix and the market
environment will impact our average LCR.

The table below presents information about our average
daily LCR.

Average for the
Three Months Ended

December
2018

$226,473
$160,016
$126,511

September
2018

$233,721
$170,621
$133,126

127%

128%

Goldman Sachs 2018 Form 10-K

‰ The non-U.S. dollar-denominated GCLA consists of
non-U.S. government obligations (only unencumbered
German, French,
Japanese and U.K. government
obligations) and certain overnight cash deposits in highly
liquid currencies.

$ in millions

Total HQLA
Eligible HQLA
Net cash outflows

LCR

The table below presents the unsecured credit ratings and
outlook of Group Inc.

As of December 2018

DBRS

Fitch Moody’s

R&I

S&P

Short-term debt
Long-term debt
Subordinated debt
Trust preferred
Preferred stock
Ratings outlook

R-1 (middle)
A(high)
A
A
BBB (high)

F1
A
A-
BBB-
BB+
Stable Stable

P-2
A3
Baa2
Baa3
Ba1

A-2
BBB+
BBB-
BB
BB
Stable Stable Stable

a-1
A
A-
N/A
N/A

In the table above:
‰ The ratings and outlook are by DBRS, Inc. (DBRS), Fitch,
Inc.

Information,

Moody’s, Rating and Investment
(R&I), and S&P.

‰ The ratings for trust preferred relate to the guaranteed
preferred beneficial interests issued by Goldman Sachs
Capital I.

‰ The DBRS, Fitch, Moody’s and S&P ratings for preferred
stock include the APEX issued by Goldman Sachs
Capital II and Goldman Sachs Capital III.

The table below presents the unsecured credit ratings and
outlook of GS Bank USA, GSIB, GS&Co. and GSI, by
Fitch, Moody’s and S&P.

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 2018

Fitch

Moody’s

S&P

F1
A+
F1+
AA-
Stable

F1
A
F1
A
Stable

F1
A+
Stable

F1
A
Stable

P-1
A1
P-1
A1
Negative

N/A
N/A
N/A

P-1
A1
Negative

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

A-1
A+
Stable

T H E G O L D M A N S A C H S G R O U P ,
Management’s Discussion and Analysis

I N C . A N D S U B S I D I A R I E S

In addition, the U.S. federal bank regulatory agencies have
issued a proposed rule that calls for a net stable funding
ratio (NSFR) for large U.S. banking organizations. The
proposal would require banking organizations to ensure
they have access to stable funding over a one-year time
horizon. The proposed rule includes quarterly disclosure of
the ratio and a description of the banking organization’s
stable funding sources. The U.S. federal bank regulatory
agencies have not released the final rule. We expect that we
will be compliant with the NSFR requirement when it is
effective.

The following is information about our subsidiary liquidity
regulatory requirements:
‰ GS Bank USA. GS Bank USA is subject to a minimum
LCR of 100% under the LCR rule approved by the U.S.
federal bank regulatory agencies. As of December 2018,
GS Bank USA’s LCR exceeded the minimum requirement.
The NSFR requirement described above would also apply
to GS Bank USA.

‰ GSI. GSI is subject to a minimum LCR of 100% under
the LCR rule approved by the U.K. regulatory authorities
and the European Commission. GSI’s average monthly
LCR for
trailing twelve-month period ended
December 2018 exceeded the minimum requirement.

the

local

‰ Other Subsidiaries. We monitor

regulatory
liquidity requirements of our subsidiaries to ensure
these
compliance. For many of our
requirements either have changed or are likely to change
in the future due to the implementation of the Basel
Committee’s framework for liquidity risk measurement,
standards and monitoring, as well as other regulatory
developments.

subsidiaries,

The implementation of these rules and any amendments
adopted by the regulatory authorities, could impact our
liquidity and funding requirements and practices in the
future.

Credit Ratings
We rely on the short-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 “Risk Factors” in Part I, Item 1A of
this Form 10-K for information about the risks associated
with a reduction in our credit ratings.

Goldman Sachs 2018 Form 10-K

T H E G O L D M A N S A C H S G R O U P ,
Management’s Discussion and Analysis

I N C . A N D S U B S I D I A R I E S

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 and economic environment,
including, in some cases, the assumed level of government
support or other
such as
potential resolution.

systemic considerations,

Certain of our derivatives have been transacted under
bilateral agreements with counterparties who may require
us to post collateral or terminate the transactions based on
changes in our credit ratings. We manage our GCLA to
ensure we would, among other potential requirements, be
able to make the additional collateral or termination
payments that may be required in the event of a two-notch
reduction in our long-term credit ratings, as well as
collateral that has not been called by counterparties, but is
available to them.

See Note 7 to the consolidated financial statements for
further information about derivatives with credit-related
contingent
features and the additional collateral or
related to our net derivative
termination payments
liabilities under bilateral agreements that could have been
called by counterparties in the event of a one-notch and
two-notch downgrade in our credit ratings.

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 2018. Our cash and cash
equivalents increased by $20.50 billion to $130.55 billion
at the end of 2018, primarily due to net cash provided by
financing activities and operating activities, partially offset
by net cash used for investing activities. The net cash
provided by financing activities primarily reflected
increases in consumer deposits. The net cash provided by
operating activities primarily reflected net earnings and a
decrease in collateralized transactions, partially offset by an
increase in financial instruments owned. The net cash used
for investing activities was primarily to fund corporate and
commercial real estate loans.

Year Ended December 2017. Our cash and cash
equivalents decreased by $11.66 billion to $110.05 billion
at the end of 2017. We used $18.23 billion in net cash for
operating activities, reflecting a decrease in the net liability
for receivables and payables due to client activity. We used
$28.64 billion in net cash for investing activities, primarily
to fund corporate and real estate loans, and investments in
U.S. government and agency obligations accounted for as
available-for-sale securities. We generated $35.21 billion in
net cash from financing activities, primarily from net
issuances of unsecured long-term borrowings and increases
in institutional and consumer deposits, partially offset by
repurchases of common stock.

Year Ended December 2016. Our cash and cash
equivalents increased by $28.27 billion to $121.71 billion
at the end of 2016. We generated $9.68 billion in net cash
from investing activities, primarily from net cash acquired
in business acquisitions. We generated $18.60 billion in net
cash from financing activities and operating activities,
primarily from increases in deposits and from net issuances
of unsecured long-term borrowings, partially offset by
repurchases of common stock.

Goldman Sachs 2018 Form 10-K

Market Risk Management Process
Our process for managing market risk includes:
‰ Collecting complete, accurate and timely information;
‰ A dynamic limit-setting framework;
‰ Monitoring compliance with established market risk

limits and reporting our exposures;

‰ Diversifying exposures;
‰ Controlling position sizes;
‰ Evaluating mitigants, such as economic hedges in related

securities or derivatives; and

‰ Proactive

communication

revenue-
producing units and our independent risk oversight and
control functions.

between

our

Our market risk management systems enable us to perform
an independent calculation of VaR and stress measures,
capture risk measures at individual position levels, attribute
risk measures to individual risk factors of each position,
report many different views of the risk measures (e.g., by
desk, business, product type or entity) and produce ad hoc
analyses in a timely manner.

Risk Measures
Market Risk Management produces risk measures and
monitors them against established market risk limits. These
measures reflect an extensive range of scenarios and the
results are aggregated at product, business and firmwide
levels.

We use a variety of risk measures to estimate the size of
potential
losses for both moderate and more extreme
market moves over both short-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 risk oversight and control functions.

T H E G O L D M A N S A C H S G R O U P ,
Management’s Discussion and Analysis

I N C . A N D S U B S I D I A R I E S

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

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

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

Market Risk Management, which is independent of our
revenue-producing units and reports to our chief risk
officer, has primary responsibility for assessing, monitoring
and managing our market risk through firmwide oversight
across our global businesses.

Managers in revenue-producing units and Market Risk
Management discuss market information, positions and
estimated loss scenarios on an ongoing basis. Managers in
revenue-producing units are accountable for managing risk
within prescribed limits. These managers have in-depth
knowledge of their positions, markets and the instruments
available to hedge their exposures.

Goldman Sachs 2018 Form 10-K

T H E G O L D M A N S A C H S G R O U P ,
Management’s Discussion and Analysis

I N C . A N D S U B S I D I A R I E S

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 assets and liabilities
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
the
risk characteristics. VaR also captures
diversification of aggregated risk at the firmwide level.

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

horizons where moves may be extreme;

‰ VaR does not take account of the relative liquidity of

different risk positions; and

‰ Previous moves in market risk factors may not produce

accurate predictions of all future market moves.

To comprehensively capture our exposures and relevant
risks in our VaR calculation, we use historical simulations
with full valuation of market factors at the position level by
simultaneously shocking the relevant market factors for
that position. These market factors include spot prices,
credit spreads, funding spreads, yield curves, volatility and
correlation, and are updated periodically based on changes
in the composition of positions, as well as variations in
market conditions. We sample from five years of historical
data to generate the scenarios for our VaR calculation. The
historical data is weighted so that the relative importance of
the data reduces over time. This gives greater importance to
more recent observations and reflects current asset
volatilities, which improves the accuracy of our estimates of
potential loss. As a result, even if our positions included in
VaR were unchanged, our VaR would increase with
increasing market volatility and vice versa.

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

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

sensitivity measures; and

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

We perform daily backtesting of our VaR model (i.e.,
comparing daily net revenues for positions included in VaR
to the VaR measure calculated as of the prior business day)
at the firmwide level and for each of our businesses and
major regulated subsidiaries.

Stress Testing. 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 our significant risk exposures. 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 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 any single entity,
which captures the risk of large or concentrated exposures.

Scenario analysis is used to quantify the impact of a
specified event, including how the event impacts multiple
risk factors simultaneously. For example, for sovereign
stress
testing we calculate potential direct exposure
associated with our sovereign inventory, as well as the
equity and currency exposures
corresponding debt,
associated with our non-sovereign inventory that may be
impacted by the sovereign distress. When conducting
scenario analysis, we typically consider a number of
ranging from
possible outcomes
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,

Goldman Sachs 2018 Form 10-K

The purpose of the firmwide limits is to assist senior
management
risk profile.
in controlling our overall
Sub-limits are set below the approved level of risk limits.
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
senior
management approval,
effectively leaving day-to-day
decisions
to individual desk managers and traders.
Accordingly, sub-limits are a management tool designed to
ensure appropriate escalation rather than to establish
maximum risk tolerance. Sub-limits also distribute risk
among various businesses in a manner that is consistent
with their level of activity and client demand, taking into
account the relative performance of each area.

levels of

Our market risk limits are monitored by Market Risk
Management, which is responsible for identifying and
escalating to senior management and/or the appropriate
risk committee, on a timely basis, instances where limits
have been exceeded. When a risk limit has been exceeded
(e.g., due to positional changes or changes in market
conditions, such as increased volatilities or changes in
correlations), it is escalated to senior management and/or
the appropriate risk committee. Such instances are
remediated by an inventory reduction and/or a temporary
or permanent increase to the risk limit.

Model Review and Validation
Our VaR and stress testing models are regularly reviewed
by Market Risk Management 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, Model Risk
Management performs model validations. Significant
changes to our VaR and stress testing models are reviewed
with our chief risk officer and chief financial officer, and
approved by the Risk Governance Committee.

These models are independently reviewed, validated and
approved by Model Risk Management. See “Model Risk
Management” for further information.

T H E G O L D M A N S A C H S G R O U P ,
Management’s Discussion and Analysis

I N C . A N D S U B S I D I A R I E S

Stress testing is designed to ensure a comprehensive analysis
of our vulnerabilities and idiosyncratic risks combining
financial and nonfinancial risks, including, but not limited
to, market, credit, liquidity and funding, operational and
compliance, strategic, systemic and emerging risks into a
single combined scenario. Stress tests are primarily used to
assess capital adequacy as part of our capital planning and
stress testing process; however, stress testing is also
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” for further information.

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,
loss concentrations, undertake risk/
highlight potential
reward analysis, and assess and mitigate our risk positions.

Limits
We use risk limits at various levels (including firmwide,
business and product) to govern our 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
changing market
conditions or
tolerance for risk.

conditions, business

The Risk Committee of the Board and the Risk Governance
Committee approve market risk limits and sub-limits at
firmwide, business and product levels, consistent with our
risk appetite
In addition, Market Risk
Management (through delegated authority from the Risk
risk limits and
Governance Committee)
sub-limits at certain product and desk levels.

sets market

statement.

Goldman Sachs 2018 Form 10-K

T H E G O L D M A N S A C H S G R O U P ,
Management’s Discussion and Analysis

I N C . A N D S U B S I D I A R I E S

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 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 table below presents average daily VaR by risk
category.

$ in millions

Interest rates
Equity prices
Currency rates
Commodity prices
Diversification effect
Total

Year Ended December

2018

$ 46
31
14
11
(42)
$ 60

2017

$ 40
24
12
13
(35)
$ 54

Our average daily VaR increased to $60 million in 2018
from $54 million in 2017, primarily due to increases in the
equity prices and interest rates categories, partially offset by
an increase in the diversification effect. The overall increase
was due to increased exposures and higher levels of
volatility.

The table below presents period-end VaR by risk category.

$ in millions

Interest rates
Equity prices
Currency rates
Commodity prices
Diversification effect
Total

As of December

2018

$ 46
32
12
11
(44)
$ 57

2017

$ 48
31
7
9
(30)
$ 65

Our daily VaR decreased to $57 million as of
December 2018 from $65 million as of December 2017,
primarily due to an increase in the diversification effect,
partially offset by an increase in the currency rates category.
The overall decrease was primarily due to reduced
exposures.

During 2018 and 2017, the firmwide VaR risk limit was
not exceeded, raised or reduced.

The table below presents high and low VaR by risk
category.

$ in millions

Interest rates
Equity prices
Currency rates
Commodity prices

Year Ended
December 2018

Year Ended
December 2017

High

$61
$45
$27
$17

Low

$34
$24
$ 7
$ 8

High

$57
$38
$28
$27

Low

$29
$17
$ 6
$ 7

The high total VaR was $86 million for both 2018 and
2017, and the low total VaR was $42 million for 2018 and
$37 million for 2017.

The chart below presents daily VaR for 2018.

R
a
V
y

l
i

a
D

)
s
n
o

i
l
l
i

m
n

(

120

100

First Quarter
2018

Second Quarter
2018

Third Quarter
2018

Fourth Quarter
2018

The chart below presents the frequency distribution of daily
net revenues for positions included in VaR for 2018.

100

s
y
a
D

f
o

r
e
b
m
u
N

<(100) (100)-(75) (75)-(50) (50)-(25)

(25)-0

0-25

25-50

50-75

75-100

>100

Daily Net Revenues
($ in millions)

Daily net revenues for positions included in VaR are
compared with VaR calculated as of the end of the prior
business day. Net losses incurred on a single day for such
positions exceeded our 95% one-day VaR (i.e., a VaR
exception) on two occasions during 2018 and did not
exceed our 95% one-day VaR during 2017.

Goldman Sachs 2018 Form 10-K

T H E G O L D M A N S A C H S G R O U P ,
Management’s Discussion and Analysis

I N C . A N D S U B S I D I A R I E S

During periods in which we have significantly more positive
net revenue days than net revenue loss days, we expect to
have fewer VaR exceptions because, under normal
conditions, our business model generally produces positive
net revenues. In periods in which our franchise revenues are
adversely affected, we generally have more loss days,
resulting in more VaR exceptions. The daily net revenues
for positions included in VaR used to determine VaR
exceptions reflect the impact of any intraday activity,
including bid/offer net revenues, which are more likely than
not to be positive by their nature.

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

10% Sensitivity Measures. The table below presents
market risk by asset category for positions accounted for at
fair value, that are not included in VaR.

$ in millions

Equity
Debt
Total

As of December

2018

2017

$1,923
1,890
$3,813

$2,096
1,606
$3,702

In the table above:
‰ The market risk of these positions is determined by
estimating the potential reduction in net revenues of a
10% decline in the value of these positions.

‰ Equity positions relate to private and restricted public
equity securities, including interests in funds that invest in
corporate equities and real estate and interests in hedge
funds.

‰ Debt positions include interests in funds that invest in
corporate mezzanine and senior debt instruments, loans
backed by commercial and residential
real estate,
corporate bank loans and other corporate debt, including
acquired portfolios of distressed loans.

‰ Funded equity and debt positions are included in our
consolidated statements of financial condition in financial
instruments owned. See Note 6 to the consolidated
financial statements for further information about cash
instruments.

‰ These measures do not reflect the diversification effect
across asset categories or across other market risk
measures.

Goldman Sachs 2018 Form 10-K

Credit Spread Sensitivity on Derivatives and Financial
Liabilities. VaR excludes the impact of changes in
counterparty and our own credit spreads on derivatives, as
well as changes in our own credit spreads (debt valuation
adjustment) on financial liabilities 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 (including hedges) as
of both December 2018 and December 2017. In addition,
the estimated sensitivity to a one basis point increase in our
own credit spreads on financial liabilities for which the fair
value option was elected was a gain of $41 million as of
December 2018 and $35 million as of December 2017.
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 financial liabilities for which the fair value
option was elected, as well as the relative performance of
any hedges undertaken.

Interest Rate Sensitivity. Loans
receivable were
$80.59 billion as of December 2018 and $65.93 billion as
of December 2017, substantially all of which had floating
interest rates. The estimated sensitivity to a 100 basis point
increase in interest rates on such loans was $607 million as
of December 2018 and $527 million as of December 2017,
of additional interest income over a twelve-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
As of both December 2018 and December 2017, we had
commitments and held loans for which we have obtained
credit loss protection from Sumitomo Mitsui Financial
Group, Inc. See Note 18 to the consolidated financial
statements for further information about such lending
commitments.

In addition, we make investments in securities that are
accounted for as available-for-sale and included in financial
instruments owned in the consolidated statements of
financial condition. See Note 6 to the consolidated financial
statements for further information.

We also 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 further information about other
assets.

T H E G O L D M A N S A C H S G R O U P ,
Management’s Discussion and Analysis

I N C . A N D S U B S I D I A R I E S

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 in the consolidated statements of earnings, and
debt valuation adjustment in the consolidated statements of
comprehensive income.

financial

The table below presents certain categories of assets and
financial
liabilities in the consolidated statements of
condition and the market risk measures used to assess those
assets and liabilities.

Categories in the Consolidated Statements
of Financial Condition

Market Risk Measures

Collateralized agreements, at fair value

VaR

Receivables

Financial instruments owned

Deposits, at fair value

VaR
Interest Rate Sensitivity

VaR
10% Sensitivity Measures
Credit Spread Sensitivity —
Derivatives

Credit Spread Sensitivity —
Financial Liabilities

Collateralized financings, at fair value

VaR

Financial instruments sold, but not yet
purchased

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

VaR
Credit Spread Sensitivity —
Derivatives

VaR
Credit Spread Sensitivity —
Financial Liabilities

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 customer and other receivables.

to credit

Credit Risk Management, which is independent of our
revenue-producing units and reports to our chief risk
officer, has primary responsibility for assessing, monitoring
and managing our credit risk through firmwide oversight
across our global businesses. The Risk Governance
Committee reviews and approves credit policies and
parameters. In addition, we hold other positions that give
rise to credit risk (e.g., bonds 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
into
with other
derivatives
risk exposures. Such
derivatives also give rise to credit risk, which is monitored
and managed by Credit Risk Management.

inventory positions. We also enter
to manage market

Credit Risk Management Process
Our process for managing credit risk includes:
‰ Collecting complete, accurate and timely information;
‰ Approving transactions and setting and communicating

credit exposure limits;

‰ Monitoring compliance with established credit risk limits

and reporting our exposure;

‰ Establishing or approving underwriting standards;
‰ Assessing the likelihood that a counterparty will default

on its payment obligations;

‰ Measuring our current and potential credit exposure and

losses resulting from counterparty default;

‰ Using credit risk mitigants,

including collateral and

hedging;

‰ Maximizing recovery through active workout and

restructuring of claims; and

‰ Proactive

communication

revenue-
producing units and our independent risk oversight and
control functions.

between

our

Goldman Sachs 2018 Form 10-K

T H E G O L D M A N S A C H S G R O U P ,
Management’s Discussion and Analysis

I N C . A N D S U B S I D I A R I E S

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 risk assessment process may also include, where
applicable, reviewing certain key metrics, including, but not
limited to, delinquency status, collateral values, Fair Isaac
Corporation credit scores and other risk factors.

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 about our aggregate credit risk
by product, internal credit rating, industry, country and
region.

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

arrangements.

loans

and

For

The Risk Committee of the Board and the Risk Governance
Committee approve credit risk limits at firmwide, business
and product
levels, consistent with our risk appetite
statement. Credit Risk Management (through delegated
authority from the Risk Governance Committee) sets credit
limits for individual counterparties, economic groups,
industries and countries. Policies authorized by the
Firmwide Enterprise Risk Committee and the Risk
formal
Governance Committee prescribe the level of
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 2018 Form 10-K

We use credit limits at various levels (e.g., counterparty,
economic group,
industry and country), as well as
underwriting standards to control the size and nature of our
credit exposures. Limits for counterparties and 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 appetite and are designed to allow for
regular monitoring, review, escalation and management of
credit risk concentrations.

Our credit risk limits are monitored by Credit Risk
Management, which is responsible for identifying and
escalating, on a timely basis, instances where limits have
been exceeded. When a risk limit has been exceeded, it is
escalated to senior management and/or the appropriate risk
committee.

Stress Tests
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 perform 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. We also perform stress tests that are
designed to ensure a comprehensive analysis of our
vulnerabilities and idiosyncratic risks combining financial
and nonfinancial risks, including, but not limited to, credit,
market, liquidity and funding, operational and compliance,
strategic,
into a single
combined scenario.

systemic and emerging risks

Model Review and Validation
Our potential credit exposure and stress testing models, and
any changes
to such models or assumptions, are
independently reviewed, validated and approved by Model
Risk Management. See “Model Risk Management” for
further information.

T H E G O L D M A N S A C H S G R O U P ,
Management’s Discussion and Analysis

I N C . A N D S U B S I D I A R I E S

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

significant positive

that our

credit

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

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

the

Credit Exposures
As of December 2018, our aggregate credit exposure
increased as compared with December 2017, primarily
reflecting an increase in cash deposits with central banks
and loans and lending commitments, partially offset by a
decrease in secured financing transactions. The percentage
of our credit exposures arising from non-investment-grade
counterparties (based on our internally determined public
rating agency equivalents) increased as compared with
December 2017, reflecting an increase in non-investment-
grade loans and lending commitments. Our credit exposure
to counterparties that defaulted during 2018 was lower as
compared with our credit exposure to counterparties that
defaulted during the prior year, and substantially all of such
exposure was related to loans and lending commitments.
Our credit exposure to counterparties that defaulted during
2018 remained low, representing less than 0.5% of our
total credit exposure, and estimated losses compared with
the prior year were lower and not material. Our credit
exposures are described further below.

Cash and Cash Equivalents. Our credit exposure on cash
and cash equivalents arises from our unrestricted cash, and
includes 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.

The table below presents credit exposure from unrestricted
cash and cash equivalents, and the concentration by
industry, region and credit quality.

$ in millions

Cash and Cash Equivalents

Industry
Financial Institutions
Sovereign
Total

Region
Americas
Europe, Middle East and Africa
Asia
Total

Credit Quality (Credit Rating Equivalent)
AAA
AA
A
BBB
Total

As of December

2018

2017

$107,408

$91,609

16%
84%
100%

36%
41%
23%
100%

62%
10%
27%
1%
100%

17%
83%
100%

64%
22%
14%
100%

72%
9%
18%
1%
100%

The table above excludes cash segregated for regulatory
and other purposes of $23.14 billion as of December 2018
and $18.44 billion as of December 2017.

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.

We generally enter into OTC derivatives transactions under
bilateral collateral arrangements that require the daily
exchange of collateral. As credit risk is an essential
component of fair value, we include a credit valuation
adjustment (CVA) in the fair value of derivatives to reflect
counterparty credit risk, as described in Note 7 to the
consolidated financial statements. CVA is a function of the
present value of expected exposure, the probability of
counterparty default and the assumed recovery upon
default.

Goldman Sachs 2018 Form 10-K

In the table above:
‰ Tenor is based on remaining contractual maturity.
‰ Netting includes counterparty netting across
collateral

tenor
that
categories and cash and securities
management considers when determining credit risk
(including collateral that is not eligible for netting under
U.S. GAAP). Counterparty netting within the same tenor
category is included within such tenor category.

The tables below present the distribution of net credit
exposure from OTC derivatives by tenor and internally
determined public rating agency equivalents.

Investment-Grade

$ in millions

AAA

BBB

Total

As of December 2018

$ 1,262 $ 2,506 $ 6,473 $ 5,456 $ 15,697
Less than 1 year
6,155
21,300
9,072
5,192
1 - 5 years
51,737
18,092
21,415
3,028
Greater than 5 years
88,734
10,726
29,703
36,960
Total
Netting
(68,736)
(7,107) (32,390) (22,795)
Net credit exposure $ 4,901 $ 3,619 $ 4,570 $ 6,908 $ 19,998

881
9,202
11,345
(6,444)

As of December 2017

Less than 1 year
1 - 5 years
Greater than 5 years
Total
Netting
Net credit exposure

663 $ 3,028 $ 7,806 $ 4,735 $ 16,232
23,817
5,841
11,975
62,103
19,993
21,857
30,569 102,152
41,638
(79,786)
(23,665)
(36,561)
$ 2,245 $ 8,140 $ 5,077 $ 6,904 $ 22,366

4,770
16,990
24,788
(16,648)

1,231
3,263
5,157
(2,912)

$ in millions

As of December 2018

Less than 1 year
1 - 5 years
Greater than 5 years
Total
Netting
Net credit exposure

As of December 2017
Less than 1 year
1 - 5 years
Greater than 5 years
Total
Netting
Net credit exposure

Non-Investment-Grade / Unrated

BB or lower Unrated

Total

$ 5,255 $
4,053
4,138
13,446
(7,339)
$ 6,107 $

$ 4,603 $
5,458
4,401
14,462
(7,418)
$ 7,044 $

172 $
38
53
263
(70)
193 $

5,427
4,091
4,191
13,709
(7,409)
6,300

251 $
7
40
298
(94)
204 $

4,854
5,465
4,441
14,760
(7,512)
7,248

T H E G O L D M A N S A C H S G R O U P ,
Management’s Discussion and Analysis

I N C . A N D S U B S I D I A R I E S

The table below presents net credit exposure from OTC
derivatives and the concentration by industry and region.

$ in millions

OTC derivative assets
Collateral (not netted under U.S. GAAP)
Net credit exposure

Industry
Consumer, Retail & Healthcare
Diversified Industrials
Financial Institutions
Funds
Municipalities & Nonprofit
Natural Resources & Utilities
Sovereign
Technology, Media & Telecommunications
Other (including Special Purpose Vehicles)
Total

Region
Americas
Europe, Middle East and Africa
Asia
Total

As of December

2018

2017

$ 40,576
(14,278)
$ 26,298

$ 45,036
(15,422)
$ 29,614

2%
8%
14%
17%
7%
13%
25%
7%
7%
100%

35%
55%
10%
100%

3%
7%
16%
14%
8%
14%
24%
7%
7%
100%

41%
51%
8%
100%

In the table above:
‰ OTC derivative assets,

included in the consolidated
statements of financial condition, are reported on a
net-by-counterparty basis (i.e., the net receivable for a
given counterparty) when a legal right of setoff exists
under an enforceable netting agreement (counterparty
netting) and are accounted for at fair value, net of cash
collateral received under enforceable credit support
agreements (cash collateral netting).

collateral, primarily U.S.

‰ Collateral represents cash collateral and the fair value of
and non-U.S.
securities
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 table below presents the distribution of net credit
exposure from OTC derivatives by tenor.

$ in millions

As of December 2018

Less than 1 year
1 - 5 years
Greater than 5 years
Total
Netting
Net credit exposure

As of December 2017

Less than 1 year
1 - 5 years
Greater than 5 years
Total
Netting
Net credit exposure

Investment-
Grade

Non-Investment-
Grade / Unrated

Total

$ 15,697
21,300
51,737
88,734
(68,736)
$ 19,998

$ 16,232
23,817
62,103
102,152
(79,786)
$ 22,366

$ 5,427
4,091
4,191
13,709
(7,409)
$ 6,300

$ 21,124
25,391
55,928
102,443
(76,145)
$ 26,298

$ 4,854
5,465
4,441
14,760
(7,512)
$ 7,248

$ 21,086
29,282
66,544
116,912
(87,298)
$ 29,614

Goldman Sachs 2018 Form 10-K

T H E G O L D M A N S A C H S G R O U P ,
Management’s Discussion and Analysis

I N C . A N D S U B S I D I A R I E S

Lending Activities. We manage our lending 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.
‰ Commercial Lending. Our commercial lending activities
include lending to investment-grade and non-investment-
grade
lending
borrowers. Loans
are
associated with these
commitments
principally used for operating liquidity and general
corporate purposes or in connection with contingent
acquisitions. Corporate
secured or
unsecured, depending on the loan purpose, the risk profile
of the borrower and other factors. Our commercial lending
activities also include extending loans to borrowers that are
secured by commercial and other real estate.

and
activities

loans may be

corporate

table below presents

The
commercial
concentration by industry, region and credit quality.

from
credit
loans and lending commitments, and the

exposure

$ in millions

As of December

2018

2017

Loans and Lending Commitments

$200,823

$198,012

Industry
Consumer, Retail & Healthcare
Diversified Industrials
Financial Institutions
Funds
Natural Resources & Utilities
Real Estate
Technology, Media & Telecommunications
Other (including Special Purpose Vehicles)
Total

Region
Americas
Europe, Middle East and Africa
Asia
Total

Credit Quality (Credit Rating Equivalent)
AAA
AA
A
BBB
BB or lower
Total

16%
16%
9%
4%
15%
10%
18%
12%
100%

76%
20%
4%
100%

1%
5%
14%
29%
51%
100%

23%
13%
7%
3%
14%
12%
19%
9%
100%

73%
24%
3%
100%

2%
4%
17%
32%
45%
100%

‰ PWM, Residential Real Estate and Other Lending.
We extend PWM loans and lending commitments
through our private bank that are secured by residential
real estate, securities or other assets. The fair value of the
collateral
such loans and lending
commitments generally exceeds their carrying value.

received against

We also have residential real estate and other lending
exposures, which includes purchased residential real
estate and unsecured consumer loans and commitments
to purchase such loans (including distressed loans) and
securities.

The table below presents credit exposure from PWM,
residential
lending, and the
concentration by region.

real estate and other

$ in millions

As of December 2018

Credit Exposure

PWM

Residential Real
Estate and Other

$26,152

$12,599

Americas
Europe, Middle East and Africa
Asia
Total

91%
7%
2%
100%

73%
26%
1%
100%

As of December 2017

Credit Exposure

$24,855

$10,242

Americas
Europe, Middle East and Africa
Asia
Total

90%
5%
5%
100%

74%
26%
–
100%

‰ Consumer Lending. We originate unsecured consumer

loans.

The table below presents credit exposure from originated
unsecured consumer loans and the concentration for the
five most concentrated U.S. states.

$ in millions

As of December 2018

Credit Exposure

California
Texas
New York
Florida
Illinois
Other
Total

As of December 2017

Credit Exposure

California
Texas
New York
Florida
Illinois
Other
Total

Consumer

$4,536

12%
9%
7%
7%
4%
61%
100%

$1,912

11%
10%
7%
7%
4%
61%
100%

See Note 9 to the consolidated financial statements for
further information about the credit quality indicators of
consumer loans.

Goldman Sachs 2018 Form 10-K

The table below presents other credit exposures and the
concentration by industry, region and credit quality.

$ in millions

Other Credit Exposures

Industry
Financial Institutions
Funds
Natural Resources & Utilities
Other (including Special Purpose Vehicles)
Total

Region
Americas
Europe, Middle East and Africa
Asia
Total

Credit Quality (Credit Rating Equivalent)
AAA
AA
A
BBB
BB or lower
Total

As of December

2018

2017

$41,649

$34,323

84%
7%
4%
5%
100%

44%
46%
10%
100%

3%
47%
26%
8%
16%
100%

88%
6%
3%
3%
100%

41%
49%
10%
100%

3%
51%
27%
7%
12%
100%

The table above reflects collateral
considers when determining credit risk.

that management

Selected Exposures
We have credit and market exposures, as described below,
that have had heightened focus due to recent events and
broad market concerns. Credit exposure represents the
potential for loss due to the default or deterioration in
credit quality of a counterparty or borrower. Market
exposure represents the potential for loss in value of our
long and short inventory due to changes in market prices.

The international sanctions on Russia have led to concerns
about its economic stability. As of December 2018, our
total credit exposure to Russia was $371 million, which
was primarily with non-sovereign counterparties or
borrowers, and was primarily related to loans and lending
commitments. In addition, our total market exposure to
Russia as of December 2018 was $502 million, reflecting
equity exposure with non-sovereign issuers or underliers.

T H E G O L D M A N S A C H S G R O U P ,
Management’s Discussion and Analysis

I N C . A N D S U B S I D I A R I E S

Securities Financing Transactions. We enter
into
securities financing transactions in order to, among other
things, facilitate client activities, invest excess cash, acquire
securities to cover short positions and finance certain
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
received. Securities collateral obtained for
collateral
securities financing transactions primarily includes U.S. and
non-U.S. government and agency obligations.

The table below presents credit exposure from secured
financing transactions and the concentration by industry,
region and credit quality.

$ in millions

Secured Financing Transactions

Industry
Financial Institutions
Funds
Municipalities & Nonprofit
Sovereign
Other (including Special Purpose Vehicles)
Total

Region
Americas
Europe, Middle East and Africa
Asia
Total

Credit Quality (Credit Rating Equivalent)
AAA
AA
A
BBB
BB or lower
Total

As of December

2018

2017

$20,979

$29,071

31%
33%
7%
28%
1%
100%

33%
41%
26%
100%

11%
34%
35%
10%
10%
100%

29%
28%
6%
36%
1%
100%

30%
46%
24%
100%

12%
33%
35%
10%
10%
100%

The table above reflects both netting agreements and collateral
that management considers when determining credit risk.

receivables

from brokers, dealers

Other Credit Exposures. We are exposed to credit risk from
our
and clearing
organizations and customers and counterparties. Receivables
from brokers, dealers and clearing organizations primarily
consist of initial 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 and counterparties
generally consist of collateralized receivables related to
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.

Goldman Sachs 2018 Form 10-K

T H E G O L D M A N S A C H S G R O U P ,
Management’s Discussion and Analysis

I N C . A N D S U B S I D I A R I E S

financial

The potential restructuring of Lebanon’s sovereign debt has
led to concerns about
stability. As of
its
December 2018, our credit exposure to Lebanon was
$570 million, substantially all of which related to loans and
lending commitments with non-sovereign borrowers. After
taking into consideration the benefit of cash and Lebanese
securities collateral held, our net credit exposure was not
material.
In addition, our total market exposure to
Lebanon as of December 2018 was not material.

The debt crisis in Mozambique has resulted in credit rating
downgrades and political instability in Ukraine has led to
economic concerns. In addition, Venezuela has delayed
payments on its sovereign debt and its political situation
remains unclear. As of December 2018, our total credit and
market exposure to each of Mozambique, Ukraine and
Venezuela was not material.

revenue,

We have a comprehensive framework to monitor, measure
and assess our country exposures and to determine our risk
appetite. We determine the country of risk by the location
of the counterparty, issuer or underlier’s assets, where they
generate
country in which they are
headquartered, the jurisdiction where a claim against them
could be enforced, and/or the government whose policies
affect their ability to repay their obligations. We monitor
our credit exposure to a specific country both at the
individual counterparty level, as well as at the aggregate
country level.

the

We use regular stress tests, described above, to calculate the
credit exposures, including potential concentrations that
would result from applying shocks to counterparty credit
ratings or credit risk factors. To supplement these regular
stress tests, we also conduct tailored stress tests on an ad
hoc basis in response to specific market events that we deem
significant. These stress tests are designed to estimate the
direct impact of the event on our credit and market
exposures resulting from shocks to risk factors including,
but not limited to, currency rates, interest rates, and equity
prices. We also utilize these stress tests to estimate the
indirect impact of certain hypothetical events on our
country exposures, such as the impact of credit market
deterioration on corporate borrowers and counterparties
along with the shocks to the risk factors described above.
The parameters of these shocks vary based on the scenario
reflected in each stress test. We review estimated losses
produced by the stress tests in order to understand their
magnitude, highlight potential
loss concentrations, and
assess and mitigate our exposures where necessary.

See “Stress Tests” above, “Liquidity Risk Management —
Stress Tests” and “Market Risk Management — Risk
Measures — Stress Testing” for further information about
stress tests.

Operational Risk Management

Overview
Operational risk is the risk of an adverse outcome resulting
from inadequate or failed internal processes, people,
systems or
from external events. Our exposure to
operational risk arises from routine processing errors, as
well as extraordinary incidents, such as major systems
failures or legal and regulatory matters.

Potential types of loss events related to internal and external
operational risk include:
‰ Clients, products and business practices;
‰ Execution, delivery and process management;
‰ Business disruption and system failures;
‰ Employment practices and workplace safety;
‰ Damage to physical assets;
‰ Internal fraud; and
‰ External fraud.

We maintain a comprehensive control framework designed
to provide a well-controlled environment to minimize
operational risks. The Firmwide Conduct and Operational
Risk Committee is globally responsible for the ongoing
approval and monitoring of the frameworks, policies,
parameters,
limits and thresholds which govern our
operational risks.

Operational Risk Management, which is independent of
our revenue-producing units and reports to our chief risk
officer, has primary responsibility for developing and
implementing a formalized framework for assessing,
monitoring and managing operational risk with the goal of
maintaining our exposure to operational risk at levels that
are within our risk appetite.

Operational Risk Management Process
Our process for managing operational risk includes:
‰ Collecting complete, accurate and timely information;
‰ Training, supervision and development of our people;
‰ Active participation of senior management in identifying

and mitigating our key operational risks;

‰ Independent risk oversight and control functions that
monitor operational risk, and implementation of policies
and procedures, and controls designed to prevent the
occurrence of operational risk events; and

‰ Proactive

communication

revenue-
producing units and our independent risk oversight and
control functions.

between

our

Goldman Sachs 2018 Form 10-K

T H E G O L D M A N S A C H S G R O U P ,
Management’s Discussion and Analysis

I N C . A N D S U B S I D I A R I E S

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, our first and second lines of defense are
responsible for risk identification and risk management on
a day-to-day basis, including escalating operational risks to
senior management.

Our operational risk management framework is in part
designed to comply with the operational risk measurement
rules under the Capital Framework and has evolved based
on the changing needs of our businesses and regulatory
guidance.

Our operational risk management framework consists of
the following practices:
‰ Risk identification and assessment;
‰ Risk measurement; and
‰ Risk monitoring and reporting.

Risk Identification and Assessment
The core of our operational risk management framework is
risk
a
comprehensive data collection process, including firmwide
policies and procedures, for operational risk events.

assessment. We

identification

have

and

We have established policies that require all employees to
report and escalate operational
risk events. When
operational risk events are identified, our policies require
that the events be documented and analyzed to determine
whether changes are required in our systems and/or
processes to further mitigate the risk of future events.

We use operational risk management applications to capture
and organize operational risk event data and key metrics.
One of our key risk identification and assessment tools is an
operational risk and control self-assessment process, which is
performed by our managers. This process consists of the
identification and rating of operational risks, on a forward-
looking basis, and the related controls. The results from this
process are analyzed to evaluate operational risk exposures
and identify businesses, activities or products with
heightened levels of operational risk.

Risk Measurement
We measure our operational risk exposure using both
statistical modeling and scenario analyses, which involve
qualitative and quantitative assessments of internal and
external operational risk event data and internal control
factors for each of our businesses. Operational risk
measurement also incorporates an assessment of business
environment factors, including, but not limited to:
‰ Evaluations of the complexity of our business activities;
‰ The degree of automation in our processes;

100 Goldman Sachs 2018 Form 10-K

‰ New activity information;
‰ The legal and regulatory environment; and
‰ Changes in the markets for our products and services,
including the diversity and sophistication of our
customers and counterparties.

The results from these scenario analyses are used to
monitor changes in operational risk and to determine
business lines that may have heightened exposure to
operational
risk. These analyses are used in the
determination of the appropriate level of operational risk
capital to hold.

Stress Tests
We perform stress tests on a regular basis as part of our
routine risk management processes. We also perform stress
tests that are designed to ensure a comprehensive analysis
of our vulnerabilities and idiosyncratic risks combining
financial and nonfinancial risks, including, but not limited
to, credit, market, liquidity and funding, operational and
compliance, strategic, systemic and emerging risks into a
single combined scenario.

including

Risk Monitoring and Reporting
We evaluate changes in our operational risk profile and our
in business mix or
changes
businesses,
jurisdictions in which we operate, by monitoring the factors
noted above at a firmwide level. We have both preventive
and detective internal controls, which are designed to
reduce the frequency and severity of operational risk losses
and the probability of operational risk events. We monitor
the results of assessments and independent internal audits
of these internal controls.

We have established limits and thresholds consistent with
our risk appetite statement that are approved by the Risk
Committee of the Board, as well as escalation protocols.
Our operational risk limits and thresholds are monitored by
Operational Risk Management. Operational Risk
Management is responsible for identifying and escalating to
senior management and/or the appropriate risk committee,
on a timely basis, instances where limits and thresholds
have been exceeded.

Model Review and Validation
The statistical models utilized by Operational Risk
Management are independently reviewed, validated and
approved by Model Risk Management. See “Model Risk
Management” for further information.

T H E G O L D M A N S A C H S G R O U P ,
Management’s Discussion and Analysis

I N C . A N D S U B S I D I A R I E S

Model Risk Management

Overview
Model risk is the potential for adverse consequences from
decisions made based on model outputs that may be
incorrect or used inappropriately. We rely on quantitative
models across our business activities primarily to value
certain financial assets and financial liabilities, to monitor
and manage our risk, and to measure and monitor our
regulatory capital.

Our model risk management
framework is managed
through a governance structure and risk management
controls, which encompass standards designed to ensure we
maintain a comprehensive model inventory, including risk
assessment and classification, sound model development
practices,
independent review and model-specific usage
controls. The Firmwide Model Risk Control Committee
oversees our model risk management framework.

Model Risk Management, which is independent of our
revenue-producing units, model developers, model owners
and model users, and reports to our chief risk officer, has
primary responsibility for assessing, monitoring and
managing our model risk through firmwide oversight
across our global businesses, and provides periodic updates
to senior management, risk committees and the Risk
Committee of the Board.

Model Review and Validation Process
consists of quantitative
Model Risk Management
professionals who perform an independent
review,
validation and approval of our models. This review
includes an analysis of
the model documentation,
independent testing, an assessment of the appropriateness
of the methodology used, and verification of compliance
with model development and implementation standards.
Model Risk Management reviews all existing models on an
annual basis, and approves new models or significant
changes to models prior to implementation.

The model validation process incorporates a review of
models and trade and risk parameters across a broad range
of scenarios (including extreme conditions) in order to
critically evaluate and verify:
‰ The model’s

including the
reasonableness of model assumptions, and suitability for
intended use;

soundness,

conceptual

‰ The testing strategy utilized by the model developers to

ensure that the models function as intended;

‰ The suitability of the calculation techniques incorporated

in the model;

‰ The model’s accuracy in reflecting the characteristics of

the related product and its significant risks;
‰ The model’s consistency with models

for

similar

products; and
‰ The model’s
assumptions.

sensitivity to input parameters and

See “Critical Accounting Policies — Fair Value — Review
of Valuation Models,” “Liquidity Risk Management,”
“Market Risk Management,” “Credit Risk Management”
and “Operational Risk Management” for
further
information about our use of models within these areas.

Goldman Sachs 2018 Form 10-K 101

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

2018

The firm’s internal control over financial reporting as of
December
by
PricewaterhouseCoopers LLP, an independent registered
public accounting firm, as stated in their report appearing
on page 103, which expresses an unqualified opinion on the
effectiveness of the firm’s internal control over financial
reporting as of December 31, 2018.

audited

been

T H E G O L D M A N S A C H S G R O U P ,

I N C . A N D S U B S I D I A R I E S

Item 7A. Quantitative and Qualitative
Disclosures About Market Risk

Quantitative and qualitative disclosures about market risk
are set forth in “Management’s Discussion and Analysis of
Financial Condition and Results of Operations — Risk
Management” in Part II, Item 7 of this Form 10-K.

Item 8. Financial Statements and
Supplementary Data
Management’s Report on Internal Control
over Financial Reporting

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
financial
the
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, 2018, 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, 2018 was
effective.

(COSO). Based

this

102 Goldman Sachs 2018 Form 10-K

Report of Independent Registered Public
Accounting Firm

To the Board of Directors and the Shareholders of The
Goldman Sachs Group, Inc.:

Opinions on the Financial Statements and Internal
Control over Financial Reporting

We have audited the accompanying consolidated statements
of financial condition of The Goldman Sachs Group, Inc. and
its subsidiaries (the Company) as of December 31, 2018 and
2017, and the related consolidated statements of earnings,
comprehensive income, changes in shareholders’ equity and
cash flows for each of the three years in the period ended
December 31, 2018, including the related notes (collectively
referred to as the “consolidated financial statements”). We
also have audited the Company’s internal control over
financial reporting as of December 31, 2018, based on
criteria established in Internal Control — Integrated
Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO).

In our opinion,
the consolidated financial statements
referred to above present fairly, in all material respects, the
financial position of the Company as of December 31, 2018
and 2017, and the results of its operations and its cash
flows for each of the three years in the period ended
December 31, 2018 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, 2018, based on criteria
established in Internal Control — Integrated Framework
(2013) issued by the COSO.

Basis for Opinions

is responsible for these
The Company’s management
consolidated 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 102. Our responsibility is to express opinions on the
Company’s consolidated financial statements and on the
Company’s internal control over financial reporting based on
our audits. We are a public accounting firm registered with
the Public Company Accounting Oversight Board (United
States) (PCAOB) and are required to be independent with
respect to the Company in accordance with the U.S. federal
securities laws and the applicable rules and regulations of the
Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards
of the PCAOB. Those standards require that we plan and
perform the audits to obtain reasonable assurance about
whether the consolidated financial statements are free of
material misstatement, whether due to error or fraud, and
whether effective internal control over financial reporting
was maintained in all material respects.

the

the consolidated financial

statements
Our audits of
included performing procedures to assess the risks of
material misstatement of
consolidated financial
statements, whether due to error or fraud, and performing
procedures that respond to those risks. Such procedures
included examining, on a test basis, evidence regarding the
amounts and disclosures in the consolidated financial
statements. Our audits also included evaluating the
accounting principles used and significant estimates made
by management, as well as evaluating the overall
presentation of the consolidated financial statements. 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.

Definition and Limitations of Internal Control over
Financial Reporting

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
company; (ii) provide reasonable assurance that transactions
are recorded as necessary 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.

the assets of

not

reporting may

Because of its inherent limitations, internal control over
financial
detect
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

/s/ PRICEWATERHOUSECOOPERS LLP

New York, New York
February 25, 2019

We have served as the Company’s auditor since 1922.

Goldman Sachs 2018 Form 10-K 103

T H E G O L D M A N S A C H S G R O U P ,
Consolidated Statements of Earnings

I N C . A N D S U B S I D I A R I E S

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
Total net revenues

Provision for credit losses

Operating expenses
Compensation and benefits
Brokerage, clearing, exchange and distribution fees
Market development
Communications and technology
Depreciation and amortization
Occupancy
Professional fees
Other 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
Basic
Diluted

Consolidated Statements of Comprehensive Income

$ in millions

Net earnings
Other comprehensive income/(loss) adjustments, net of tax:

Currency translation
Debt valuation adjustment
Pension and postretirement liabilities
Available-for-sale securities

Other comprehensive income/(loss)
Comprehensive income

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

104 Goldman Sachs 2018 Form 10-K

Year Ended December

2018

2017

2016

$ 7,862
6,514
3,199
9,451
5,823
32,849

19,679
15,912
3,767
36,616

$ 7,371
5,803
3,051
7,660
5,913
29,798

13,113
10,181
2,932
32,730

$ 6,273
5,407
3,208
9,933
3,382
28,203

9,691
7,104
2,587
30,790

674

657

182

12,328
3,200
740
1,023
1,328
809
1,214
2,819
23,461

12,481
2,022
10,459
599
$ 9,860

11,653
2,876
588
897
1,152
733
1,165
1,877
20,941

11,132
6,846
4,286
601
$ 3,685

11,448
2,823
457
809
998
788
1,081
1,900
20,304

10,304
2,906
7,398
311
$ 7,087

$ 25.53
$ 25.27

$
$

9.12
9.01

$ 16.53
$ 16.29

385.4
390.2

401.6
409.1

427.4
435.1

Year Ended December

2018

2017

2016

$10,459

$ 4,286

$ 7,398

4
2,553
119
(103)
2,573
$13,032

22
(807)
130
(9)
(664)
$ 3,622

(60)
(544)
(199)
–
(803)
$ 6,595

T H E G O L D M A N S A C H S G R O U P ,
Consolidated Statements of Financial Condition

I N C . A N D S U B S I D I A R I E S

$ in millions

Assets
Cash and cash equivalents
Collateralized agreements:

Securities purchased under agreements to resell (includes $139,220 and $120,420 at fair value)
Securities borrowed (includes $23,142 and $78,189 at fair value)

Receivables:

Loans receivable
Customer and other receivables (includes $3,189 and $3,526 at fair value)

Financial instruments owned (at fair value and includes $55,081 and $50,335 pledged as collateral)
Other assets
Total assets

Liabilities and shareholders’ equity
Deposits (includes $21,060 and $22,902 at fair value)
Collateralized financings:

Securities sold under agreements to repurchase (at fair value)
Securities loaned (includes $3,241 and $5,357 at fair value)
Other secured financings (includes $20,904 and $24,345 at fair value)

Customer and other payables
Financial instruments sold, but not yet purchased (at fair value)
Unsecured short-term borrowings (includes $16,963 and $16,904 at fair value)
Unsecured long-term borrowings (includes $46,584 and $38,638 at fair value)
Other liabilities (includes $132 and $268 at fair value)
Total liabilities

Commitments, contingencies and guarantees

As of December

2018

2017

$130,547

$110,051

139,258
135,285

120,822
190,848

80,590
79,315
336,161
30,640
$931,796

65,933
84,788
315,988
28,346
$916,776

$158,257

$138,604

78,723
11,808
21,433
180,235
108,897
40,502
224,149
17,607
841,611

84,718
14,793
24,788
178,169
111,930
46,922
217,687
16,922
834,533

Shareholders’ equity
Preferred stock; aggregate liquidation preference of $11,203 and $11,853
Common stock; 891,356,284 and 884,592,863 shares issued, and 367,741,973 and 374,808,805 shares outstanding
Share-based awards
Nonvoting common stock; no shares issued and outstanding
Additional paid-in capital
Retained earnings
Accumulated other comprehensive income/(loss)
Stock held in treasury, at cost; 523,614,313 and 509,784,060 shares
Total shareholders’ equity
Total liabilities and shareholders’ equity

11,203
9
2,845
–
54,005
100,100
693
(78,670)
90,185
$931,796

11,853
9
2,777
–
53,357
91,519
(1,880)
(75,392)
82,243
$916,776

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

Goldman Sachs 2018 Form 10-K 105

T H E G O L D M A N S A C H S G R O U P ,
Consolidated Statements of Changes in Shareholders’ Equity

I N C . A N D S U B S I D I A R I E S

$ in millions

Preferred stock
Beginning balance
Issued
Redeemed
Ending balance
Common stock
Beginning balance
Issued
Ending balance
Share-based awards
Beginning balance, as previously reported
Cumulative effect of change in accounting principle for forfeiture of share-based awards
Beginning balance, adjusted
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
Ending balance
Additional paid-in capital
Beginning balance
Delivery of common stock underlying share-based awards
Cancellation of share-based awards in satisfaction of withholding tax requirements
Preferred stock issuance costs, net of reversals upon redemption
Excess net tax benefit related to share-based awards
Cash settlement of share-based awards
Ending balance
Retained earnings
Beginning balance, as previously reported
Cumulative effect of change in accounting principle for:

Revenue recognition from contracts with clients, net of tax
Forfeiture of share-based awards, net of tax
Debt valuation adjustment, net of tax

Beginning balance, adjusted
Net earnings
Dividends and dividend equivalents declared on common stock and share-based awards
Dividends declared on preferred stock
Preferred stock redemption discount/(premium)
Ending balance
Accumulated other comprehensive income/(loss)
Beginning balance, as previously reported
Cumulative effect of change in accounting principle for debt valuation adjustment, net of tax
Beginning balance, adjusted
Other comprehensive income/(loss)
Ending balance
Stock held in treasury, at cost
Beginning balance
Repurchased
Reissued
Other
Ending balance
Total shareholders’ equity

Year Ended December

2018

2017

2016

$ 11,853
–
(650)
11,203

$ 11,203
1,500
(850)
11,853

$ 11,200
1,325
(1,322)
11,203

9
–
9

2,777
–
2,777
1,355
(1,175)
(80)
(32)
2,845

53,357
1,751
(1,118)
15
–
–
54,005

9
–
9

3,914
35
3,949
1,810
(2,704)
(89)
(189)
2,777

52,638
2,934
(2,220)
8
–
(3)
53,357

9
–
9

4,151
–
4,151
2,143
(2,068)
(102)
(210)
3,914

51,340
2,282
(1,121)
(10)
147
–
52,638

91,519

89,039

83,386

(53)
–
–
91,466
10,459
(1,226)
(584)
(15)
100,100

(1,880)
–
(1,880)
2,573
693

–
(24)
–
89,015
4,286
(1,181)
(587)
(14)
91,519

(1,216)
–
(1,216)
(664)
(1,880)

–
–
(305)
83,081
7,398
(1,129)
(577)
266
89,039

(718)
305
(413)
(803)
(1,216)

(75,392)
(3,294)
21
(5)
(78,670)
$ 90,185

(68,694)
(6,721)
34
(11)
(75,392)
$ 82,243

(62,640)
(6,069)
22
(7)
(68,694)
$ 86,893

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

106 Goldman Sachs 2018 Form 10-K

T H E G O L D M A N S A C H S G R O U P ,
Consolidated Statements of Cash Flows

I N C . A N D S U B S I D I A R I E S

$ 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
Loss/(gain) related to extinguishment of unsecured borrowings
Provision for credit losses

Changes in operating assets and liabilities:

Customer and other receivables and payables, net
Collateralized transactions (excluding other secured financings), net
Financial instruments owned (excluding available-for-sale securities)
Financial instruments sold, but not yet purchased
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
Net cash acquired in/(used for) business acquisitions
Purchase of investments
Proceeds from sales and paydowns of investments
Loans receivable, net
Net cash provided by/(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
Purchase of APEX, senior guaranteed securities and trust preferred securities
Proceeds from issuance of unsecured long-term borrowings
Repayment of unsecured long-term borrowings, including the current portion
Derivative contracts with a financing element, net
Deposits, net
Preferred stock redemption
Common stock repurchased
Settlement of share-based awards in satisfaction of withholding tax requirements
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
Cash settlement of share-based awards
Net cash provided by financing activities
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents, beginning balance
Cash and cash equivalents, ending balance

Year Ended December

2018

2017

2016

$ 10,459

4,286

7,398

1,328
(2,645)
1,831
(160)
674

7,186
28,147
(23,381)
(3,670)
652
20,421

(7,982)
3,711
(162)
(3,790)
411
(14,865)
(22,677)

2,337
586
4,996
(9,482)
(35)
45,927
(37,243)
2,294
20,206
(650)
(3,294)
(1,118)
(1,810)
–
38
–
22,752
20,496
110,051
$130,547

1,152
5,458
1,769
(114)
657

(30,136)
10,025
(11,843)
(5,296)
5,815
(18,227)

(3,184)
574
(2,383)
(9,853)
2,900
(16,693)
(28,639)

(501)
(405)
7,401
(4,726)
(237)
58,347
(30,748)
1,684
14,506
(850)
(6,772)
(2,223)
(1,769)
1,495
7
(3)
35,206
(11,660)
121,711
$110,051

998
551
2,111
3
182

(14,723)
78
13,662
1,960
(5,726)
6,494

(2,865)
381
14,922
–
1,517
(4,280)
9,675

(1,506)
(808)
4,186
(7,375)
(1,171)
50,763
(36,556)
2,115
10,058
–
(6,078)
(1,128)
(1,706)
1,303
6
–
12,103
28,272
93,439
$121,711

SUPPLEMENTAL DISCLOSURES:
Cash payments for interest, net of capitalized interest, were $16.72 billion for 2018, $11.17 billion for 2017 and $7.14 billion for 2016, and cash payments for income
taxes, net of refunds, were $1.27 billion for 2018, $1.42 billion for 2017 and $1.06 billion for 2016. Cash flows related to common stock repurchased includes
common stock repurchased in the prior period for which settlement occurred during the current period and excludes common stock repurchased during the current
period for which settlement occurred in the following period.

Non-cash activities during 2018:
‰ The firm received $773 million of loans receivable and $109 million of held-to-maturity securities in connection with the securitization of financial instruments owned and

held for sale loans included in customer and other receivables.

‰ The firm exchanged $35 million of Trust Preferred Securities and common beneficial interests for $35 million of certain of the firm’s junior subordinated debt.
Non-cash activities during 2017:
‰ The firm received $465 million of loans receivable and $107 million of held-to-maturity securities in connection with the securitization of financial instruments owned and

held for sale loans included in customer and other receivables.

‰ The firm exchanged $237 million of Trust Preferred Securities and common beneficial interests for $248 million of the firm’s junior subordinated debt.
Non-cash activities during 2016:
‰ The firm received $389 million of loans receivable and $112 million of held-to-maturity securities in connection with the securitization of financial instruments owned.
‰ The impact of adoption of ASU No. 2015-02 was a net reduction to both total assets and total liabilities of approximately $200 million. See Note 3 for further information.
‰ The firm sold assets of $1.81 billion and liabilities of $697 million, that were previously classified as held for sale, in exchange for $1.11 billion of financial instruments.
‰ The firm exchanged $1.04 billion of APEX for $1.31 billion of Series E and Series F Preferred Stock. See Note 19 for further information.
‰ The firm exchanged $127 million of senior guaranteed trust securities for $124 million of the firm’s junior subordinated debt.

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

Goldman Sachs 2018 Form 10-K 107

longer-term in nature. The

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, including
through its Merchant Banking business and its Special
Situations Group, in debt securities and loans, public and
private equity securities,
infrastructure and real estate
entities. Some of these investments are made indirectly
through funds that the firm manages. The firm also makes
unsecured loans through its digital platform, Marcus: by
Goldman Sachs and secured loans through its digital
platform, Goldman Sachs Private Bank Select.

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

Note 2.
Basis of Presentation

These consolidated financial statements are prepared in
accordance with accounting principles generally accepted in
the United States (U.S. GAAP) and include the accounts of
Group Inc. and all other entities in which the firm has a
controlling financial
interest. Intercompany transactions
and balances have been eliminated.

31,

All references to 2018, 2017 and 2016 refer to the firm’s
the dates, as the context requires,
years ended, or
December
and
2018, December
December 31, 2016, 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.

2017

31,

I N C . A N D S U B S I D I A R I E S
T H E G O L D M A N S A C H S G R O U P ,
Notes to Consolidated Financial Statements

Note 1.
Description of Business

investment banking,

The Goldman Sachs Group, Inc. (Group Inc. or parent
together with its
company), a Delaware corporation,
consolidated subsidiaries (collectively, the firm), 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 individuals. Founded in 1869,
firm is
headquartered in New York and maintains offices in all
major financial centers around the world.

the

The firm reports its activities in the following four business
segments:

Investment Banking
The firm provides a broad range of investment banking
services to a diverse group of corporations, financial
institutions, investment funds and governments. Services
include strategic advisory assignments with respect to
mergers and acquisitions, divestitures, corporate defense
activities, restructurings, spin-offs and risk management,
and debt and equity underwriting of public offerings and
private placements,
including local and cross-border
transactions and acquisition financing, as well as derivative
transactions directly related to these activities.

Institutional Client Services
The firm facilitates client transactions and makes markets
in fixed income, equity, currency and commodity products,
primarily with institutional clients such as corporations,
financial institutions, investment funds and governments.
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.

108 Goldman Sachs 2018 Form 10-K

I N C . A N D S U B S I D I A R I E S
T H E G O L D M A N S A C H S G R O U P ,
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 described below or included in the following
footnotes:

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

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

Deposits

Short-Term Borrowings

Long-Term Borrowings

Other Liabilities

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

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 controlling
majority voting interest in a voting interest entity, the entity
is consolidated.

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

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

In general, the firm accounts for investments acquired after
the fair value option became available, at fair value. In
certain cases,
the firm applies the equity method of
accounting to new investments that are strategic in nature
or closely related to the firm’s principal business activities,
when the firm has a significant degree of involvement in the
cash flows or operations of the investee or when cost-
benefit considerations are less significant. See Note 13 for
further information about equity-method investments.

Goldman Sachs 2018 Form 10-K 109

I N C . A N D S U B S I D I A R I E S
T H E G O L D M A N S A C H S G R O U P ,
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
generally measured at net asset value (NAV) and are
included in financial instruments owned. See Notes 6, 18
and 22 for further information about investments in funds.

Use of Estimates
these consolidated financial statements
Preparation of
requires management
to make certain estimates and
assumptions, the most important of which relate to fair
value measurements,
and
accounting
identifiable intangible assets, the allowance for credit losses
on loans receivable and lending commitments held for
investment, provisions for losses that may arise from
litigation
(including
governmental investigations), and provisions for losses that
may arise from tax audits. These estimates and assumptions
are based on the best available information but actual
results could be materially different.

proceedings

regulatory

goodwill

and

for

instruments owned and financial

Revenue Recognition
Financial Assets and Financial Liabilities at Fair Value.
Financial
instruments
sold, but not yet purchased are recorded at fair value either
under the fair value option or in accordance with other U.S.
GAAP. In addition, the firm has elected to account for
certain of its other financial assets and financial liabilities at
fair value by electing the fair value option. The fair value of
a financial instrument is the amount that would be received
to sell an asset or paid to transfer a liability in an orderly
the
transaction
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.

between market

participants

110 Goldman Sachs 2018 Form 10-K

Revenue from Contracts with Clients. Beginning in
January 2018, the firm accounts for revenue earned from
contracts with clients for services such as investment
banking,
investment management, and execution and
clearing (contracts with clients) under ASU No. 2014-09,
“Revenue from Contracts with Customers (Topic 606).” As
such, revenues for these services are recognized when the
performance obligations
related to the underlying
completed. See “Recent Accounting
transaction are
Developments — Revenue from Contracts with Customers
(ASC 606)” for further information.

The firm’s net revenues from contracts with clients subject
to this ASU represent approximately 50% of the firm’s total
net revenues for 2018. This includes approximately 80% of
the firm’s investment banking revenues, substantially all of
the investment management revenues, and commissions
and fees for 2018. See Note 25 for information about the
firm’s net revenues by business segment.

Investment Banking
Advisory. Fees from financial advisory assignments are
recognized in revenues when the services related to the
underlying transaction are completed under the terms of the
assignment. Beginning in January 2018, non-refundable
deposits and milestone payments in connection with
financial advisory assignments are recognized in revenues
upon completion of the underlying transaction or when the
assignment is otherwise concluded. Prior to January 2018,
non-refundable deposits and milestone payments were
recognized in revenues in accordance with the terms of the
contract.

Beginning in January 2018, certain expenses associated
with financial advisory assignments are recognized when
incurred. Client reimbursements for such expenses are
included in financial
to
January 2018, such expenses were deferred until the related
revenue was recognized or the assignment was otherwise
concluded and were presented net of client reimbursements.

revenues. Prior

advisory

Underwriting. Fees from underwriting assignments are
recognized in revenues upon completion of the underlying
transaction based on the terms of the assignment.

Certain expenses associated with underwriting assignments
are deferred until the related revenue is recognized or the
in
assignment
January 2018, such expenses are presented as operating
expenses. Prior to January 2018, such expenses were
presented net within underwriting revenues.

concluded. Beginning

otherwise

I N C . A N D S U B S I D I A R I E S
T H E G O L D M A N S A C H S G R O U P ,
Notes to Consolidated Financial Statements

Investment Management
The firm earns management fees and incentive fees for
investment management services, which are included in
investment management
firm makes
payments to brokers and advisors related to the placement
of the firm’s investment funds (distribution fees), which are
included in brokerage, clearing, exchange and distribution
fees.

revenues. The

Management Fees. Management fees for mutual funds
are calculated as a percentage of daily net asset value and
are received monthly. Management fees for hedge funds
and separately managed accounts are calculated as a
percentage of month-end net asset value and are generally
received quarterly. Management fees for private equity
funds are calculated as a percentage of monthly invested
capital or committed capital and are received quarterly,
semi-annually or annually, depending on the fund.
Management fees are recognized over time in the period the
investment management services are provided.

Distribution fees paid by the firm are calculated based on
either a percentage of the management fee, the investment
fund’s net asset value or the committed capital. Beginning
in January 2018, the firm presents such fees in brokerage,
to
clearing,
January 2018, where the firm was considered an agent to
the arrangement, such fees were presented on a net basis in
investment management revenues.

exchange and distribution fees. Prior

Incentive Fees.
Incentive fees are calculated as a
percentage of a fund’s or separately managed account’s
return, or excess return above a specified benchmark or
other performance target. Incentive fees are generally based
on investment performance over a twelve-month period or
over the life of a fund. Fees that are based on performance
over a twelve-month period are subject to adjustment prior
to the end of the measurement period. For fees that are
based on investment performance over the life of the fund,
future investment underperformance may require fees
previously distributed to the firm to be returned to the fund.

Beginning in January 2018, incentive fees earned from a
fund or separately managed account are recognized when it
is probable that a significant reversal of such fees will not
occur, which is generally when such fees are no longer
subject to fluctuations in the market value of investments
held by the fund or separately managed account. Therefore,
incentive fees recognized during the period may relate to
performance obligations satisfied in previous periods. Prior
to January 2018, incentive fees were recognized only when
all material contingencies were resolved.

Commissions and Fees
The firm earns commissions and fees from executing and
clearing client transactions on stock, options and futures
markets, as well as over-the-counter (OTC) transactions.
Commissions and fees are recognized on the day the trade is
executed. The firm also provides third-party research
services to clients in connection with certain soft-dollar
arrangements.

Beginning in January 2018, third-party research costs
incurred by the firm in connection with soft-dollar
arrangements are presented net within commissions and
fees. Prior to January 2018, such costs were presented in
brokerage, clearing, exchange and distribution fees.

Remaining Performance Obligations
Remaining performance obligations are services that the
firm has committed to perform in the future in connection
with its contracts with clients. The firm’s remaining
performance obligations are generally related to its
financial advisory assignments and certain investment
management activities. Revenues associated with remaining
performance obligations relating to financial advisory
assignments cannot be determined until the outcome of the
transaction. For
investment management
activities, where fees are calculated based on the net asset
value of the fund or separately managed account, future
revenues
performance
obligations cannot be determined as such fees are subject to
fluctuations in the market value of investments held by the
fund or separately managed account.

associated with

remaining

firm’s

the

The firm is able to determine the future revenues associated
with management fees calculated based on committed
capital. As of December 2018, substantially all of the firm’s
future net revenues associated with remaining performance
obligations will be recognized through 2024. Annual
revenues associated with such performance obligations
average less than $250 million through 2024.

Transfers of Financial Assets
Transfers of financial assets are accounted for as sales when
the firm has relinquished control over the assets transferred.
For transfers of financial assets accounted for as sales, any
gains or losses are recognized in net revenues. Assets or
liabilities that arise from the firm’s continuing involvement
with transferred financial assets are initially recognized at
fair value. For transfers of financial assets that are not
accounted for as sales, the assets are generally included in
financial instruments owned and the transfer is accounted
for as a collateralized financing, with the related interest
expense recognized over the life of the transaction. See
Note 10 for further information about transfers of financial
assets accounted for as collateralized financings and
Note 11 for further information about transfers of financial
assets accounted for as sales.

Goldman Sachs 2018 Form 10-K 111

I N C . A N D S U B S I D I A R I E S
T H E G O L D M A N S A C H S G R O U P ,
Notes to Consolidated Financial Statements

Cash and Cash Equivalents
The firm defines cash equivalents as highly liquid overnight
deposits held in the ordinary course of business. Cash and
cash equivalents included cash and due from banks of
$10.66 billion as of December 2018 and $10.79 billion as
of December 2017. Cash and cash equivalents also included
interest-bearing deposits with banks of $119.89 billion as
of December
of
December 2017.

$99.26

billion

2018

and

The firm segregates cash for regulatory and other purposes
related to client activity. Cash and cash equivalents
segregated for
regulatory and other purposes were
$23.14 billion as of December 2018 and $18.44 billion as
of December 2017.
the firm segregates
In addition,
securities for regulatory and other purposes related to client
activity. See Note 10 for further information about
segregated securities.

Customer and Other Receivables
Customer and other receivables included receivables from
customers and counterparties of $53.81 billion as of
December 2018 and $60.11 billion as of December 2017,
and receivables
from brokers, dealers and clearing
organizations of $25.50 billion as of December 2018 and
$24.68 billion as of December 2017. Such receivables
primarily consist of customer margin loans, receivables
resulting from unsettled transactions, collateral posted in
connection with certain derivative transactions and certain
transfers of assets accounted for as secured loans rather
than purchases at fair value.

receivables

Substantially all of these receivables are accounted for at
amortized cost net of estimated uncollectible amounts.
Certain of the firm’s customer and other receivables are
accounted for at fair value under the fair value option, with
changes in fair value generally included in market making
revenues. See Note 8 for further information about
customer and other receivables accounted for at fair value
under the fair value option. In addition, the firm’s customer
and other
included $3.83 billion as of
December 2018 and $4.63 billion as of December 2017 of
loans held for sale accounted for at the lower of cost or fair
value. See Note 5 for an overview of the firm’s fair value
measurement policies. As of both December 2018 and
December 2017, the carrying value of receivables not
accounted for at fair value generally approximated fair
value. As these receivables are not accounted for at fair
value, they are not included in the firm’s fair value
hierarchy in Notes 5 through 8. Had these receivables been
included in the firm’s fair value hierarchy, substantially all
would have been classified in level 2 as of both
December 2018 and December 2017. Interest on customer
and other receivables is recognized over the life of the
transaction and included in interest income.

112 Goldman Sachs 2018 Form 10-K

Customer and other receivables includes receivables from
contracts with clients and, beginning in January 2018, also
includes contract assets. Contract assets represent the firm’s
right to receive consideration for services provided in
connection with its contracts with clients for which
collection is conditional and not merely subject to the
passage of
the firm’s
time. As of December 2018,
receivables from contracts with clients were $1.94 billion
and contract assets were not material.

included payables

Customer and Other Payables
Customer and other payables
to
customers and counterparties of $173.99 billion as of
December 2018 and $171.50 billion as of December 2017,
and payables to brokers, dealers and clearing organizations
of $6.24 billion as of December 2018 and $6.67 billion as
of December 2017. Such payables primarily consist of
customer credit balances related to the firm’s prime
brokerage activities. Customer and other payables are
accounted for at cost plus accrued interest, which generally
approximates
these payables are not
accounted for at fair value, they are not included in the
firm’s fair value hierarchy in Notes 5 through 8. Had these
payables been included in the firm’s fair value hierarchy,
substantially all would have been classified in level 2 as of
both December 2018 and December 2017. Interest on
customer and other payables is recognized over the life of
the transaction and included in interest expense.

fair value. As

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.

I N C . A N D S U B S I D I A R I E S
T H E G O L D M A N S A C H S G R O U P ,
Notes to Consolidated Financial Statements

Derivatives are reported on a net-by-counterparty basis
(i.e., the net payable or receivable for derivative assets and
liabilities for a given counterparty) in the consolidated
statements of financial condition when a legal right of setoff
exists under an enforceable netting agreement. Securities
purchased under agreements to resell (resale agreements)
and securities
to repurchase
sold under agreements
(repurchase agreements) and securities borrowed and
loaned transactions with the same term and currency are
presented on a net-by-counterparty basis
in the
consolidated statements of financial condition when such
transactions meet certain settlement criteria and are subject
to netting agreements.

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

Foreign Currency Translation
Assets and liabilities denominated in non-U.S. currencies
are translated at rates of exchange prevailing on the date of
the consolidated statements of financial condition and
revenues and expenses are translated at average rates of
exchange for the period. Foreign currency remeasurement
gains or losses on transactions in nonfunctional currencies
are recognized in earnings. Gains or losses on translation of
the financial statements of a non-U.S. operation, when the
functional currency is other than the U.S. dollar, are
included, net of hedges and taxes,
in the consolidated
statements of comprehensive income.

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

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

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

connection with

certain

The cumulative effect of adopting this ASU as of
January 1, 2018 was a decrease to retained earnings of
$53 million (net of tax). In addition, net revenues and
operating expenses were both higher by approximately
$300 million for 2018, due to the changes in the
presentation of certain costs from a net presentation within
revenues to a gross basis.

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

instruments.

financial

includes

In January 2016, the firm early adopted this ASU for the
requirements
related to DVA and reclassified the
cumulative DVA, a gain of $305 million (net of tax), from
retained earnings to accumulated other comprehensive loss.
The adoption of the remaining provisions of the ASU in
January 2018 did not have a material impact on the firm’s
financial condition, results of operations or cash flows.

Leases (ASC 842). In February 2016, the FASB issued ASU
No. 2016-02, “Leases (Topic 842).” This ASU requires
that, for leases longer than one year, a lessee recognize in
the statements of financial condition a right-of-use asset,
representing the right to use the underlying asset for the
lease term, and a lease liability, representing the liability to
make lease payments. It also requires that for finance leases,
a lessee recognize interest expense on the lease liability,
separately from the amortization of the right-of-use asset in
the statements of earnings, while for operating leases, such
amounts should be recognized as a combined expense. It
also requires that for qualifying sale-leaseback transactions
the seller recognize any gain or loss (based on the estimated
fair value of the asset at the time of sale) when control of the
asset is transferred instead of amortizing it over the lease
period. In addition, this ASU requires expanded disclosures
about the nature and terms of lease agreements.

Goldman Sachs 2018 Form 10-K 113

I N C . A N D S U B S I D I A R I E S
T H E G O L D M A N S A C H S G R O U P ,
Notes to Consolidated Financial Statements

The firm adopted this ASU in January 2019 under a
modified retrospective approach. The impact of adopting
this ASU was a gross up of $1.77 billion on the firm’s
consolidated statements of financial condition and an
increase to retained earnings of $12 million (net of tax) as
of January 1, 2019.

Improvements to Employee Share-Based Payment
Accounting (ASC 718). In March 2016, the FASB issued
ASU No. 2016-09, “Compensation — Stock Compensation
(Topic 718) — Improvements to Employee Share-Based
Payment Accounting.” This ASU includes a requirement
that the tax effect related to the settlement of share-based
awards be recorded in income tax benefit or expense in the
statements of earnings rather than directly to additional
paid-in capital. This change has no impact on total
shareholders’ equity and is
required to be adopted
prospectively. The ASU also allows for forfeitures to be
recorded when they occur rather than estimated over the
vesting period. This change is required to be applied on a
modified retrospective basis.

The firm adopted the ASU in January 2017 and subsequent
to the adoption, the tax effect related to the settlement of
share-based awards is recognized in the statements of
earnings rather than directly to additional paid-in capital.
The firm also elected to account for forfeitures as they
occur, rather than to estimate forfeitures over the vesting
period, and the cumulative effect of this election upon
adoption was an increase of $35 million to share-based
awards and a decrease of $24 million (net of tax of
$11 million) to retained earnings.

In addition, the ASU modifies the classification of certain
share-based payment activities within the statements of
cash flows. Upon adoption, the firm reclassified amounts
related to such activities within the consolidated statements
of cash flows, on a retrospective basis.

Losses on Financial
Measurement of Credit
Instruments (ASC 326). In June 2016, the FASB issued
ASU No. 2016-13, “Financial Instruments — Credit Losses
(Topic 326) — Measurement of Credit Losses on Financial
Instruments.” This ASU amends several aspects of the
measurement of credit losses on financial
instruments,
including replacing the existing incurred credit loss model
and other models with the Current Expected Credit Losses
(CECL) model and amending certain aspects of accounting
for purchased financial assets with deterioration in credit
quality since origination.

114 Goldman Sachs 2018 Form 10-K

Under CECL, the allowance for losses for financial assets
that are measured at amortized cost reflects management’s
estimate of credit losses over the remaining expected life of
the financial assets. Expected credit
losses for newly
recognized financial assets, as well as changes to expected
credit losses during the period, would be recognized in
earnings. For certain purchased financial assets with
deterioration in credit quality since origination, an initial
allowance would be recorded for expected credit losses and
recognized as an increase to the purchase price rather than
as an expense. The ASU eliminates the existing accounting
guidance for Purchased Credit Impaired (PCI) loans. The
ASU is effective for the firm in January 2020 under a
modified retrospective approach with early adoption
permitted beginning in January 2019. The firm plans to
adopt this ASU on January 1, 2020.

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

the collectability of

The firm has substantially completed development of credit
loss models for its significant loan portfolios and is in the
process of validating data inputs to these models, while
continuing to develop the policies, systems and controls
that will be required to implement CECL. The firm
currently expects to begin testing of these models in the first
half of 2019. The firm currently expects that its allowance
for credit losses will likely increase when CECL is adopted
as the allowance will cover expected credit losses over the
full expected life of the loan portfolios and will also take
into account
economic
conditions. In addition, an allowance will be recorded for
certain purchased loans with deterioration in credit quality
since origination with a corresponding increase to their
gross carrying value. The extent of the impact of adoption
of this ASU on the firm’s financial condition, results of
operations and cash flows will depend on, among other
things, the economic environment, and the size and type of
loan portfolios held by the firm on the date of adoption.

expected changes

in future

2016-15,

Classification of Certain Cash Receipts and Cash
Payments (ASC 230). In August 2016, the FASB issued
ASU No.
Flows
(Topic 230) — Classification of Certain Cash Receipts and
Cash Payments.” This ASU provides guidance on the
disclosure and classification of certain items within the
statements of cash flows.

“Statement

of Cash

I N C . A N D S U B S I D I A R I E S
T H E G O L D M A N S A C H S G R O U P ,
Notes to Consolidated Financial Statements

The firm adopted this ASU in January 2018 under a
retrospective approach. The impact for 2017 was an
increase of $485 million to net cash used for operating
activities, a decrease of $477 million to net cash used for
investing activities and an increase of $8 million to net cash
provided by financing activities. The impact for 2016 was a
decrease of $406 million to net cash provided by operating
activities, an increase of $405 million to net cash provided
by investing activities and an increase of $1 million to net
cash provided by financing activities.

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

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

for Goodwill

In January 2017,

Impairment
Simplifying the Test
(ASC 350).
the FASB issued ASU
No. 2017-04, “Intangibles — Goodwill and Other
(Topic 350) — Simplifying the Test
for Goodwill
Impairment.” The ASU simplifies the quantitative goodwill
impairment test by eliminating the second step of the test.
Under
impairment will be measured by
comparing the estimated fair value of the reporting unit
with its carrying value.

this ASU,

The firm early adopted this ASU in the fourth quarter of
2017. Adoption of the ASU did not have a material impact
on the results of the firm’s goodwill impairment test.

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

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

2017-12,

“Derivatives

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

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

Other

Effects

“Income

2018-02,

of Certain

Tax
Comprehensive

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

Effects

Tax

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

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

Goldman Sachs 2018 Form 10-K 115

I N C . A N D S U B S I D I A R I E S
T H E G O L D M A N S A C H S G R O U P ,
Notes to Consolidated Financial Statements

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

instruments owned and financial

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

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

$ in millions

As of December 2018
Money market instruments
Government and agency obligations:

U.S.
Non-U.S.

Loans and securities backed by:

Commercial real estate
Residential real estate
Corporate debt instruments
State and municipal obligations
Other debt obligations
Equity securities
Commodities
Investments in funds at NAV
Subtotal
Derivatives
Total

As of December 2017
Money market instruments
Government and agency obligations:

U.S.
Non-U.S.

Loans and securities backed by:

Financial
Instruments
Owned

Financial
Instruments
Sold, But
Not Yet
Purchased

2,635

–

110,616
43,607

3,369
12,949
31,207
1,233
1,864
76,170
3,729
3,936
291,315
44,846
$336,161

5,080
25,347

–
1
10,411
–
1
25,463
–
–
66,303
42,594
$108,897

1,608

–

76,418
33,956

17,911
23,311

3,436
11,993
33,683
1,471
2,164
96,132
3,194
4,596
268,651
47,337
$315,988

1
–
7,153
–
1
23,882
40
–
72,299
39,631
$111,930

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

‰ Corporate debt instruments includes corporate loans and

debt securities.

‰ Equity securities includes public and private equities,
exchange-traded funds and convertible debentures. Such
amounts include investments accounted for at fair value
under the fair value option where the firm would
otherwise apply the equity method of accounting of
$7.91 billion as of December 2018 and $8.49 billion as of
December 2017.

116 Goldman Sachs 2018 Form 10-K

Gains and Losses from Market Making and Other
Principal Transactions
The table below presents market making revenues by major
product type and other principal transactions revenues.

Year Ended December

$ in millions

2018

2017

2016

Interest rates
Credit
Currencies
Equities
Commodities
Market making
Other principal transactions
Total

$ (2,056)
1,276
4,582
5,186
463
9,451
5,823
$15,274

$ 6,406
701
(3,249)
3,162
640
7,660
5,913
$13,573

$ (1,979)
1,854
6,158
2,873
1,027
9,933
3,382
$13,315

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

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

transactions are
included in the firm’s Investing & Lending segment. See
Note 25 for net revenues, including net interest income,
by product type for Investing & Lending, as well as the
amount of net interest income included in Investing &
Lending.

‰ Gains/(losses) are not representative of the manner in
which the firm manages its business activities because
many of the firm’s market-making and client facilitation
strategies utilize financial
instruments across various
product types. Accordingly, gains or losses in one product
type frequently offset gains or losses in other product
types. For example, most of
the firm’s longer-term
derivatives across product types are sensitive to changes
in interest rates and may be economically hedged with
interest rate swaps. Similarly, a significant portion of the
firm’s cash instruments and derivatives across product
types has exposure to foreign currencies and may be
economically hedged with foreign currency contracts.

I N C . A N D S U B S I D I A R I E S
T H E G O L D M A N S A C H S G R O U P ,
Notes to Consolidated Financial Statements

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
that
active markets, or
primarily use market-based or independently sourced
inputs,
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).

including, but not

limited to,

interest

U.S. GAAP has a three-level hierarchy for disclosure of fair
value measurements. This hierarchy prioritizes inputs to the
valuation techniques used to measure fair value, giving the
highest priority to level 1 inputs and the lowest priority to
in this
level 3 inputs. A financial
hierarchy is based on the lowest level of input that is
significant to its fair value measurement. In evaluating the
significance of a valuation input, the firm considers, among
other factors, a portfolio’s net risk exposure to that input.
The fair value hierarchy is as follows:

instrument’s level

Level 1. Inputs are unadjusted quoted prices in active
markets to which the firm had access at the measurement
date for identical, unrestricted assets or liabilities.

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

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

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

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

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

$ in millions

Total level 1 financial assets
Total level 2 financial assets
Total level 3 financial assets
Investments in funds at NAV
Counterparty and cash collateral netting
Total financial assets at fair value

Total assets

Total level 3 financial assets divided by:

Total assets
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

As of December

2018

2017

$170,463
354,515
22,181
3,936
(49,383)
$501,712

$155,086
395,606
19,201
4,596
(56,366)
$518,123

$931,796

$916,776

2.4%
4.4%
$ 54,151
258,335
23,804
(39,786)
$296,504

2.1%
3.7%
$ 63,589
261,719
19,620
(39,866)
$305,062

Total level 3 financial liabilities divided by
total financial liabilities at fair value

8.0%

6.4%

In the table above:
‰ Counterparty netting among positions classified in the

same level is included in that level.

‰ Counterparty and cash collateral netting represents the
impact on derivatives of netting across levels of the fair
value hierarchy.

Goldman Sachs 2018 Form 10-K 117

I N C . A N D S U B S I D I A R I E S
T H E G O L D M A N S A C H S G R O U P ,
Notes to Consolidated Financial Statements

The table below presents a summary of level 3 financial
assets.

$ in millions

Cash instruments
Derivatives
Other financial assets
Total

As of December

2018

2017

$17,227
4,948
6
$22,181

$15,395
3,802
4
$19,201

Level 3 financial assets as of December 2018 increased
compared with December 2017, primarily reflecting an
increase in level 3 cash instruments. See Notes 6 through 8
level 3 financial assets
for further information about
(including information about unrealized gains and losses
related to level 3 financial assets and financial liabilities,
and transfers in and out of level 3).

Note 6.
Cash Instruments

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

Level 1 Cash Instruments
Level 1 cash instruments include certain money market
instruments, U.S. government obligations, most non-U.S.
government obligations,
agency
obligations, certain corporate debt instruments and actively
traded listed equities. These instruments are valued using
quoted prices for identical unrestricted instruments in
active markets.

certain government

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.

118 Goldman Sachs 2018 Form 10-K

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

restricted or

less

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.

Inputs of

Valuation Techniques and Significant
Level 3 Cash Instruments
Valuation techniques of level 3 cash instruments vary by
instrument, but are generally based on discounted cash flow
techniques. The valuation techniques and the nature of
significant inputs used to determine the fair values of each
type of level 3 cash instrument are described below:

include

Loans and Securities Backed by Commercial Real
Estate. Loans and securities backed by commercial real
estate are directly or indirectly collateralized by a single
commercial real estate property or a portfolio of properties,
and may
levels of
tranches of
subordination. Significant inputs are generally determined
based on relative value analyses and include:
‰ Market yields implied by transactions of similar or related
assets and/or current levels and changes in market indices
such as the CMBX (an index that tracks the performance
of commercial mortgage bonds);

varying

I N C . A N D S U B S I D I A R I E S
T H E G O L D M A N S A C H S G R O U P ,
Notes to Consolidated Financial Statements

‰ Transaction prices in both the underlying collateral and
similar underlying

same or

instruments with the
collateral;

‰ A measure of expected future cash flows in a default
scenario (recovery rates) implied by the value of the
underlying collateral, which is mainly driven by current
performance of the underlying collateral, capitalization
rates and multiples. Recovery rates are expressed as a
percentage of notional or face value of the instrument and
reflect the benefit of credit enhancements on certain
instruments; and

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

Loans and Securities Backed by Residential Real
Estate. Loans and securities backed by residential real
estate are directly or indirectly collateralized by portfolios
of residential real estate and may include tranches of
varying levels of subordination. Significant inputs are
generally determined based on relative value analyses,
which incorporate comparisons to instruments with similar
collateral and risk profiles. Significant inputs include:
‰ Market yields implied by transactions of similar or related

assets;

‰ Transaction prices in both the underlying collateral and
instruments with the same or similar underlying collateral;
‰ Cumulative loss expectations, driven by default rates,
home price projections, residential property liquidation
timelines, related costs and subsequent recoveries; and
‰ Duration, driven by underlying loan prepayment speeds

and residential property liquidation timelines.

Debt

Corporate

inputs for corporate debt

Corporate
Instruments.
debt
instruments includes corporate loans and debt securities.
instruments are
Significant
generally determined based on relative value analyses,
which incorporate comparisons both to prices of credit
default swaps that reference the same or similar underlying
instrument or entity and to other debt instruments for the
same issuer
for which observable prices or broker
quotations are available. Significant inputs include:
‰ Market yields implied by transactions of similar or related
assets and/or current levels and trends of market indices,
such as the CDX (an index that tracks the performance of
corporate credit);

Equity Securities. Equity securities includes private equity
securities and convertible debentures. Recent third-party
completed or pending transactions (e.g., merger proposals,
tender offers, debt restructurings) are considered to be the
best evidence for any change in fair value. When these are
not available, the following valuation methodologies are
used, as appropriate:
‰ Industry multiples (primarily EBITDA multiples) and

public comparables;

‰ Transactions in similar instruments;
‰ Discounted cash flow techniques; and
‰ Third-party appraisals.

The firm also considers changes in the outlook for the
relevant industry and financial performance of the issuer as
compared to projected performance. Significant inputs
include:
‰ Market and transaction multiples;
‰ Discount rates and capitalization rates; and
‰ For equity securities with debt-like features, market yields
implied by transactions of similar or related assets,
current performance and recovery assumptions, and
duration.

Other Cash Instruments. Other
cash instruments
includes U.S. government and agency obligations, non-U.S.
government and agency obligations, state and municipal
obligations, and other debt obligations. Significant inputs
are generally determined based on relative value analyses,
which incorporate comparisons both to prices of credit
default swaps that reference the same or similar underlying
instrument or entity and to other debt instruments for the
same issuer
for which observable prices or broker
quotations are available. Significant inputs include:
‰ Market yields implied by transactions of similar or related
assets and/or current levels and trends of market indices;
‰ Current performance and recovery assumptions and,
where the firm uses credit default swaps to value the
related cash instrument,
the cost of borrowing the
underlying reference obligation; and

‰ Duration.

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

‰ Duration.

Goldman Sachs 2018 Form 10-K 119

I N C . A N D S U B S I D I A R I E S
T H E G O L D M A N S A C H S G R O U P ,
Notes to Consolidated Financial Statements

Fair Value of Cash Instruments by Level
The table below presents cash instrument assets and
liabilities at fair value by level within the fair value
hierarchy.

$ in millions

Level 1

Level 2

Level 3

Total

As of December 2018

Assets
Money market instruments
Government and agency obligations:

U.S.
Non-U.S.

Loans and securities backed by:

Commercial real estate
Residential real estate
Corporate debt instruments
State and municipal obligations
Other debt obligations
Equity securities
Commodities
Subtotal
Investments in funds at NAV
Total cash instrument assets

Liabilities
Government and agency obligations:

U.S.
Non-U.S.

Loans and securities backed by

$ 1,489 $ 1,146 $

– $ 2,635

82,264
33,231

28,327
10,366

25
10

110,616
43,607

2,350
12,286
26,515
1,210
1,326
12,456
3,729

1,019
663
4,224
23
538
10,725
–

–
–
468
–
–
52,989
–

3,369
12,949
31,207
1,233
1,864
76,170
3,729
$170,441 $ 99,711 $17,227 $287,379
3,936
$291,315

$ (5,067) $
(23,872)

(13) $

(1,475)

– $ (5,080)
(25,347)
–

residential real estate
Corporate debt instruments
Other debt obligations
Equity securities
Total cash instrument liabilities $ (54,090) $(12,164) $

(1)
(10,376)
(1)
(298)

–
(4)
–
(25,147)

(1)
–
(10,411)
(31)
(1)
–
(25,463)
(18)
(49) $ (66,303)

In the table above:
‰ Cash instrument assets are

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

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

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

‰ Corporate debt instruments includes corporate loans and

debt securities.

‰ Equity securities includes public and private equities,

exchange-traded funds and convertible debentures.

‰ As of both December 2018 and December 2017,
level 3 equity securities consisted of

substantially all
private equity securities.

Significant Unobservable Inputs
The table below presents the amount of level 3 assets, and
ranges and weighted averages of significant unobservable
inputs used to value level 3 cash instruments.

As of December 2017

Assets
Money market instruments
Government and agency obligations:

398 $ 1,209 $

1 $ 1,608

$ in millions

2018

2017

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

$1,126
$1,019
6.9% to 22.5% (12.4%)
4.6% to 22.0% (13.4%)
9.7% to 78.4% (42.9%) 14.3% to 89.0% (43.8%)
0.8 to 6.4 (2.1)

$668
2.3% to 15.0% (8.3%)
8.3% to 37.7% (19.2%) 12.5% to 43.0% (21.8%)
0.7 to 14.0 (6.9)

0.4 to 7.1 (3.7)

1.4 to 14.0 (6.7)

$663
2.6% to 19.3% (9.2%)

Loans and securities backed by commercial real estate
Level 3 assets
Yield
Recovery rate
Duration (years)
Loans and securities backed by residential real estate
Level 3 assets
Yield
Cumulative loss rate
Duration (years)
Corporate debt instruments
Level 3 assets
Yield
Recovery rate
Duration (years)
Equity securities
Level 3 assets
Multiples
Discount rate/yield
Capitalization rate
Other cash instruments
Level 3 assets
Yield
Duration (years)

$4,224
0.7% to 32.3% (11.9%)
0.0% to 78.0% (57.8%)
0.4 to 13.5 (3.4)

$10,725
1.0x to 23.6x (8.1x)
6.5% to 22.1% (14.3%)
3.5% to 12.3% (6.1%)

$596
4.1% to 11.5% (9.2%)
2.2 to 4.8 (2.8)

$3,270
3.6% to 24.5% (12.3%)
0.0% to 85.3% (62.8%)
0.5 to 7.6 (3.2)

$9,904
1.1x to 30.5x (8.9x)
3.0% to 20.3% (14.0%)
4.3% to 12.0% (6.1%)

$427
4.0% to 11.7% (8.4%)
3.5 to 11.4 (5.1)

U.S.
Non-U.S.

Loans and securities backed by:

Liabilities
Government and agency obligations:

U.S.
Non-U.S.

Loans and securities backed by

commercial real estate
Corporate debt instruments
Other debt obligations
Equity securities
Commodities
Total cash instrument liabilities

50,796
27,070

25,622
6,882

–
4

76,418
33,956

1,126
668
3,270
70
352
9,904
–

–
–
752
–
–
76,044
–

2,310
11,325
29,661
1,401
1,812
10,184
3,194

3,436
11,993
33,683
1,471
2,164
96,132
3,194
$155,060 $ 93,600 $15,395 $264,055
4,596
$268,651

$ (17,845) $
(21,820)

(66) $

(1,491)

– $ (17,911)
(23,311)
–

–
(2)
–
(23,866)
–

(1)
(7,099)
(1)
–
(40)

$ (63,533) $ (8,698) $

–
(52)
–
(16)
–

(1)
(7,153)
(1)
(23,882)
(40)
(68) $ (72,299)

120 Goldman Sachs 2018 Form 10-K

‰ Weighted averages are calculated by weighting each input

$ in millions

I N C . A N D S U B S I D I A R I E S
T H E G O L D M A N S A C H S G R O U P ,
Notes to Consolidated Financial Statements

In the table above:
‰ Ranges represent the significant unobservable inputs that
were used in the valuation of each type of cash
instrument.

by the relative fair value of the cash instruments.

‰ The ranges and weighted averages of these inputs are not
representative of the appropriate inputs to use when
calculating the fair value of any one cash instrument. For
example, the highest multiple for private equity securities
is appropriate for valuing a specific private equity security
but may not be appropriate for valuing any other private
equity security. Accordingly, the ranges of inputs do not
represent uncertainty in, or possible ranges of, fair value
measurements of level 3 cash instruments.

‰ Increases in yield, discount rate, capitalization rate,
duration or cumulative loss rate used in the valuation of
level 3 cash instruments would have resulted in a lower
fair value measurement, while increases in recovery rate
or multiples would have resulted in a higher fair value
measurement
and
December 2017. Due to the distinctive nature of each
level 3 cash instrument, the interrelationship of inputs is
not necessarily uniform within each product type.

both December

2018

‰ Loans and securities backed by commercial and
residential real estate, corporate debt instruments and
other cash instruments are valued using discounted cash
flows, and equity securities are valued using market
comparables and discounted cash flows.

‰ The fair value of any one instrument may be determined
using multiple valuation techniques. For example, market
comparables and discounted cash flows may be used
together to determine fair value. Therefore, the level 3
balance encompasses both of these techniques.

Level 3 Rollforward
The table below presents a summary of the changes in fair
value for level 3 cash instrument assets and liabilities.

Total cash instrument assets
Beginning balance
Net realized gains/(losses)
Net unrealized gains/(losses)
Purchases
Sales
Settlements
Transfers into level 3
Transfers out of level 3
Ending balance

Total cash instrument liabilities
Beginning balance
Net realized gains/(losses)
Net unrealized gains/(losses)
Purchases
Sales
Settlements
Transfers into level 3
Transfers out of level 3
Ending balance

Year Ended December

2018

2017

$15,395
501
816
2,286
(2,184)
(2,595)
5,149
(2,141)
$17,227

$18,035
419
1,144
1,635
(3,315)
(2,265)
2,405
(2,663)
$15,395

(68)
6
(7)
41
(26)
8
(7)
4
(49)

(62)
(8)
(28)
97
(20)
(32)
(18)
3
(68)

In the table above:
‰ Changes in fair value are presented for all cash instrument
assets and liabilities that are classified in level 3 as of the
end of the period.

‰ Net unrealized gains/(losses) relates to instruments that

were still held at period-end.

‰ Purchases includes originations and secondary purchases.
‰ Transfers between levels of the fair value hierarchy are
reported at the beginning of the reporting period in which
they occur. If a cash instrument asset or liability was
transferred to level 3 during a reporting period, its entire
gain or loss for the period is classified in level 3.

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

‰ Level 3 cash instruments are frequently economically
hedged with level 1 and level 2 cash instruments and/or
level 1, level 2 or level 3 derivatives. Accordingly, gains or
losses that are classified in level 3 can be partially offset
by gains or losses attributable to level 1 or level 2 cash
instruments and/or level 1, level 2 or level 3 derivatives.
As a result, gains or losses included in the level 3
rollforward below do not necessarily represent the overall
impact on the firm’s results of operations, liquidity or
capital resources.

Goldman Sachs 2018 Form 10-K 121

I N C . A N D S U B S I D I A R I E S
T H E G O L D M A N S A C H S G R O U P ,
Notes to Consolidated Financial Statements

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

type,

$ in millions

Year Ended December

2018

2017

$ 1,645
35
71
176
(319)
(392)
141
(231)
$ 1,126

845
37
96
98
(246)
(104)
21
(79)
668

$ 4,640
145
(13)
666
(1,003)
(1,062)
1,130
(1,233)
$ 3,270

$10,263
185
982
624
(1,702)
(559)
1,113
(1,002)
$ 9,904

642
17
8
71
(45)
(148)
–
(118)
427

Loans and securities backed by commercial real estate
$ 1,126
Beginning balance
67
Net realized gains/(losses)
6
Net unrealized gains/(losses)
133
Purchases
(126)
Sales
(411)
Settlements
538
Transfers into level 3
(314)
Transfers out of level 3
$ 1,019
Ending balance

Loans and securities backed by residential real estate
668
Beginning balance
53
Net realized gains/(losses)
16
Net unrealized gains/(losses)
119
Purchases
(209)
Sales
(163)
Settlements
242
Transfers into level 3
(63)
Transfers out of level 3
663
Ending balance

Corporate debt instruments
Beginning balance
Net realized gains/(losses)
Net unrealized gains/(losses)
Purchases
Sales
Settlements
Transfers into level 3
Transfers out of level 3
Ending balance

Equity securities
Beginning balance
Net realized gains/(losses)
Net unrealized gains/(losses)
Purchases
Sales
Settlements
Transfers into level 3
Transfers out of level 3
Ending balance
Other cash instruments
Beginning balance
Net realized gains/(losses)
Net unrealized gains/(losses)
Purchases
Sales
Settlements
Transfers into level 3
Transfers out of level 3
Ending balance

$ 3,270
214
(50)
941
(480)
(850)
1,754
(575)
$ 4,224

$ 9,904
157
776
990
(1,319)
(1,013)
2,413
(1,183)
$10,725

427
10
68
103
(50)
(158)
202
(6)
596

122 Goldman Sachs 2018 Form 10-K

Level 3 Rollforward Commentary
Year Ended December 2018. The net realized and
unrealized gains on level 3 cash instrument assets of
$1.32 billion (reflecting $501 million of net realized gains
and $816 million of net unrealized gains) for 2018 included
gains/(losses) of $(96) million reported in market making,
$908 million reported in other principal transactions and
$505 million reported in interest income.

The net unrealized gains on level 3 cash instrument assets
for 2018 primarily reflected gains on private equity
securities,
corporate
driven
performance and company-specific events.

principally

strong

Transfers into level 3 during 2018 primarily reflected
transfers of certain private equity securities and corporate
debt instruments from level 2, principally due to reduced
price transparency as a result of a lack of market evidence,
including fewer market transactions in these instruments.

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

Year Ended December 2017. The net realized and
unrealized gains on level 3 cash instrument assets of
$1.56 billion (reflecting $419 million of net realized gains
and $1.14 billion of net unrealized gains) for 2017 included
gains/(losses) of $(99) million reported in market making,
$1.13 billion reported in other principal transactions and
$532 million reported in interest income.

The net unrealized gains on level 3 cash instrument assets
for 2017 primarily reflected gains on private equity
securities,
corporate
driven
performance and company-specific events.

principally

strong

Transfers into level 3 during 2017 primarily reflected
transfers of certain corporate debt instruments and private
equity 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.

Transfers out of level 3 during 2017 primarily reflected
transfers of certain corporate debt instruments and private
equity securities to level 2, principally due to increased price
including
transparency as a result of market evidence,
market transactions in these instruments, and transfers of
certain corporate debt instruments to level 2, principally
due to certain unobservable yield and duration inputs no
these
longer being significant
instruments.

to the valuation of

I N C . A N D S U B S I D I A R I E S
T H E G O L D M A N S A C H S G R O U P ,
Notes to Consolidated Financial Statements

Available-for-Sale Securities
The
instruments that are accounted for as available-for-sale.

table below presents

information about

cash

$ in millions

As of December 2018

Amortized
Cost

Fair
Value

Weighted
Average
Yield

Less than 5 years
Greater than 5 years
Total U.S. government obligations
Total available-for-sale securities

6,231
12,185

$ 5,954 $ 5,879
6,153
12,032
$12,185 $12,032

As of December 2017

Less than 5 years
Greater than 5 years
Total U.S. government obligations
Less than 5 years
Greater than 5 years
Total other available-for-sale securities
Total available-for-sale securities

$ 3,834 $ 3,800
5,222
9,022
19
235
254
$ 9,293 $ 9,276

5,207
9,041
19
233
252

2.10%
2.44%
2.28%
2.28%

1.95%
2.41%
2.22%
0.43%
4.62%
4.30%
2.27%

In the table above:
‰ U.S. government obligations were classified in level 1 of
the fair value hierarchy as of both December 2018 and
December 2017.

‰ Other available-for-sale securities included corporate
debt securities, other debt obligations, securities backed
by commercial real estate and money market instruments,
substantially all of which were classified in level 2 of the
fair value hierarchy as of December 2017.

loss were

‰ The gross unrealized losses included in accumulated other
comprehensive
of
December 2018 and were related to U.S. government
obligations in a continuous unrealized loss position for
greater than a year. Such losses were not material as of
December 2017.

$153 million

‰ Available-for-sale securities in an unrealized loss position
are periodically reviewed for other-than-temporary
impairment. The firm considers various factors, including
market conditions, changes in issuer credit ratings,
severity and duration of the unrealized losses, and the
intent and ability to hold the security until recovery to
determine if the securities are other-than-temporarily
impaired. There were no such impairments during either
2018 or 2017.

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

investment

principles

Substantially all of the firm’s investments in funds at NAV
consist of investments in firm-sponsored private equity,
credit, real estate and hedge funds where the firm co-invests
with third-party investors.

Private equity funds primarily invest in a broad range of
including
leveraged buyouts,
industries worldwide,
recapitalizations,
and distressed
growth investments
investments. Credit funds generally invest in loans and
other fixed income instruments and are focused on
for leveraged and
providing private high-yield capital
management
recapitalizations,
transactions,
buyout
financings, refinancings, acquisitions and restructurings for
private equity firms, private family companies and
invest globally,
corporate issuers. Real estate funds
primarily in real estate companies, loan portfolios, debt
recapitalizations and property. Private equity, credit and
real estate funds are closed-end funds in which the firm’s
investments are generally not eligible for redemption.
Distributions will be received from these funds as the
underlying assets are liquidated or distributed, the timing of
which is uncertain.

The firm also invests in hedge funds, primarily multi-
disciplinary hedge funds that employ a fundamental
bottom-up investment approach across various asset classes
and strategies. The firm’s investments in hedge funds
primarily include interests where the underlying assets are
illiquid in nature, and proceeds from redemptions will not
be received until the underlying assets are liquidated or
distributed, the timing of which is uncertain.

Goldman Sachs 2018 Form 10-K 123

I N C . A N D S U B S I D I A R I E S
T H E G O L D M A N S A C H S G R O U P ,
Notes to Consolidated Financial Statements

Many of the funds described above are “covered funds” as
defined in the Volcker Rule of the U.S. Dodd-Frank Wall
Street Reform and Consumer Protection Act (Dodd-Frank
Act). The Board of Governors of the Federal Reserve
System (FRB) extended the conformance period to
July 2022 for the firm’s investments in, and relationships
with, certain legacy “illiquid funds” (as defined in the
Volcker Rule) that were in place prior to December 2013.
This extension is applicable to substantially all of the firm’s
remaining investments in, and relationships with, such
covered funds.

The table below presents the fair value of investments in
funds at NAV and the related unfunded commitments.

Risk Management. The firm also enters into derivatives to
actively manage risk exposures that arise from its market-
making and investing and lending activities in derivative
and cash instruments. The firm’s holdings and exposures
are hedged, in many cases, on either a portfolio or risk-
specific basis, as opposed to an instrument-by-instrument
basis. The offsetting impact of this economic hedging is
reflected in the same business segment as the related
revenues. In addition, the firm may enter into derivatives
designated as hedges under U.S. GAAP. These derivatives
are used to manage interest rate exposure in certain fixed-
rate unsecured long-term and short-term borrowings, and
deposits, and to manage foreign currency exposure on the
net investment in certain non-U.S. operations.

The firm enters into various types of derivatives, including:
‰ Futures and Forwards. Contracts

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

$ in millions

As of December 2018

Private equity funds
Credit funds
Hedge funds
Real estate funds
Total

As of December 2017

Private equity funds
Credit funds
Hedge funds
Real estate funds
Total

Fair Value of
Investments

Unfunded
Commitments

$2,683
548
161
544
$3,936

$3,478
266
223
629
$4,596

$ 809
1,099
–
203
$2,111

$ 614
985
–
201
$1,800

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 role,
the firm typically acts as principal and is required to commit
capital to provide execution, and maintains inventory in
response to, or in anticipation of, client demand.

124 Goldman Sachs 2018 Form 10-K

I N C . A N D S U B S I D I A R I E S
T H E G O L D M A N S A C H S G R O U P ,
Notes to Consolidated Financial Statements

The tables below present the gross fair value and the
notional amounts of derivative contracts by major product
type, the amounts of counterparty and cash collateral
netting in the
financial
condition, as well as cash and securities collateral posted
and received under enforceable credit support agreements
that do not meet the criteria for netting under U.S. GAAP.

consolidated statements of

$ in millions

As of December 2018

As of December 2017

Derivative
Assets

Derivative
Liabilities

Derivative
Assets

Derivative
Liabilities

1,553 $
3,552
211,091
216,196
4,517
13,784
18,301
16
800
87,953
88,769
4,093
439
15,595
20,127
11,765
40,668
52,433
395,826

554 $

5,392
274,986
280,932
5,727
16,966
22,693
23
988
94,481
95,492
4,135
197
9,748
14,080
10,552
40,735
51,287
464,484

644
2,773
249,750
253,167
5,670
15,600
21,270
363
847
95,127
96,337
3,854
197
12,097
16,148
10,335
45,253
55,588
442,510

760 $

5,040
227,274
233,074
4,778
14,658
19,436
11
656
85,772
86,439
4,445
433
12,746
17,624
13,431
34,687
48,118
404,691

Not accounted for as hedges
Exchange-traded
OTC-cleared
Bilateral OTC
Total interest rates
OTC-cleared
Bilateral OTC
Total credit
Exchange-traded
OTC-cleared
Bilateral OTC
Total currencies
Exchange-traded
OTC-cleared
Bilateral OTC
Total commodities
Exchange-traded
Bilateral OTC
Total equities
Subtotal
Accounted for as hedges
OTC-cleared
Bilateral OTC
Total interest rates
OTC-cleared
Bilateral OTC
Total currencies
Subtotal
Total gross fair value

2
3,024
3,026
25
54
79
3,105

–
3
3
30
114
144
147
$ 407,796 $ 395,947 $ 466,863 $ 442,657

21
2,309
2,330
15
34
49
2,379

–
7
7
53
61
114
121

Offset in consolidated statements of financial condition
Exchange-traded
OTC-cleared
Bilateral OTC
Counterparty netting
OTC-cleared
Bilateral OTC
Cash collateral netting
Total amounts offset

$ (14,377) $ (14,377) $ (12,963) $ (12,963)
(9,267)
(341,824)
(364,054)
(180)
(38,792)
(38,972)
$(362,950) $(353,353) $(419,526) $(403,026)

(8,888)
(290,961)
(314,226)
(164)
(38,963)
(39,127)

(8,888)
(290,961)
(314,226)
(1,389)
(47,335)
(48,724)

(9,267)
(341,824)
(364,054)
(2,423)
(53,049)
(55,472)

Included in consolidated statements of financial condition
Exchange-traded
OTC-cleared
Bilateral OTC
Total

2,233
70
37,328
$ 44,846 $ 42,594 $ 47,337 $ 39,631

3,050 $
309
39,235

4,270 $
657
39,919

2,301 $
650
44,386

Not offset in consolidated statements of financial condition
Cash collateral
Securities collateral
Total

(602) $ (2,375)
(8,722)
$ 31,492 $ 32,852 $ 32,788 $ 28,534

(614) $ (1,328) $

(12,740)

(13,947)

(8,414)

$ in millions

Notional Amounts as of December

2018

2017

$ 5,139,159
14,290,327
12,858,248
32,287,734
394,494
762,653
1,157,147
5,599
113,360
6,596,741
6,715,700
259,287
1,516
244,958
505,761
635,988
1,070,211
1,706,199
42,372,541

85,681
12,022
97,703
2,911
8,089
11,000
108,703
$42,481,244

$10,212,510
14,739,556
12,862,328
37,814,394
386,163
868,226
1,254,389
10,450
98,549
7,331,516
7,440,515
239,749
3,925
250,547
494,221
655,485
1,127,812
1,783,297
48,786,816

52,785
15,188
67,973
2,210
8,347
10,557
78,530
$48,865,346

In the tables above:
‰ Gross fair values exclude the effects of both counterparty
not

collateral,

therefore

netting
representative of the firm’s exposure.

and

are

‰ Where the firm has received or posted collateral under
credit support agreements, but has not yet determined
such agreements are enforceable, the related collateral has
not been netted.

‰ Notional amounts, which represent the sum of gross long
and short derivative contracts, provide an indication of
the volume of the firm’s derivative activity and do not
represent anticipated losses.

‰ Total gross fair value of derivatives included derivative
assets of $10.68 billion as of December 2018 and
$11.24 billion as of December 2017, and derivative
liabilities of $11.95 billion as of December 2018 and
$13.00 billion as of December 2017, which are not
subject to an enforceable netting agreement or are subject
to a netting agreement
the firm has not yet
that
determined to be enforceable.

‰ During the second quarter of 2018, consistent with the rules
of a clearing organization, the firm elected to consider its
transactions with that clearing organization as settled each
day. As of December 2017, the impact of this change would
have been a reduction in gross interest rate derivative assets
of $3.6 billion and gross interest rate derivative liabilities of
$1.9 billion, and a corresponding decrease in counterparty
to the
and cash collateral netting, with no impact
consolidated statements of financial condition.

Goldman Sachs 2018 Form 10-K 125

I N C . A N D S U B S I D I A R I E S
T H E G O L D M A N S A C H S G R O U P ,
Notes to Consolidated Financial Statements

‰ On November 19, 2018, a clearing organization revised
its rules to calculate notional amounts for certain
exchange-traded derivative contracts. The impact of this
rule change, as of the effective date, was a decrease in the
of
notional
approximately $7 trillion, substantially all of which
related to interest rate derivatives, with no change to their
fair value.

derivative

contracts

amounts

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

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.

126 Goldman Sachs 2018 Form 10-K

‰ 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.

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.

I N C . A N D S U B S I D I A R I E S
T H E G O L D M A N S A C H S G R O U P ,
Notes to Consolidated Financial Statements

Valuation models require a variety of inputs, such as
contractual terms, market prices, yield curves, discount
rates (including those derived from interest rates on
collateral received and posted as specified in credit support
agreements for collateralized derivatives), credit curves,
measures of volatility, prepayment rates, loss severity rates
and correlations of such inputs. Significant inputs to the
valuations of level 2 derivatives can be verified to market
transactions, broker or dealer quotations or other
alternative pricing sources with reasonable levels of price
transparency. Consideration is given to the nature of the
quotations (e.g., indicative or firm) and the relationship of
recent market activity to the prices provided from
alternative pricing sources.

Level 3 Derivatives
Level 3 derivatives are valued using models which utilize
observable level 1 and/or level 2 inputs, as well as
unobservable level 3 inputs. The significant unobservable
inputs used to value the firm’s level 3 derivatives are
described below.
‰ For level 3 interest rate and currency derivatives,
significant unobservable inputs include correlations of
certain currencies and interest rates (e.g., the correlation
In
between Euro inflation and Euro interest rates).
addition, for level 3 interest rate derivatives, significant
unobservable
rate
include
volatilities.

specific

interest

inputs

‰ For level 3 credit derivatives, significant unobservable
inputs include illiquid credit spreads and upfront credit
points, which are unique to specific reference obligations
and reference
recovery rates and certain
correlations required to value credit derivatives (e.g., the
likelihood of default of
the underlying reference
obligation relative to one another).

entities,

Subsequent to the initial valuation of a level 3 derivative,
the firm updates the level 1 and level 2 inputs to reflect
observable market changes and any resulting gains and
losses are classified in level 3. Level 3 inputs are changed
when corroborated by evidence such as similar market
transactions, third-party pricing services and/or broker or
dealer quotations or other empirical market data.
In
circumstances where the firm cannot verify the model value
by reference to market transactions, it is possible that a
different valuation model could produce a materially
different estimate of fair value. See below for further
information about significant unobservable inputs used in
the valuation of level 3 derivatives.

Valuation Adjustments
Valuation adjustments are integral to determining the fair
value of derivative portfolios and are used to adjust the
mid-market valuations produced by derivative pricing
models to the appropriate exit price valuation. These
adjustments incorporate bid/offer spreads, the cost of
liquidity,
credit valuation adjustments and funding
valuation adjustments, which account for the credit and
funding risk inherent in the uncollateralized portion of
derivative portfolios. The firm also makes
funding
valuation adjustments to collateralized derivatives where
the terms of the agreement do not permit the firm to deliver
or repledge collateral received. Market-based inputs are
generally used when calibrating valuation adjustments to
market-clearing levels.

for derivatives

In addition,
include significant
unobservable inputs, the firm makes model or exit price
adjustments to account
for the valuation uncertainty
present in the transaction.

that

‰ 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.

significantly from current market prices.

‰ For level 3 equity derivatives, significant unobservable
inputs generally include equity volatility inputs for
options that are long-dated and/or have strike prices that
differ
In
addition,
the valuation of certain structured trades
requires the use of level 3 correlation inputs, such as the
correlation of the price performance of two or more
individual
the price
performance for a basket of stocks to another asset class
such as commodities.

the correlation of

stocks or

Goldman Sachs 2018 Form 10-K 127

I N C . A N D S U B S I D I A R I E S
T H E G O L D M A N S A C H S G R O U P ,
Notes to Consolidated Financial Statements

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

$ in millions

Level 1

Level 2

Level 3

Total

As of December 2018
Assets
Interest rates
Credit
Currencies
Commodities
Equities
Gross fair value
Counterparty netting in levels
Subtotal
Cross-level counterparty netting
Cash collateral netting
Net fair value

Liabilities
Interest rates
Credit
Currencies
Commodities
Equities
Gross fair value
Counterparty netting in levels
Subtotal
Cross-level counterparty netting
Cash collateral netting
Net fair value

As of December 2017
Assets
Interest rates
Credit
Currencies
Commodities
Equities
Gross fair value
Counterparty netting in levels
Subtotal
Cross-level counterparty netting
Cash collateral netting
Net fair value

Liabilities
Interest rates
Credit
Currencies
Commodities
Equities
Gross fair value
Counterparty netting in levels
Subtotal
Cross-level counterparty netting
Cash collateral netting
Net fair value

–
–
–
10
22
–

$ 12 $ 235,680 $

3,444
681
431
940
5,904
(956)

15,992
85,837
17,193
47,168
401,870
(312,611)

408 $ 236,100
19,436
86,518
17,624
48,118
407,796
(313,567)
$ 22 $ 89,259 $ 4,948 $ 94,229
(659)
(48,724)
$ 44,846

–
–
–
(37)
(61)
–

(1,772)
(220)
(319)
(2,486)
(5,314)
956

(16,529)
(88,663)
(19,808)
(49,910)
(390,572)
312,611

$(24) $(215,662) $ (517) $(216,203)
(18,301)
(88,883)
(20,127)
(52,433)
(395,947)
313,567
$(61) $ (77,961) $(4,358) $ (82,380)
659
39,127
$ (42,594)

–
–
–
8
26
–

$ 18 $ 282,933 $

3,640
140
353
409
4,853
(1,051)

19,053
95,401
13,727
50,870
461,984
(362,109)

311 $ 283,262
22,693
95,541
14,080
51,287
466,863
(363,160)
$ 26 $ 99,875 $ 3,802 $ 103,703
(894)
(55,472)
$ 47,337

–
–
–
(28)
(56)
–

(2,135)
(321)
(306)
(1,658)
(5,141)
1,051

(19,135)
(96,160)
(15,842)
(53,902)
(437,460)
362,109

$(28) $(252,421) $ (721) $(253,170)
(21,270)
(96,481)
(16,148)
(55,588)
(442,657)
363,160
$(56) $ (75,351) $(4,090) $ (79,497)
894
38,972
$ (39,631)

128 Goldman Sachs 2018 Form 10-K

In the table above:
‰ The gross fair values exclude the effects of both
counterparty netting and collateral netting, and therefore
are not representative of the firm’s exposure.

‰ Counterparty netting is reflected in each level to the
extent that receivable and payable balances are netted
within the same level and is included in counterparty
netting in levels. Where the counterparty netting is across
levels, the netting is included in cross-level counterparty
netting.

‰ Derivative assets are shown as positive amounts and

derivative liabilities are shown as negative amounts.

Significant Unobservable Inputs
The table below presents the amount of level 3 assets
(liabilities), and ranges, averages and medians of significant
unobservable inputs used to value level 3 derivatives.

Level 3 Assets (Liabilities) and Range of Significant
Unobservable Inputs (Average/Median) as of December

$ in millions

Interest rates, net

2018

$(109)

2017

$(410)

Correlation

(10)% to 86% (66%/64%) (10)% to 95% (71%/79%)

Volatility (bps)
Credit, net

Correlation

31 to 150 (74/65)
$1,672

31 to 150 (84/78)
$1,505

N/A 28% to 84% (61%/60%)

Credit spreads (bps)

1 to 810 (109/63)

1 to 633 (69/42)

Upfront credit points

2 to 99 (44/40)

0 to 97 (42/38)

Recovery rates
Currencies, net

25% to 70% (40%/40%)
$461

22% to 73% (68%/73%)
$(181)

Correlation
Commodities, net

10% to 70% (40%/36%)
$112

49% to 72% (61%/62%)
$47

Volatility

10% to 75% (28%/27%)

9% to 79% (24%/24%)

Natural gas spread

Oil spread

Equities, net

Correlation

Volatility

$(2.32) to $4.68
($(0.26)/$(0.30))

$(3.44) to $16.62
($4.53/$3.94)
$(1,546)

$(2.38) to $3.34
($(0.22)/$(0.12))

$(2.86) to $23.61
($6.47/$2.35)
$(1,249)

(68)% to 97% (48%/51%) (36)% to 94% (50%/52%)

3% to 102% (20%/18%)

4% to 72% (24%/22%)

In the table above:
‰ Derivative assets are shown as positive amounts and

derivative liabilities are shown as negative amounts.

‰ Ranges represent the significant unobservable inputs that

were used in the valuation of each type of derivative.

‰ Averages represent the arithmetic average of the inputs and
are not weighted by the relative fair value or notional of the
respective financial instruments. An average greater than
the median indicates that the majority of inputs are below
the average. For example, the difference between the
average and the median for credit spreads indicates that the
majority of the inputs fall in the lower end of the range.

I N C . A N D S U B S I D I A R I E S
T H E G O L D M A N S A C H S G R O U P ,
Notes to Consolidated Financial Statements

the highest

‰ 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,
rate
derivatives is appropriate for valuing a specific interest
rate derivative but may not be appropriate for valuing any
other interest rate derivative. Accordingly, the ranges of
inputs do not represent uncertainty in, or possible ranges
of, fair value measurements of level 3 derivatives.

correlation for

interest

‰ Interest rates, currencies and equities derivatives are
valued using option pricing models, credit derivatives are
valued using option pricing, correlation and discounted
cash flow models, and commodities derivatives are valued
using option pricing and discounted cash flow models.
‰ The fair value of any one instrument may be determined
using multiple valuation techniques. For example, option
pricing models and discounted cash flows models are
typically used together to determine fair value. Therefore,
the level 3 balance encompasses both of these techniques.
‰ Correlation was not significant to the valuation of level 3

credit derivatives as of December 2018.

‰ Correlation within currencies and equities includes cross-

product type correlation.

‰ Natural gas spread represents the spread per million

British thermal units of natural gas.

‰ Oil spread represents the spread per barrel of oil and

refined products.

Range of Significant Unobservable Inputs
The following is information about the ranges of significant
unobservable inputs used to value the firm’s level 3
derivative instruments:
‰ Correlation. Ranges for correlation cover a variety of
underliers both within one product type (e.g., equity
index and equity single stock names) and across product
types (e.g., correlation of an interest rate and a currency),
as well as across regions. Generally, cross-product type
correlation inputs are used to value more complex
instruments and are lower than correlation inputs on
assets within the same derivative product type.

‰ Volatility. Ranges

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 delivery locations.

Sensitivity of Fair Value Measurement to Changes
in Significant Unobservable Inputs
The following is a description of the directional sensitivity
of the firm’s level 3 fair value measurements, as of both
December 2018 and December 2017,
to changes in
significant unobservable inputs, in isolation:
‰ Correlation. In general, for contracts where the holder
benefits from the convergence of the underlying asset or
index prices (e.g., interest rates, credit spreads, foreign
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,

Due to the distinctive nature of each of the firm’s level 3
derivatives, the interrelationship of inputs is not necessarily
uniform within each product type.

Goldman Sachs 2018 Form 10-K 129

I N C . A N D S U B S I D I A R I E S
T H E G O L D M A N S A C H S G R O U P ,
Notes to Consolidated Financial Statements

Level 3 Rollforward
The table below presents a summary of the changes in fair
value for level 3 derivatives.

$ in millions

Total level 3 derivatives
Beginning balance
Net realized gains/(losses)
Net unrealized gains/(losses)
Purchases
Sales
Settlements
Transfers into level 3
Transfers out of level 3
Ending balance

Year Ended December

2018

2017

$ (288)
(113)
1,251
612
(1,510)
573
34
31
590

$(1,217)
(119)
(436)
301
(611)
1,891
(39)
(58)
$ (288)

In the table above:
‰ Changes in fair value are presented for all derivative
assets and liabilities that are classified in level 3 as of the
end of the period.

‰ Net unrealized gains/(losses) relates to instruments that

were still held at period-end.

‰ Transfers between levels of the fair value hierarchy are
reported at the beginning of the reporting period in which
they occur. If a derivative was transferred into level 3
during a reporting period, its entire gain or loss for the
period is classified in level 3.

‰ Positive amounts for transfers into level 3 and negative
amounts for transfers out of level 3 represent net transfers
of derivative assets. Negative amounts for transfers into
level 3 and positive amounts for transfers out of level 3
represent net transfers of derivative liabilities.

‰ A derivative with level 1 and/or level 2 inputs is classified
in level 3 in its entirety if it has at least one significant
level 3 input.

‰ If there is one significant level 3 input, the entire gain or
loss from adjusting only observable inputs (i.e., level 1
and level 2 inputs) is classified in level 3.

‰ Gains or losses that have been classified in level 3
resulting from changes in level 1 or level 2 inputs are
frequently offset by gains or losses attributable to level 1
or level 2 derivatives and/or level 1, level 2 and level 3
cash instruments. As a result, gains/(losses) included in
the level 3 rollforward below do not necessarily represent
the overall impact on the firm’s results of operations,
liquidity or capital resources.

130 Goldman Sachs 2018 Form 10-K

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

$ in millions

Interest rates, net
Beginning balance
Net realized gains/(losses)
Net unrealized gains/(losses)
Purchases
Sales
Settlements
Transfers into level 3
Transfers out of level 3
Ending balance

Credit, net
Beginning balance
Net realized gains/(losses)
Net unrealized gains/(losses)
Purchases
Sales
Settlements
Transfers into level 3
Transfers out of level 3
Ending balance

Currencies, net
Beginning balance
Net realized gains/(losses)
Net unrealized gains/(losses)
Purchases
Sales
Settlements
Transfers into level 3
Transfers out of level 3
Ending balance

Commodities, net
Beginning balance
Net realized gains/(losses)
Net unrealized gains/(losses)
Purchases
Sales
Settlements
Transfers into level 3
Transfers out of level 3
Ending balance

Equities, net
Beginning balance
Net realized gains/(losses)
Net unrealized gains/(losses)
Purchases
Sales
Settlements
Transfers into level 3
Transfers out of level 3
Ending balance

Year Ended December

2018

2017

$ (410)
(51)
122
8
(2)
171
(9)
62
$ (109)

$ 1,505
(23)
2
53
(65)
244
(35)
(9)
$ 1,672

$ (181)
(51)
372
36
(25)
212
101
(3)
461

47
18
61
42
(64)
12
21
(25)
112

$(1,249)
(6)
694
473
(1,354)
(66)
(44)
6
$(1,546)

$ (381)
(62)
20
4
(14)
30
(12)
5
$ (410)

$ 2,504
42
(188)
20
(27)
(739)
3
(110)
$ 1,505

3
(39)
(192)
4
(3)
62
(9)
(7)
$ (181)

73
(4)
216
102
(301)
(27)
(25)
13
47

$(3,416)
(56)
(292)
171
(266)
2,565
4
41
$(1,249)

I N C . A N D S U B S I D I A R I E S
T H E G O L D M A N S A C H S G R O U P ,
Notes to Consolidated Financial Statements

Level 3 Rollforward Commentary
Year Ended December 2018. The net realized and
unrealized gains on level 3 derivatives of $1.14 billion
(reflecting $113 million of net
realized losses and
$1.25 billion of net unrealized gains) for 2018 included
gains of $1.11 billion reported in market making and
$28 million reported in other principal transactions.

The net unrealized gains on level 3 derivatives for 2018
were primarily attributable to gains on certain equity
derivatives, reflecting the impact of a decrease in certain
equity prices and gains on certain currency derivatives,
primarily reflecting the impact of changes in foreign
exchange rates.

Both transfers into level 3 derivatives and transfers out of
level 3 derivatives during 2018 were not material.

Year Ended December 2017. The net realized and
unrealized losses on level 3 derivatives of $555 million
(reflecting $119 million of net
realized losses and
$436 million of net unrealized losses) for 2017 included
losses of $90 million reported in market making and
$465 million reported in other principal transactions.

The net unrealized losses on level 3 derivatives for 2017
were primarily attributable to losses on certain equity
derivatives, reflecting the impact of changes in equity prices,
losses on certain currency derivatives, primarily reflecting
the impact of changes in foreign exchanges rates, and losses
on certain credit derivatives, reflecting the impact of tighter
credit
spreads, partially offset by gains on certain
commodity derivatives, reflecting the impact of an increase
in commodity prices.

Transfers into level 3 derivatives during 2017 were not
material.

Transfers out of level 3 derivatives during 2017 primarily
reflected transfers of certain credit derivatives assets to
level 2, principally due to certain unobservable inputs no
longer being significant to the valuation of these derivatives.

OTC Derivatives
The table below presents the fair values of OTC derivative
assets and liabilities by tenor and major product type.

$ in millions

As of December 2018

Assets
Interest rates
Credit
Currencies
Commodities
Equities
Counterparty netting in tenors
Subtotal
Cross-tenor counterparty netting
Cash collateral netting
Total OTC derivative assets

Liabilities
Interest rates
Credit
Currencies
Commodities
Equities
Counterparty netting in tenors
Subtotal
Cross-tenor counterparty netting
Cash collateral netting
Total OTC derivative liabilities

As of December 2017

Assets
Interest rates
Credit
Currencies
Commodities
Equities
Counterparty netting in tenors
Subtotal
Cross-tenor counterparty netting
Cash collateral netting
Total OTC derivative assets

Liabilities
Interest rates
Credit
Currencies
Commodities
Equities
Counterparty netting in tenors
Subtotal
Cross-tenor counterparty netting
Cash collateral netting
Total OTC derivative liabilities

Less than
1 Year

1 - 5
Years

Greater than
5 Years

Total

807
10,976
4,978
4,962
(3,409)

$ 2,810 $13,177
3,676
5,076
2,101
5,244
(3,883)
$21,124 $25,391

1,127
13,553
4,271
9,278
(3,409)

$ 4,193 $ 9,153
4,173
6,871
2,663
5,178
(3,883)
$29,013 $24,155

760
12,184
3,175
4,969
(3,719)

$ 3,717 $15,445
4,079
6,219
2,526
5,607
(4,594)
$21,086 $29,282

2,078
14,326
3,599
6,453
(3,719)

$ 4,517 $ 8,471
3,588
7,119
2,167
6,647
(4,594)
$27,254 $23,398

3,364
6,486
145
1,329
(2,822)

$47,426 $ 63,413
7,847
22,538
7,224
11,535
(10,114)
$55,928 $102,443
(13,143)
(48,724)
$40,576

1,412
4,474
3,145
3,060
(2,822)

$29,377 $ 42,723
6,712
24,898
10,079
17,516
(10,114)
$38,646 $ 91,814
(13,143)
(39,127)
$ 39,544

3,338
7,245
181
1,387
(2,807)

$57,200 $ 76,362
8,177
25,648
5,882
11,963
(11,120)
$66,544 $116,912
(16,404)
(55,472)
$ 45,036

1,088
4,802
2,465
3,381
(2,807)

$33,193 $46,181
6,754
26,247
8,231
16,481
(11,120)
$42,122 $ 92,774
(16,404)
(38,972)
$ 37,398

In the table above:
‰ Tenor is based on remaining contractual maturity.
‰ Counterparty netting within the same product type and
tenor category is included within such product type and
tenor category.

‰ Counterparty netting across product types within the
same tenor category is included in counterparty netting in
tenors. Where the counterparty netting is across tenor
categories,
included in cross-tenor
counterparty netting.

the netting is

Goldman Sachs 2018 Form 10-K 131

‰ Total Return Swaps. A total return swap transfers the
risks relating to economic performance of a reference
obligation from the protection buyer to the protection
seller. Typically, the protection buyer receives a floating
rate of interest and protection against any reduction in
fair value of the reference obligation, and the protection
seller receives the cash flows associated with the reference
obligation, plus any increase in the fair value of the
reference obligation.

The firm economically hedges its exposure to written credit
derivatives primarily by entering into offsetting purchased
credit derivatives with identical underliers. Substantially all
of the firm’s purchased credit derivative transactions are
with financial
institutions and are subject to stringent
collateral thresholds. In addition, upon the occurrence of a
specified trigger event, the firm may take possession of the
reference obligations underlying a particular written credit
derivative, and consequently may, upon liquidation of the
reference obligations, recover amounts on the underlying
reference obligations in the event of default.

As of December 2018, written credit derivatives had a total
gross notional amount of $554.17 billion and purchased
credit derivatives had a total gross notional amount of
$603.00 billion, for total net notional purchased protection
of $48.83 billion. As of December 2017, written credit
derivatives had a total gross notional amount of
$611.04 billion and purchased credit derivatives had a total
gross notional amount of $643.37 billion, for total net
notional
billion.
protection
Substantially all of the firm’s written and purchased credit
derivatives are credit default swaps.

purchased

$32.33

I N C . A N D S U B S I D I A R I E S
T H E G O L D M A N S A C H S G R O U P ,
Notes to Consolidated Financial Statements

Credit Derivatives
The firm enters into a broad array of credit derivatives in
locations around the world to facilitate client transactions
and to manage the credit risk associated with market-
making and investing and lending activities. Credit
derivatives are actively managed based on the firm’s net risk
position. Credit derivatives are generally individually
negotiated contracts and can have various settlement and
payment conventions. Credit events include failure to pay,
bankruptcy, acceleration of indebtedness, restructuring,
repudiation and dissolution of the reference entity.

into the following types of credit

The firm enters
derivatives:
‰ Credit Default Swaps. Single-name credit default swaps
protect the buyer against the loss of principal on one or
more bonds, loans or mortgages (reference obligations) in
the event the issuer of the reference obligations suffers a
credit event. The buyer of protection pays an initial or
periodic premium to the seller and receives protection for
the period of the contract. If there is no credit event, as
defined in the contract, the seller of protection makes no
payments to the buyer. If a credit event occurs, the seller
of protection is required to make a payment to the buyer,
calculated according to the terms of the contract.

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

‰ Credit

Indices, Baskets and Tranches. Credit
derivatives may reference a basket of single-name credit
default swaps or a broad-based index. If a credit event
occurs in one of the underlying reference obligations, the
protection seller pays the protection buyer. The payment
is typically a pro-rata portion of the transaction’s total
notional amount based on the underlying defaulted
reference obligation. In certain transactions, the credit
risk of a basket or index is separated into various portions
(tranches), each having different levels of subordination.
The most junior tranches cover initial defaults and once
these junior
losses exceed the notional amount of
tranches, any excess loss is covered by the next most
senior tranche.

132 Goldman Sachs 2018 Form 10-K

I N C . A N D S U B S I D I A R I E S
T H E G O L D M A N S A C H S G R O U P ,
Notes to Consolidated Financial Statements

The table below presents
derivatives.

information about credit

Credit Spread on Underlier (basis points)

$ in millions

0 - 250

As of December 2018

251 -
500

501 -
1,000

Greater
than
1,000

Total

Maximum Payout/Notional Amount of Written Credit Derivatives by Tenor
$145,828 $ 9,763 $ 1,151 $ 3,848 $160,590
Less than 1 year
340,683
13,835
1 – 5 years
Greater than 5 years
52,899
1,121
$489,746 $36,829 $16,107 $11,490 $554,172
Total

298,228
45,690

21,100
5,966

7,520
122

$413,445 $25,373 $14,243 $ 8,841 $461,902
141,095

Maximum Payout/Notional Amount of Purchased Credit Derivatives
Offsetting
Other
Fair Value of Written Credit Derivatives
Asset
Liability
Net asset/(liability)

80 $ 9,374
7,972
$ 6,666 $ (872) $ (1,104) $ (3,288) $ 1,402

$ 8,656 $
1,990

115,754

14,273

543 $

3,513

3,368

1,199

7,555

1,415

95 $

As of December 2017

Maximum Payout/Notional Amount of Written Credit Derivatives by Tenor
705 $ 4,067 $195,749
Less than 1 year
$182,446 $ 8,531 $
362,373
1 – 5 years
52,918
Greater than 5 years
$567,758 $20,874 $10,269 $12,139 $611,040
Total

335,872
49,440

10,201
2,142

7,553
519

8,747
817

$492,325 $13,424 $ 9,395 $10,663 $525,807
117,563

Maximum Payout/Notional Amount of Purchased Credit Derivatives
Offsetting
Other
Fair Value of Written Credit Derivatives
Asset
Liability
Net asset/(liability)

155 $ 15,193
513 $
402
5,970
111 $ (544) $ (3,765) $ 9,223

208 $
752

$ 13,421 $

$ 14,317 $

99,861

14,483

1,442

3,920

1,777

896

In the table above:
‰ Fair values exclude the effects of both netting of
receivable balances with payable balances under
enforceable netting agreements, and netting of cash
received or posted under enforceable credit support
agreements, and therefore are not representative of the
firm’s credit exposure.

‰ Tenor is based on remaining contractual maturity.
‰ The credit spread on the underlier, together with the tenor
of the contract, are indicators of payment/performance
risk. The firm is less likely to pay or otherwise be required
to perform where the credit spread and the tenor are
lower.

‰ Offsetting purchased credit derivatives represent

the
notional amount of purchased credit derivatives that
economically hedge written credit derivatives with
identical underliers.

‰ Other purchased credit derivatives represent the notional
amount of all other purchased credit derivatives not
included in offsetting.

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

The net gains/(losses), including hedges, attributable to the
impact of changes in credit exposure and credit spreads
(counterparty
firm’s) on derivatives was
$371 million for 2018, $66 million for 2017 and
$85 million for 2016.

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.

$ in millions

Fair value of assets
Fair value of liabilities
Net liability

Notional amount

As of December

2018

2017

980
1,297
317

$ 882
1,200
$ 318

$10,229

$9,578

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

Derivatives with Credit-Related Contingent Features
Certain of the firm’s derivatives have been transacted under
bilateral agreements with counterparties who may require
the firm to post collateral or terminate the transactions
based on changes in the firm’s credit ratings. The firm
these bilateral agreements by
assesses the impact of
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.

such bilateral agreements

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

additional

$ in millions

As of December

2018

2017

Net derivative liabilities under bilateral agreements $29,583 $29,877
Collateral posted
$24,393 $25,329
Additional collateral or termination payments:

One-notch downgrade
Two-notch downgrade

$
$

262 $
358
959 $ 1,856

Goldman Sachs 2018 Form 10-K 133

The table below presents the gains/(losses) from interest
rate derivatives accounted for as hedges and the related
hedged borrowings and deposits, and total interest expense.

Year Ended December

$ in millions

2018

2017

2016

Interest rate hedges
Hedged borrowings and deposits
Interest expense

$ (1,854)
$ 1,295
$15,912

$ (2,867)
$ 2,183
$10,181

$(1,480)
$ 834
$ 7,104

In the table above:
‰ The difference between gains/(losses) from interest rate
hedges and hedged borrowings and deposits was
primarily due to the amortization of prepaid credit
spreads resulting from the passage of time.

‰ Hedge ineffectiveness was $(684) million for 2017 and

$(646) million for 2016.

The table below presents the carrying value of the hedged
items that are currently designated in a hedging relationship
and the related cumulative hedging adjustment (increase/
(decrease)) from current and prior hedging relationships
included in such carrying values.

$ in millions

Deposits
Unsecured short-term borrowings
Unsecured long-term borrowings

As of December 2018

Carrying
Value

$11,924
$ 4,450
$68,839

Cumulative
Hedging
Adjustment

$ (156)
$
(12)
$2,759

In the table above, cumulative hedging adjustment included
$1.74 billion of hedging adjustments from prior hedging
relationships that were de-designated and substantially all
were related to unsecured long-term borrowings.

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

I N C . A N D S U B S I D I A R I E S
T H E G O L D M A N S A C H S G R O U P ,
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 and
(ii) certain foreign currency forward contracts and foreign
currency-denominated debt used to manage
foreign
currency exposures on the firm’s net investment in certain
non-U.S. operations.

To qualify for hedge accounting, the hedging instrument
must be highly effective at reducing the risk from the
exposure being hedged. Additionally,
the firm must
formally document the hedging relationship at inception
and assess the hedging relationship at least on a quarterly
basis to ensure the hedging instrument continues to be
highly effective over the life of the hedging relationship.

Fair Value Hedges
The firm designates certain interest rate swaps as fair value
hedges of certain fixed-rate unsecured long-term and short-
term debt and fixed-rate certificates of deposit. These
interest rate swaps hedge changes in fair value attributable
to the designated benchmark interest rate (e.g., London
Interbank Offered Rate (LIBOR) or Overnight Index Swap
Rate), effectively converting a substantial portion of
fixed-rate obligations into floating-rate obligations.

The firm applies a statistical method that utilizes regression
analysis when assessing the effectiveness of its fair value
hedging relationships in achieving offsetting changes in the
fair values of the hedging instrument and the risk being
hedged (i.e., interest rate risk). An interest rate swap is
considered highly effective in offsetting changes in fair value
attributable to changes in the hedged risk when the
regression analysis results in a coefficient of determination
of 80% or greater and a slope between 80% and 125%.

For qualifying fair value hedges, gains or losses on
derivatives are included in interest expense. The change in
fair value of the hedged item attributable to the risk being
hedged is reported as an adjustment to its carrying value
(hedging adjustment) and is also included in interest
expense. When a derivative is no longer designated as a
hedge, any remaining difference between the carrying value
and par value of the hedged item is amortized to interest
expense over the remaining life of the hedged item using the
further
effective interest method. See Note 23 for
information about interest income and interest expense.

134 Goldman Sachs 2018 Form 10-K

I N C . A N D S U B S I D I A R I E S
T H E G O L D M A N S A C H S G R O U P ,
Notes to Consolidated Financial Statements

Net Investment Hedges
The firm seeks to reduce the impact of fluctuations in
foreign exchange rates on its net investments in certain
non-U.S. operations through the use of foreign currency
forward contracts and foreign currency-denominated debt.
For foreign currency forward contracts designated as
hedges, the effectiveness of the hedge is assessed based on
the overall changes in the fair value of the forward contracts
(i.e., based on changes in forward rates). For foreign
currency-denominated debt designated as a hedge, the
effectiveness of the hedge is assessed based on changes in
spot rates.

in accordance with ASU
Beginning in January 2018,
No. 2017-12 for qualifying net investment hedges, all gains
or losses on the hedging instruments are included in
currency translation. Prior to January 2018, gains or losses
on the hedging instruments, only to the extent effective,
were included in currency translation.

The table below presents the gains/(losses)
investment hedging.

from net

$ in millions

Hedges:

Year Ended December

2018

2017

2016

Foreign currency forward contract
Foreign currency-denominated debt

$577
$ (50)

$(805)
$ (67)

$135
$ (85)

Gains or losses on individual net investments in non-U.S.
operations are reclassified to earnings from accumulated
other comprehensive income when such net investments are
sold or substantially liquidated. The gross and net gains and
losses on hedges and the related net investments in non-U.S.
operations reclassified to earnings from accumulated other
comprehensive income were not material for 2018. The net
gain reclassified to earnings from accumulated other
comprehensive income was $41 million (reflecting a gain of
$205 million related to hedges and a loss of $164 million on
the related net investments in non-U.S. operations) for 2017
and $28 million (reflecting a gain of $167 million related to
hedges and a loss of $139 million on the related net
investments in non-U.S. operations) for 2016. The gain/
(loss) related to ineffectiveness was not material for 2017 or
2016.

The firm had designated $1.99 billion as of December 2018
and $1.81 billion as of December 2017 of foreign currency-
denominated debt,
included in unsecured long-term
borrowings and unsecured short-term borrowings, as
hedges of net investments in non-U.S. subsidiaries.

Note 8.
Fair Value Option

Other Financial Assets and Financial Liabilities at
Fair Value
In addition to cash and derivative instruments included in
financial instruments owned and financial instruments sold,
but not yet purchased, the firm accounts for certain of its
other financial assets and financial liabilities at fair value,
substantially all under the fair value option. The primary
reasons for electing the fair value option are to:
‰ Reflect economic events in earnings on a timely basis;
‰ Mitigate volatility in earnings from using different
measurement attributes
financial
(e.g.,
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 nonfinancial assets (e.g.,
physical commodities). If the firm elects to bifurcate the
embedded derivative from the associated debt,
the
derivative is accounted for at fair value and the host
contract is accounted for at amortized cost, adjusted for the
effective portion of any fair value hedges. If the firm does
not elect to bifurcate, the entire hybrid financial instrument
is accounted for at fair value under the fair value option.

Other financial assets and financial liabilities accounted for
at fair value under the fair value option include:
‰ Repurchase agreements and substantially all

resale

agreements;

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

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

including

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

‰ Certain customer and other

including
transfers of assets accounted for as secured loans and
certain margin loans; and

receivables,

‰ Certain time deposits (deposits with no stated maturity
are not eligible for a fair value option election), including
structured certificates of deposit, which are hybrid
financial instruments.

Goldman Sachs 2018 Form 10-K 135

I N C . A N D S U B S I D I A R I E S
T H E G O L D M A N S A C H S G R O U P ,
Notes to Consolidated Financial Statements

Fair Value of Other Financial Assets and Financial
Liabilities by Level
The table below presents, by level within the fair value
hierarchy, other financial assets and financial liabilities at
fair value, substantially all of which are accounted for at
fair value under the fair value option.

$ in millions

Level 1

Level 2

Level 3

Total

As of December 2018

Assets
Resale agreements
Securities borrowed
Customer and other receivables
Total

Liabilities
Deposits
Repurchase agreements
Securities loaned
Other secured financings
Unsecured borrowings:

Short-term
Long-term
Other liabilities
Total

As of December 2017

Assets
Resale agreements
Securities borrowed
Customer and other receivables
Total

Liabilities
Deposits
Repurchase agreements
Securities loaned
Other secured financings
Unsecured borrowings:

Short-term
Long-term
Other liabilities
Total

$ – $ 139,220 $

–
–

23,142
3,183

$ – $ 165,545 $

– $ 139,220
23,142
–
6
3,189
6 $ 165,551

$ – $ (17,892) $ (3,168) $ (21,060)
(78,723)
(3,241)
(20,904)

(78,694)
(3,241)
(20,734)

(29)
–
(170)

–
–
–

(12,887)
(34,761)
(1)

(16,963)
(46,584)
(132)
$ – $(168,210) $(19,397) $(187,607)

(4,076)
(11,823)
(131)

$ – $ 120,420 $

–
–

78,189
3,522

$ – $ 202,131 $

– $ 120,420
78,189
–
4
3,526
4 $ 202,135

$ – $ (19,934) $ (2,968) $ (22,902)
(84,718)
(5,357)
(24,345)

(84,681)
(5,357)
(23,956)

(37)
–
(389)

–
–
–

(12,310)
(31,204)
(228)

(16,904)
(38,638)
(268)
$ – $(177,670) $(15,462) $(193,132)

(4,594)
(7,434)
(40)

In the table above, other financial assets are shown as
positive amounts and other financial liabilities are shown as
negative amounts.

Valuation Techniques and Significant Inputs
Other 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 in 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 2018 Form 10-K

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 other
secured financings 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
resale and repurchase agreements and
valuation of
securities borrowed and loaned are funding spreads, the
amount and timing of expected future cash flows and
interest
rates. As of both December 2018 and
December 2017, the firm had no level 3 resale agreements,
securities borrowed or securities loaned. As of both
December 2018 and December 2017, the firm’s level 3
repurchase agreements were not material. See Note 10 for
further information about collateralized agreements and
financings.

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
December 2018, the firm’s level 3 other secured financings
were not material. The ranges of significant unobservable
inputs used to value level 3 other secured financings as of
December 2017 are as follows:
‰ Yield: 0.6% to 13.0% (weighted average: 3.3%)
‰ Duration: 0.7 to 11.0 years (weighted average: 2.7 years)

calls. As

additional

collateral

Generally, increases in yield or duration, in isolation, would
have resulted in a lower fair value measurement as of
December 2017. 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.

I N C . A N D S U B S I D I A R I E S
T H E G O L D M A N S A C H S G R O U P ,
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, Note 15 for further
information about unsecured short-term borrowings, and
Note 16 for
long-term
borrowings.

information about

further

Certain of the firm’s unsecured short-term and long-term
borrowings are classified 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

Customer and Other Receivables. Customer and other
receivables at
fair value primarily consist of prepaid
commodity transactions and 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 cash flows and funding spreads. As of both
December 2018 and December 2017, the firm’s level 3
customer and other receivables were not material.

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 and Note 14 for further information
about deposits.

The firm’s deposits that are classified in level 3 are hybrid
instruments. As the significant unobservable
financial
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.

Level 3 Rollforward
The table below presents a summary of the changes in fair
value for level 3 other financial assets and financial
liabilities accounted for at fair value.

$ in millions

Total other financial assets
Beginning balance
Net unrealized gains/(losses)
Purchases
Settlements
Ending balance

Total other financial liabilities
Beginning balance
Net realized gains/(losses)
Net unrealized gains/(losses)
Purchases
Sales
Issuances
Settlements
Transfers into level 3
Transfers out of level 3
Ending balance

Year Ended December

2018

2017

4
2
–
–
6

55
–
1
(52)
4

$(15,462)
(491)
2,013
–
–
(11,935)
7,010
(1,416)
884
$(19,397)

$(14,979)
(362)
(1,047)
(3)
1
(8,382)
6,859
(611)
3,062
$(15,462)

In the table above:
‰ Changes in fair value are presented for all other financial
assets and financial liabilities that are classified in level 3
as of the end of the period.

‰ Net unrealized gains/(losses) relates to instruments that

were still held at period-end.

‰ Transfers between levels of the fair value hierarchy are
reported at the beginning of the reporting period in which
they occur. If a financial asset or financial liability was
transferred to level 3 during a reporting period, its entire
gain or loss for the period is classified in level 3.

‰ For level 3 other financial assets, increases are shown as
positive amounts, while decreases are shown as negative
amounts. For level 3 other financial liabilities, increases
are shown as negative amounts, while decreases are
shown as positive amounts.

‰ Level 3 other financial assets and financial liabilities are
frequently economically hedged with cash instruments
and derivatives. Accordingly, gains or losses that are
classified in level 3 can be partially offset by gains or
losses attributable to level 1, 2 or 3 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.

Goldman Sachs 2018 Form 10-K 137

Level 3 Rollforward Commentary
Year Ended December 2018. The net realized and
unrealized gains on level 3 other financial liabilities of
$1.52 billion (reflecting $491 million of net realized losses
and $2.01 billion of net unrealized gains) for 2018 included
gains/(losses) of $883 million reported in market making,
$(1) million reported in other principal transactions and
$(1) million reported in interest expense in the consolidated
statements of earnings, and gains of $641 million reported
in debt valuation adjustment in the consolidated statements
of comprehensive income.

The net unrealized gains on level 3 other financial liabilities
for 2018 primarily reflected gains on certain hybrid
financial
instruments included in unsecured long-term
borrowings, principally due to the impact of wider credit
spreads and increases in interest rates, and gains on certain
hybrid financial instruments included in unsecured short-
term borrowings, principally due to a decrease in global
equity prices.

Transfers into level 3 other financial liabilities during 2018
primarily reflected transfers of certain hybrid financial
instruments included in unsecured long-term borrowings
from level 2, principally due to reduced transparency of
certain inputs used to value these instruments as a result of
a lack of market transactions in similar instruments.

Transfers out of level 3 other financial liabilities during
2018 primarily reflected transfers of certain hybrid
financial instruments included in unsecured long-term and
short-term borrowings to level 2, principally due to
increased transparency of certain volatility and correlation
inputs used to value these instruments.

Year Ended December 2017. The net realized and
unrealized losses on level 3 other financial liabilities of
$1.41 billion (reflecting $362 million of net realized losses
and $1.05 billion of net unrealized losses)
for 2017
included losses of $1.20 billion reported in market making,
$45 million reported in other principal transactions and
$10 million reported in interest expense in the consolidated
statements of earnings, and losses of $149 million reported
in debt valuation adjustment in the consolidated statements
of comprehensive income.

I N C . A N D S U B S I D I A R I E S
T H E G O L D M A N S A C H S G R O U P ,
Notes to Consolidated Financial Statements

The table below disaggregates, by the consolidated
statements of financial condition line items, the information
for other financial liabilities included in the summary table
above.

Year Ended December

2018

2017

$ (2,968)
(25)
272
(796)
298
(8)
59
$ (3,168)

(37)
2
6
(29)

(389)
(15)
11
–
–
(8)
157
(10)
84
(170)

$ (4,594)
(125)
558
(4,564)
4,481
(72)
240
$ (4,076)

$ (7,434)
(349)
1,262
(6,545)
2,068
(1,326)
501
$(11,823)

(40)
23
(92)
(22)
(131)

$(3,173)
(6)
(239)
(661)
232
–
879
$(2,968)

(66)
(1)
30
(37)

$ (557)
17
(40)
(3)
1
(32)
171
(12)
66
$ (389)

$(3,896)
(332)
(230)
(4,599)
3,675
(131)
919
$(4,594)

$(7,225)
(60)
(559)
(3,071)
2,751
(468)
1,198
$(7,434)

(62)
19
22
(19)
(40)

$ in millions

Deposits
Beginning balance
Net realized gains/(losses)
Net unrealized gains/(losses)
Issuances
Settlements
Transfers into level 3
Transfers out of level 3
Ending balance

Repurchase agreements
Beginning balance
Net unrealized gains/(losses)
Settlements
Ending balance

Other secured financings
Beginning balance
Net realized gains/(losses)
Net unrealized gains/(losses)
Purchases
Sales
Issuances
Settlements
Transfers into level 3
Transfers out of level 3
Ending balance

Unsecured short-term borrowings
Beginning balance
Net realized gains/(losses)
Net unrealized gains/(losses)
Issuances
Settlements
Transfers into level 3
Transfers out of level 3
Ending balance

Unsecured long-term borrowings
Beginning balance
Net realized gains/(losses)
Net unrealized gains/(losses)
Issuances
Settlements
Transfers into level 3
Transfers out of level 3
Ending balance

Other liabilities
Beginning balance
Net realized gains/(losses)
Net unrealized gains/(losses)
Issuances
Ending balance

138 Goldman Sachs 2018 Form 10-K

I N C . A N D S U B S I D I A R I E S
T H E G O L D M A N S A C H S G R O U P ,
Notes to Consolidated Financial Statements

The net unrealized losses on level 3 other financial liabilities
for 2017 primarily reflected losses on certain hybrid
financial instruments included in unsecured long-term and
short-term borrowings, principally due to an increase in
global equity prices and the impact of tighter credit spreads,
and losses on certain hybrid financial instruments included
in deposits, principally due to the impact of an increase in
the market value of the underlying assets.

Transfers into level 3 other financial liabilities during 2017
primarily reflected transfers of certain hybrid financial
instruments included in unsecured long-term borrowings
from level 2, principally due to reduced transparency of
volatility inputs used to value these instruments.

Transfers out of level 3 other financial liabilities during
2017 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 inputs used to value these
instruments as a result of market transactions in similar
instruments, and transfers of certain hybrid financial
instruments included in deposits to level 2, principally due
to increased transparency of correlation and volatility
inputs used to value these instruments.

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 in
earnings as a result of the firm electing to apply the fair
value option to certain financial assets and financial
liabilities.

$ in millions

Unsecured short-term borrowings
Unsecured long-term borrowings
Other liabilities
Other
Total

Year Ended December

2018

2017

2016

$1,443
926
(68)
349
$2,650

$(2,585)
(1,357)
222
(620)
$(4,340)

$(1,028)
584
(55)
(630)
$(1,129)

In the table above:
‰ Gains/(losses) are included in market making and other

principal transactions.

‰ Gains/(losses) exclude contractual

interest, which is
included in interest income and interest expense, for all
instruments other than hybrid financial instruments. See
Note 23 for further information about interest income
and interest expense.

‰ Gains/(losses) included in unsecured short-term and long-
term borrowings were substantially all related to the
embedded derivative component of hybrid financial
instruments for 2018, 2017 and 2016. These gains and
losses would have been recognized under other U.S.
GAAP even if the firm had not elected to account for the
entire hybrid financial instrument at fair value.

‰ Other primarily consists of gains/(losses) on customer and
other receivables, deposits and other secured financings.

Excluding the gains and losses on the instruments
accounted for at fair value under the fair value option
described above, market making and other principal
transactions primarily represent gains and losses on
financial instruments owned and financial instruments sold,
but not yet purchased.

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

As of December

2018

2017

Performing loans and long-term receivables
Aggregate contractual principal in excess of fair value $1,837 $ 952
Loans on nonaccrual status and/or more than 90 days past due
Aggregate contractual principal in excess of fair value $5,260 $5,266
Aggregate fair value of loans on nonaccrual status

and/or more than 90 days past due

$2,010 $2,104

In the table above, the aggregate contractual principal
amount of loans on nonaccrual status and/or more than
90 days past due (which excludes loans carried at zero fair
value and considered uncollectible) exceeds the related fair
value primarily because the firm regularly purchases loans,
such as distressed loans, at values significantly below the
contractual principal amounts.

The fair value of unfunded lending commitments for which
the fair value option was elected was a liability of
$45 million as of December 2018 and $31 million as of
December 2017, and the related total contractual amount
of these lending commitments was $7.72 billion as of
December 2018 and $9.94 billion as of December 2017. See
Note
lending
commitments.

information

further

about

for

Goldman Sachs 2018 Form 10-K 139

I N C . A N D S U B S I D I A R I E S
T H E G O L D M A N S A C H S G R O U P ,
Notes to Consolidated Financial Statements

Long-Term Debt Instruments
The difference between the aggregate contractual principal
amount and the related fair value of long-term other
secured financings for which the fair value option was
elected was not material as of both December 2018 and
December 2017. The aggregate contractual principal
amount of unsecured long-term borrowings for which the
fair value option was elected exceeded the related fair value
by $2.38 billion as of December 2018 and $1.69 billion as
of December 2017. The amounts above include both
principal-
long-term
borrowings.

non-principal-protected

and

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 $211 million for 2018, $268 million for 2017 and
$281 million for 2016. The firm generally calculates the fair
value of loans and lending commitments for which the fair
value option is elected by discounting future cash flows at a
rate which incorporates the instrument-specific credit
spreads. For floating-rate loans and lending commitments,
substantially all changes in fair value are attributable to
changes in instrument-specific credit spreads, whereas for
fixed-rate loans and lending commitments, changes in fair
value are also attributable to changes in interest rates.

Debt Valuation Adjustment
The firm calculates the fair value of financial liabilities for
which the fair value option is elected by discounting future
cash flows at a rate which incorporates the firm’s credit
spreads.

The table below presents information about the net DVA
gains/(losses) on financial liabilities for which the fair value
option was elected.

$ in millions

DVA (pre-tax)
DVA (net of tax)

Year Ended December

2018

$3,389
$2,553

2017

2016

$(1,232)
$ (807)

$(844)
$(544)

In the table above:
‰ DVA (net of tax) is included in debt valuation adjustment
in the consolidated statements of comprehensive income.

‰ The

gains/(losses)

reclassified

other

accumulated
extinguishment of such financial
material for 2018, 2017 and 2016.

comprehensive

from
earnings
upon
loss
liabilities were not

140 Goldman Sachs 2018 Form 10-K

Note 9.
Loans Receivable

Loans receivable consists of loans held for investment that
are accounted for at amortized cost net of allowance for
loan losses. Interest on loans receivable is recognized over
the life of the loan and is recorded on an accrual basis.

table below presents

The
receivable.

information about

loans

$ in millions

Corporate loans
PWM loans
Commercial real estate loans
Residential real estate loans
Consumer loans
Other loans
Total loans receivable, gross
Allowance for loan losses
Total loans receivable

As of December

2018

2017

$37,283
17,219
11,441
7,284
4,536
3,893
81,656
(1,066)
$80,590

$30,749
16,591
7,987
6,234
1,912
3,263
66,736
(803)
$65,933

fair

The fair value of loans receivable was $80.74 billion as of
December 2018 and $66.29 billion as of December 2017.
Had these loans been carried at fair value and included in
the
of
December 2018 and $38.75 billion as of December 2017
would have been classified in level 2, and $40.10 billion as
of December 2018 and $27.54 billion as of December 2017
would have been classified in level 3.

hierarchy,

$40.64

billion

value

The following is a description of the captions in the table
above:
‰ Corporate Loans. Corporate loans includes 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. Loans
receivable related to the firm’s relationship lending
activities are reported within corporate loans.

corporate purposes, or

and general

‰ Private Wealth Management (PWM) Loans. PWM
loans includes loans extended by the private bank. These
loans are used to finance investments in both financial
and nonfinancial assets, bridge cash flow timing gaps or
provide liquidity for other needs. Substantially all of such
loans are secured by securities or other assets.

‰ Commercial Real Estate Loans. Commercial real estate
loans includes loans extended by the firm that are directly
or indirectly secured by hotels, retail stores, multifamily
housing complexes and commercial and industrial
properties. Commercial real estate loans also includes
loans purchased by the firm.

I N C . A N D S U B S I D I A R I E S
T H E G O L D M A N S A C H S G R O U P ,
Notes to Consolidated Financial Statements

‰ Residential Real Estate Loans. Residential real estate
loans includes loans extended by the firm to clients who
warehouse assets that are directly or indirectly secured by
residential real estate. Residential real estate loans also
includes loans purchased by the firm.

‰ Consumer Loans. Consumer loans represents unsecured

consumer loans originated by the firm.

‰ Other Loans. Other loans primarily includes loans
extended to clients who warehouse assets that are directly
or indirectly secured by consumer loans, including auto
loans and private student loans. Other loans also includes
unsecured consumer loans purchased by the firm.

Lending Commitments
The table below presents information about
lending
commitments that are held for investment and accounted
for on an accrual basis.

PCI Loans
Loans receivable includes PCI
loans, which represent
acquired loans or pools of loans with evidence of credit
deterioration subsequent to their origination and where it is
probable, at acquisition, that the firm will not be able to
collect all contractually required payments. Loans acquired
within the same reporting period, which have at least two
common risk characteristics, one of which relates to their
credit risk, are eligible to be pooled together and considered
a single unit of account. PCI loans are initially recorded at
the acquisition price and the difference between the
acquisition price and the expected cash flows (accretable
yield) is recognized as interest income over the life of such
loans or pools of loans on an effective yield method.
Expected cash flows on PCI loans are determined using
various inputs and assumptions, including default rates,
and timing of
loss
prepayments and other macroeconomic indicators.

recoveries,

severities,

amount

As of December

The tables below present information about PCI loans.

$ in millions

Corporate
Other
Total

2018

2017

$113,484
7,513
$120,997

$118,553
5,951
$124,504

In the table above:
‰ Corporate lending commitments primarily relates to the

firm’s relationship lending activities.

‰ Other lending commitments primarily relates to lending
commitments extended to clients who warehouse assets
backed by real estate and other assets and in connection
with commercial real estate financing.

‰ The carrying value of

lending commitments were
liabilities of $443 million (including allowance for losses
of $286 million) as of December 2018 and $423 million
(including allowance for losses of $274 million) as of
December 2017.

‰ The estimated fair value of such lending commitments
were liabilities of $3.78 billion as of December 2018 and
$2.27 billion as of December 2017. Had these lending
commitments been carried at fair value and included in
the
of
December 2018 and $772 million as of December 2017
would have been classified in level 2, and $2.66 billion as
of
as
and
of December
December 2017 would have been classified in level 3.

hierarchy,

billion

$1.12

$1.50

value

2018

fair

$ in millions

Commercial real estate loans
Residential real estate loans
Other loans
Total gross carrying value

Total outstanding principal balance
Total accretable yield

As of December

2018

2017

$ 581
2,457
4
$3,042

$5,576
$ 459

$1,116
3,327
10
$4,453

$9,512
$ 662

$ in millions

Acquired during the period
Fair value
Expected cash flows
Contractually required cash flows

Year Ended December

2018

2017

2016

$ 839
$ 937
$1,881

$1,769
$1,961
$4,092

$2,514
$2,818
$6,389

In the table above:
‰ Fair value, expected cash flows and contractually

required cash flows were as of the acquisition date.

‰ Expected cash flows represents the cash flows expected to
be received over the life of the loan or as a result of
liquidation of the underlying collateral.

‰ Contractually required cash flows represents cash flows
required to be repaid by the borrower over the life of the
loan.

Goldman Sachs 2018 Form 10-K 141

I N C . A N D S U B S I D I A R I E S
T H E G O L D M A N S A C H S G R O U P ,
Notes to Consolidated Financial Statements

Credit Quality
Risk Assessment. The firm’s risk assessment process
includes evaluating the credit quality of its loans receivable.
For loans receivable (excluding PCI and consumer loans)
and lending commitments, 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 internal credit ratings 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.

receivable and corporate

The firm enters into economic hedges to mitigate credit risk
lending
on certain loans
commitments (both of which are held for investment)
related to the firm’s relationship lending activities. Such
hedges are accounted for at fair value. See Note 18 for
further information about these lending commitments and
associated hedges.

The table below presents gross loans receivable (excluding
loans of $7.58 billion as of
PCI and consumer
December 2018 and $6.37 billion as of December 2017)
and lending commitments by an internally determined
public rating agency equivalent and by regulatory risk
rating.

$ in millions

Credit Rating Equivalent
As of December 2018

Investment-grade
Non-investment-grade
Total

As of December 2017
Investment-grade
Non-investment-grade
Total

Regulatory Risk Rating
As of December 2018

Non-criticized/pass
Criticized
Total

As of December 2017

Non-criticized/pass
Criticized
Total

Loans

Lending
Commitments

Total

$28,290
45,788
$74,078

$24,192
36,179
$60,371

$70,153
3,925
$74,078

$56,720
3,651
$60,371

$ 81,959
39,038
$120,997

$110,249
84,826
$195,075

$ 89,409
35,095
$124,504

$113,601
71,274
$184,875

$117,923
3,074
$120,997

$188,076
6,999
$195,075

$119,427
5,077
$124,504

$176,147
8,728
$184,875

In the table above, non-criticized/pass loans and lending
commitments represent loans and lending commitments
that are performing and/or do not demonstrate adverse
characteristics that are likely to result in a credit loss.

142 Goldman Sachs 2018 Form 10-K

For consumer loans, an important credit-quality indicator
is the Fair Isaac Corporation (FICO) credit score, which
measures a borrower’s creditworthiness by considering
factors such as payment and credit history. FICO credit
scores are refreshed periodically by the firm to assess the
updated creditworthiness of the borrower.

The table below presents gross consumer loans receivable
and the concentration by refreshed FICO credit score.

$ in millions

Consumer loans, gross

Refreshed FICO credit score
Greater than or equal to 660
Less than 660
Total

As of December

2018

2017

$4,536

$1,912

88%
12%
100%

89%
11%
100%

For PCI loans, the firm’s risk assessment process includes
reviewing certain key metrics, such as delinquency status,
collateral values, expected cash flows and other risk factors.

Impaired Loans. Loans receivable (excluding PCI loans)
are determined to be impaired when it is probable that the
firm will not collect all principal and interest due under the
contractual terms. At that time, loans are generally placed
on nonaccrual 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. A loan is considered past due when a principal or
interest payment has not been made according to its
contractual terms.

In certain circumstances, the firm may also modify the
original terms of a loan agreement by granting a concession
to a borrower experiencing financial difficulty. Such
modifications are considered troubled debt restructurings
and typically include interest rate reductions, payment
extensions, and modification of loan covenants. Loans
modified in a troubled debt restructuring are considered
impaired and are subject to specific loan-level reserves.

loans) on nonaccrual

The gross carrying value of impaired loans receivable
(excluding PCI
status was
$838 million as of December 2018 and $845 million as of
December 2017. Such loans included $27 million as of
December 2018 and $61 million as of December 2017 of
corporate loans that were modified in a troubled debt
firm did not have any lending
restructuring. The
commitments
as of both
loans
December 2018 and December 2017. The amount of loans
30 days or more past due was $208 million as of
December 2018 and $567 million as of December 2017.

related to these

I N C . A N D S U B S I D I A R I E S
T H E G O L D M A N S A C H S G R O U P ,
Notes to Consolidated Financial Statements

When it is determined that the firm cannot reasonably
estimate expected cash flows on PCI loans or pools of
loans, such loans are placed on nonaccrual status.

Allowance for Credit Losses
The firm’s allowance for credit losses consists of the
allowance for losses on loans and lending commitments.

The firm’s allowance for loan losses consists of specific
loan-level reserves, portfolio level reserves and reserves on
PCI loans, as described below:
‰ Specific loan-level reserves are determined on loans
(excluding PCI loans) that exhibit credit quality weakness
and are therefore individually evaluated for impairment.

‰ Portfolio level

reserves are determined on loans
(excluding PCI loans) not evaluated for specific loan-level
reserves by aggregating groups of loans with similar risk
characteristics and estimating the probable loss inherent
in the portfolio.

‰ Reserves on PCI loans are recorded when it is determined
that the expected cash flows, which are reassessed on a
quarterly basis, will be lower than those used to establish
the current effective yield for such loans or pools of loans.
If
the expected cash flows are determined to be
significantly higher than those used to establish the
current effective yield,
such increases are initially
recognized as a reduction to any previously recorded
allowances for loan losses and any remaining increases
are recognized as interest income prospectively over the
life of the loan or pools of loans as an increase to the
effective yield.

The allowance for loan losses is determined using various
including industry default and loss data,
risk factors,
current macroeconomic indicators, borrower’s capacity to
meet its financial obligations, borrower’s country of risk,
loan seniority and collateral type. In addition, for loans
backed by real estate, risk factors include loan to value
ratio, debt service ratio and home price index. Risk factors
for consumer loans include FICO credit scores and
delinquency status.

the best

Management’s estimate of loan losses entails judgment
about loan collectability 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
deemed to be uncollectible.

future adjustments

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.

The table below presents gross loans receivable and lending
commitments by impairment methodology.

$ in millions

Specific

Portfolio

PCI

Total

As of December 2018

Loans Receivable
Corporate loans
PWM loans
Commercial real estate loans
Residential real estate loans
Consumer loans
Other loans
Total

Lending Commitments
Corporate
Other
Total

As of December 2017

Loans Receivable
Corporate loans
PWM loans
Commercial real estate loans
Residential real estate loans
Consumer loans
Other loans
Total

Lending Commitments
Corporate
Other
Total

$358
46
9
425
–
–
$838

$ 31
–
$ 31

$377
163
–
231
–
74
$845

$ 53
–
$ 53

$ 36,925
17,173
10,851
4,402
4,536
3,889
$ 77,776

–
–
581
2,457
–
4
$3,042

$ 37,283
17,219
11,441
7,284
4,536
3,893
$ 81,656

$113,453
7,513
$120,966

–
–
–

$113,484
7,513
$120,997

$ 30,372
16,428
6,871
2,676
1,912
3,179
$ 61,438

–
–
1,116
3,327
–
10
$4,453

$ 30,749
16,591
7,987
6,234
1,912
3,263
$ 66,736

$118,500
5,951
$124,451

–
–
–

$118,553
5,951
$124,504

In the table above:
‰ Gross loans receivable and lending commitments, subject
to specific loan-level reserves, included $484 million as of
December 2018 and $492 million as of December 2017
of impaired loans and lending commitments, which did
not require a reserve as the loan was deemed to be
recoverable.

‰ Gross loans receivable deemed impaired and subject to
specific loan-level reserves as a percentage of total gross
loans receivable was 1.0% as of December 2018 and
1.3% as of December 2017.

Goldman Sachs 2018 Form 10-K 143

I N C . A N D S U B S I D I A R I E S
T H E G O L D M A N S A C H S G R O U P ,
Notes to Consolidated Financial Statements

The table below presents information about the allowance
for credit losses.

Year Ended
December 2018

Year Ended
December 2017

$ in millions

Loans
Receivable

Lending
Commitments

Loans
Receivable

Lending
Commitments

Changes in the allowance for credit losses
$274
Beginning balance
–
Net charge-offs
20
Provision
(8)
Other
$286
Ending balance

$ 803
(337)
654
(54)
$1,066

$ 509
(203)
574
(77)
$ 803

Allowance for losses by impairment methodology
$ 102
Specific
848
Portfolio
116
PCI
$1,066
Total

3
283
–
$286

$ 119
518
166
$ 803

$212
–
83
(21)
$274

$ 14
260
–
$274

In the table above:
‰ Net charge-offs were primarily related to consumer loans
and commercial real estate PCI loans for 2018 and
primarily related to corporate loans for 2017.

‰ The provision for credit losses was primarily related to
consumer loans and corporate loans for 2018 and
primarily related to corporate
loans and lending
commitments, and commercial real estate loans for 2017.
‰ Other represents the reduction to the allowance related to
loans and lending commitments transferred to held for
sale.

‰ Portfolio level reserves were primarily related to corporate
loans and lending commitments, specific loan-level reserves
were substantially all related to corporate loans and
reserves on PCI loans were related to real estate loans.

‰ Substantially all of the allowance for losses on lending
lending
related

corporate

commitments was
commitments.

‰ Allowance for loan losses as a percentage of total gross
loans receivable was 1.3% as of December 2018 and
1.2% as of December 2017.

‰ Net charge-offs as a percentage of average total gross
loans receivable were 0.5% for 2018 and 0.4% for 2017.

Note 10.
Collateralized Agreements and Financings

borrowed. Collateralized

Collateralized agreements are resale agreements and
securities
are
repurchase agreements, securities loaned and other secured
financings. The firm enters into these transactions in order
to, among other things, facilitate client activities, invest
excess cash, acquire securities to cover short positions and
finance certain firm activities.

financings

144 Goldman Sachs 2018 Form 10-K

Collateralized agreements and financings are presented on a
net-by-counterparty basis when a legal right of setoff exists.
Interest on collateralized agreements, which is included in
interest income, and collateralized financings, which is
included in interest expense, is recognized over the life of
the transaction. See Note 23 for further information about
interest income and interest expense.

The table below presents the carrying value of resale and
repurchase agreements and securities borrowed and loaned
transactions.

$ in millions

Resale agreements
Securities borrowed
Repurchase agreements
Securities loaned

As of December

2018

2017

$139,258
$135,285
$ 78,723
$ 11,808

$120,822
$190,848
$ 84,718
$ 14,793

In the table above:
‰ 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.

‰ Securities

$23.14

borrowed

of
December 2018 and $78.19 billion as of December 2017,
and
of
of
December 2018 and $5.36 billion as of December 2017
were at fair value.

securities

loaned

billion

$3.24

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

involve

Even though repurchase and resale agreements (including
legal
“repos- and reverses-to-maturity”)
transfer of ownership of financial instruments, they are
accounted for as financing arrangements because they
require the financial
instruments to be repurchased or
resold before or at the maturity of the agreement. The
financial
instruments purchased or sold in resale and
repurchase agreements typically include U.S. government
and agency, and investment-grade sovereign obligations.

I N C . A N D S U B S I D I A R I E S
T H E G O L D M A N S A C H S G R O U P ,
Notes to Consolidated Financial Statements

The firm receives financial instruments purchased under
resale agreements and makes delivery of
financial
instruments sold under repurchase agreements. To mitigate
credit exposure, the firm monitors the market value of these
instruments on a daily basis, and delivers or
financial
obtains additional collateral due to changes in the market
value of the financial
instruments, as appropriate. For
resale agreements, the firm typically requires collateral with
a fair value approximately equal to the carrying value of the
relevant assets in the consolidated statements of financial
condition.

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

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

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

in the market value of

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

Securities borrowed and loaned within Securities Services
are recorded based on the amount of cash collateral
advanced or received plus accrued interest. As these
agreements generally can be terminated on demand, they
exhibit little, if any, sensitivity to changes in interest rates.
Therefore,
such agreements
carrying value of
approximates fair value. As these agreements are not
accounted for at fair value, they are not included in the
firm’s fair value hierarchy in Notes 5 through 8. Had these
agreements been included in the firm’s fair value hierarchy,
they would have been classified in level 2 as of both
December 2018 and December 2017.

the

Offsetting Arrangements
The table below presents the gross and net resale and
repurchase agreements and securities borrowed and loaned
transactions, and the related amount of counterparty
netting included in the consolidated statements of financial
condition, as well as the amounts of counterparty netting
and cash and securities collateral not offset
in the
consolidated statements of financial condition.

Assets

Liabilities

Resale
agreements

Securities
borrowed

Repurchase
agreements

Securities
loaned

$ in millions

As of December 2018

$ 246,284 $ 139,556
(4,271)
135,285

Included in consolidated statements of financial condition
Gross carrying value
Counterparty netting
Total
Amounts not offset
Counterparty netting
Collateral
Total

(1,104)
(127,340)
6,841

(107,026)
139,258

(107,026)
78,723

(5,870)
(130,707)

(5,870)
(70,691)

2,681 $

2,162 $

$ 185,749 $ 16,079
(4,271)
11,808

(1,104)
(10,491)
213

As of December 2017

$ 209,972 $ 195,783
(4,935)
190,848

Included in consolidated statements of financial condition
Gross carrying value
Counterparty netting
Total
Amounts not offset
Counterparty netting
Collateral
Total

(4,412)
(177,679)
8,757

(89,150)
120,822

(5,441)
(113,305)

(89,150)
84,718

(5,441)
(76,793)

2,076 $

2,484 $

$ 173,868 $ 19,728
(4,935)
14,793

(4,412)
(9,731)
650

In the table above:
‰ Substantially all of the gross carrying values of these
to enforceable netting

subject

are

arrangements
agreements.

‰ Where the firm has received or posted collateral under
credit support agreements, but has not yet determined
such agreements are enforceable, the related collateral has
not been netted.

‰ Amounts not offset includes counterparty netting that
does not meet the criteria for netting under U.S. GAAP
and the fair value of collateral received or posted subject
to enforceable credit support agreements.

Goldman Sachs 2018 Form 10-K 145

I N C . A N D S U B S I D I A R I E S
T H E G O L D M A N S A C H S G R O U P ,
Notes to Consolidated Financial Statements

Gross Carrying Value of Repurchase Agreements
and Securities Loaned
The table below presents the gross carrying value of
repurchase agreements and securities loaned by class of
collateral pledged.

$ in millions

As of December 2018

Repurchase
agreements

Securities
loaned

Money market instruments
U.S. government and agency obligations
Non-U.S. government and agency obligations
Securities backed by commercial real estate
Securities backed by residential real estate
Corporate debt securities
State and municipal obligations
Equity securities
Total

As of December 2017

100
88,060
84,443
3
221
5,495
25
7,402
$185,749

97
80,591
73,031
43
338
7,140
55
12,573
$173,868

–
–
2,438
–
–
195
–
13,446
$16,079

–
–
2,245
–
–
1,145
–
16,338
$19,728

The table below presents the gross carrying value of
repurchase agreements and securities loaned by maturity
date.

$ in millions

No stated maturity and overnight
2 - 30 days
31 - 90 days
91 days - 1 year
Greater than 1 year
Total

As of December 2018

Repurchase
agreements

Securities
loaned

$ 65,764
82,482
14,636
17,137
5,730
$185,749

$ 8,300
4,273
774
2,503
229
$16,079

In the table above:
‰ Repurchase agreements and securities loaned that are
repayable prior to maturity at the option of the firm are
reflected at their contractual maturity dates.

‰ Repurchase agreements and securities loaned that are
redeemable prior to maturity at the option of the holder
are reflected at the earliest dates such options become
exercisable.

Other Secured Financings
In addition to repurchase agreements and securities loaned
transactions, the firm funds certain assets through the use of
other secured financings and pledges financial instruments
and other assets as collateral in these transactions. These
other secured financings consist of:
‰ Liabilities of consolidated VIEs;
‰ Transfers of assets accounted for as financings rather than
sales (e.g., collateralized central bank financings, pledged
commodities, bank loans and mortgage whole loans); and

‰ Other structured financing arrangements.

Other secured financings includes nonrecourse arrangements.
Nonrecourse other secured financings were $8.47 billion as of
December 2018 and $5.31 billion as of December 2017.

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. As these
financings are not accounted for at fair value, they are not
included in the firm’s fair value hierarchy in Notes 5 through
8. Had these financings been included in the firm’s fair value
hierarchy, they would have been primarily classified in level 2
as of both December 2018 and December 2017.

The table below presents information about other secured
financings.

$ in millions

As of December 2018

Other secured financings (short-term):

At fair value
At amortized cost

Other secured financings (long-term):

At fair value
At amortized cost

Total other secured financings

U.S.
Dollar

Non-U.S.
Dollar

Total

$ 3,528 $ 6,027 $ 9,555
–

–

9,010
529

11,349
529
$13,067 $ 8,366 $21,433

2,339
–

Other secured financings collateralized by:

Financial instruments
Other assets

$ 8,960 $ 7,550 $16,510
816 $ 4,923
$ 4,107 $

As of December 2017

Other secured financings (short-term):

At fair value
At amortized cost

Other secured financings (long-term):

At fair value
At amortized cost

Total other secured financings

$ 7,704 $ 6,856 $14,560
336

336

–

6,779
107

9,785
107
$14,590 $10,198 $24,788

3,006
–

146 Goldman Sachs 2018 Form 10-K

Other secured financings collateralized by:

Financial instruments
Other assets

$12,454 $ 9,870 $22,324
328 $ 2,464
$ 2,136 $

I N C . A N D S U B S I D I A R I E S
T H E G O L D M A N S A C H S G R O U P ,
Notes to Consolidated Financial Statements

In the table above:
‰ Short-term other secured financings includes financings
maturing within one year of the financial statement date
and financings that are redeemable within one year of the
financial statement date at the option of the holder.

‰ U.S.

long-term other

dollar-denominated

secured
financings at amortized cost had a weighted average
interest rate of 4.02% as of December 2018 and 3.89%
as of December 2017. These rates include the effect of
hedging activities.

‰ Non-U.S. dollar-denominated short-term other secured
financings at amortized cost had a weighted average
interest rate of 2.61% as of December 2017. This rate
includes the effect of hedging activities.

2018

$1.55

‰ Total other secured financings included $2.40 billion as
of December
of
and
December 2017 related to transfers of financial assets
accounted for as financings rather than sales. Such
financings were collateralized by financial assets of
$2.41 billion as of December 2018 and $1.57 billion as of
December 2017, both primarily included in financial
instruments owned.

billion

‰ Other secured financings collateralized by financial
instruments included $12.41 billion as of December 2018
and $16.61 billion as of December 2017 of other secured
financings collateralized by financial instruments owned,
and included $4.10 billion as of December 2018 and
$5.71 billion as of December 2017 of other secured
financings collateralized by financial instruments received
as collateral and repledged.

The table below presents other secured financings by
maturity.

$ in millions

Other secured financings (short-term)
Other secured financings (long-term):
2020
2021
2022
2023
2024 - thereafter
Total other secured financings (long-term)
Total other secured financings

As of
December 2018

$ 9,555

4,435
1,276
2,387
776
3,004
11,878
$21,433

In the table above:
‰ Long-term other secured financings that are repayable
prior to maturity at the option of the firm are reflected at
their contractual maturity dates.

‰ Long-term other secured financings that are redeemable
prior to maturity at the option of the holder are reflected
at the earliest dates such options become exercisable.

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

repurchase

agreements

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

collateralized

financings,

securities

secured

and

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

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

$ in millions

As of December

2018

2017

Collateral available to be delivered or repledged
Collateral that was delivered or repledged

$681,516
$565,625

$763,984
$599,565

In the table above, collateral available to be delivered or
repledged excludes $14.10 billion as of December 2018 and
$1.52 billion as of December 2017 of securities received
under resale agreements and securities borrowed transactions
that contractually had the right to be delivered or repledged,
but were segregated for regulatory and other purposes.

The table below presents information about assets pledged.

$ in millions

As of December

2018

2017

Financial instruments owned pledged to counterparties that:

Had the right to deliver or repledge
Did not have the right to deliver or repledge

Other assets pledged to counterparties that

$ 55,081
$ 73,540

$ 50,335
$ 78,656

did not have the right to deliver or repledge

$ 8,037

$ 4,838

The firm also segregated securities included in financial
instruments owned of $23.03 billion as of December 2018
and $10.42 billion as of December 2017 for regulatory and
other purposes. See Note 3 for
information about
segregated cash.

Goldman Sachs 2018 Form 10-K 147

I N C . A N D S U B S I D I A R I E S
T H E G O L D M A N S A C H S G R O U P ,
Notes to Consolidated Financial Statements

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 primarily in
connection with government agency securitizations.

Beneficial interests issued by securitization entities are debt
or equity instruments 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 financial assets.
Prior to securitization, the firm generally accounts for assets
pending transfer at fair value and therefore does not
typically recognize significant gains or losses upon the
transfer of assets. Net revenues from underwriting activities
are recognized in connection with the sales of
the
underlying beneficial interests to investors.

For transfers of financial assets that are not accounted for
as sales, the assets remain in financial instruments owned
and the transfer is accounted for as a collateralized
financing, with the related interest expense recognized over
the life of
the transaction. See Note 10 for further
information about collateralized financings and Note 23
for further information about interest expense.

also have

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

148 Goldman Sachs 2018 Form 10-K

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 primarily are
accounted for at fair value and classified in level 2 of the fair
value hierarchy. Beneficial interests and other interests not
accounted for at fair value are carried at amounts that
approximate fair value. 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 as of the end of the period.

Year Ended December

$ in millions

2018

2017

2016

$21,229
Residential mortgages
8,745
Commercial mortgages
Other financial assets
1,914
Total financial assets securitized $31,888

$18,142
7,872
481
$26,495

$12,164
233
181
$12,578

Retained interests cash flows

296

264

189

table

below presents

The
about
nonconsolidated securitization entities to which the firm
sold assets and has continuing involvement.

information

$ in millions

As of December 2018

Outstanding
Principal
Amount

Retained
Interests

Purchased
Interests

U.S. government agency-issued

collateralized mortgage obligations

Other residential mortgage-backed
Other commercial mortgage-backed
Corporate debt and other asset-backed
Total

19,560
15,088
3,311

$24,506 $1,758
941
448
133
$62,465 $3,280

As of December 2017

U.S. government agency-issued

collateralized mortgage obligations

Other residential mortgage-backed
Other commercial mortgage-backed
Corporate debt and other asset-backed
Total

10,558
7,916
2,108

$20,232 $1,120
711
228
56
$40,814 $2,115

$29
15
10
3
$57

$16
17
7
1
$41

In the table above:
‰ The outstanding principal amount is presented for the
purpose of providing information about the size of the
securitization entities and is not representative of the
firm’s risk of loss.

‰ The firm’s risk of loss from retained or purchased
interests is limited to the carrying value of these interests.

I N C . A N D S U B S I D I A R I E S
T H E G O L D M A N S A C H S G R O U P ,
Notes to Consolidated Financial Statements

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

‰ Substantially all of the total outstanding principal amount
and total retained interests relate to securitizations during
2014 and thereafter as of December 2018, and relate to
securitizations during 2012 and thereafter as of
December 2017.

‰ The fair value of retained interests was $3.28 billion as of
December 2018 and $2.13 billion as of December 2017.

and

with

commitments

In addition to the interests in the table above, the firm had
other continuing involvement in the form of derivative
certain
transactions
nonconsolidated VIEs. The carrying value of
these
derivatives and commitments was a net asset of $75 million
as of December 2018 and $86 million as of
December 2017, and the notional amount of
these
derivatives and commitments was $1.09 billion as of
December 2018 and $1.26 billion as of December 2017.
The
and
of
commitments are included in maximum exposure to loss in
the nonconsolidated VIE table in Note 12.

derivatives

amounts

notional

these

The table below presents information about the weighted
average key economic assumptions used in measuring the
fair value of mortgage-backed retained interests.

$ 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

As of December

2018

2017

$ 3,151
7.2
11.9%
(27)
(53)
4.7%
$
(75)
$ (147)

$
$

$2,071
6.0
9.4%
(19)
(35)
4.2%
(35)
(70)

$
$

In the table above:
‰ Amounts do not reflect the benefit of other financial
instruments that are held to mitigate risks inherent in
these retained interests.

‰ Changes in fair value based on an adverse variation in
assumptions generally cannot be extrapolated because the
relationship of the change in assumptions to the change in
fair value is not usually linear.

‰ The impact of a change in a particular assumption is
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.
government
collateralized mortgage
obligations does not include any credit loss. Expected
credit loss assumptions are reflected in the discount rate
for the remainder of retained interests.

agency-issued

The firm has other retained interests not reflected in the
table above with a fair value of $133 million and a
weighted average life of 4.2 years as of December 2018, and
a fair value of $56 million and a weighted average life of
4.5 years as of December 2017. Due to the nature and fair
value of certain of these retained interests, the weighted
average assumptions for constant prepayment and discount
rates and the related sensitivity to adverse changes are not
meaningful as of both December 2018 and December 2017.
The firm’s maximum exposure to adverse changes in the
value of these interests is the carrying value of $133 million
as of December 2018 and $56 million as of
December 2017.

Note 12.
Variable Interest Entities

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

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

VIEs generally finance the purchase of assets by issuing debt
and equity securities that are either collateralized by or
indexed to the assets held by the VIE. The debt and equity
securities issued by a VIE may include tranches of varying
levels of subordination. The firm’s involvement with VIEs
includes securitization of financial assets, as described in
Note 11, and investments in and loans to other types of
VIEs, as described below. See Note 11 for further
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.

Goldman Sachs 2018 Form 10-K 149

I N C . A N D S U B S I D I A R I E S
T H E G O L D M A N S A C H S G R O U P ,
Notes to Consolidated Financial Statements

VIE Consolidation Analysis
The enterprise with a controlling financial interest in a VIE
is known as the primary beneficiary and consolidates the
VIE. The firm determines whether it
is the primary
beneficiary of a VIE by performing an analysis that
principally considers:
‰ Which variable interest holder has the power to direct the
activities of the VIE that most significantly impact the
VIE’s economic performance;

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

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

‰ The VIE’s capital structure;
‰ The terms between the VIE and its variable interest

holders and other parties involved with the VIE; and

‰ Related-party relationships.

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

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

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

Real Estate, Credit- and Power-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, power-related assets and equity securities. The firm
generally does not sell assets to, or enter into derivatives
with, these VIEs.

150 Goldman Sachs 2018 Form 10-K

Corporate Debt and Other Asset-Backed VIEs. The
firm structures VIEs that issue notes to clients, purchases
and sells beneficial interests issued by corporate debt and
other asset-backed VIEs in connection with market-making
activities, and makes loans to VIEs that warehouse
corporate debt. Certain of these VIEs synthetically create
the exposure for the beneficial
interests they issue by
entering into credit derivatives with the firm, rather than
purchasing the underlying assets. In addition, the firm may
enter into derivatives, such as total return swaps, with
certain corporate debt and other asset-backed VIEs, under
which the firm pays the VIE a return due to the beneficial
interest holders and receives the return on the collateral
owned by the VIE. The collateral owned by these VIEs is
primarily other asset-backed loans and securities. The firm
generally can be removed as the total return swap
into derivatives with other
counterparty and enters
counterparties to mitigate its risk related to these swaps.
The firm may sell assets to the corporate debt and 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 its risk.
The firm also obtains funding through these VIEs.

Investments in Funds. The firm makes equity investments
in certain investment fund VIEs it manages and is entitled to
receive fees from these VIEs. The firm generally does not
sell assets to, or enter into derivatives with, these VIEs.

table

Nonconsolidated VIEs
The
the
nonconsolidated VIEs in which the firm holds variable
interests.

below presents

summary

$ in millions

Total nonconsolidated VIEs
Assets in VIEs
Carrying value of variable interests — assets
Carrying value of variable interests — liabilities
Maximum exposure to loss:

Retained interests
Purchased interests
Commitments and guarantees
Derivatives
Loans and investments

Total maximum exposure to loss

As of December

2018

2017

$118,186
9,543
478

3,280
983
2,745
8,975
4,728
$ 20,711

$97,962
8,425
214

2,115
1,172
3,462
8,644
4,216
$19,609

I N C . A N D S U B S I D I A R I E S
T H E G O L D M A N S A C H S G R O U P ,
Notes to Consolidated Financial Statements

In the table above:
‰ The nature of the firm’s variable interests can take
different forms, as described in the rows under maximum
exposure to loss.

firm provides guarantees,

‰ 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, to VIEs or holders of variable interests in VIEs.
‰ The maximum exposure to loss excludes the benefit of
offsetting financial instruments that are held to mitigate
the risks associated with these variable interests.

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

‰ The maximum exposure to loss from commitments and
guarantees, and derivatives is the notional amount, which
does not represent anticipated losses and has not been
reduced by unrealized losses. As a result, the maximum
recorded for
exposure
commitments and guarantees, and derivatives.

liabilities

to loss

exceeds

The table below disaggregates, by principal business
activity, the information for nonconsolidated VIEs included
in the summary table above.

$ in millions

Mortgage-backed
Assets in VIEs
Carrying value of variable interests — assets
Maximum exposure to loss:

2018

2017

$73,262
4,090

$55,153
3,128

Retained interests
Purchased interests
Commitments and guarantees
Derivatives

3,147
941
35
77
Total maximum exposure to loss
$ 4,200
Real estate, credit- and power-related and other investing
$18,851
Assets in VIEs
3,601
Carrying value of variable interests — assets
Carrying value of variable interests — liabilities
20
Maximum exposure to loss:

Commitments and guarantees
Derivatives
Loans and investments

Total maximum exposure to loss
Corporate debt and other asset-backed
Assets in VIEs
Carrying value of variable interests — assets
Carrying value of variable interests — liabilities
Maximum exposure to loss:

Retained interests
Purchased interests
Commitments and guarantees
Derivatives
Loans and investments

Total maximum exposure to loss
Investments in funds
Assets in VIEs
Carrying value of variable interests — assets
Maximum exposure to loss:

Commitments and guarantees
Derivatives
Loans and investments

Total maximum exposure to loss

2,059
1,067
11
99
$ 3,236

$15,539
3,289
2

1,617
238
3,051
$ 4,906

$16,251
1,660
212

56
105
1,779
8,303
817
$11,060

1,543
113
3,572
$ 5,228

$15,842
1,563
458

133
42
1,113
8,782
867
$10,937

$10,231
289

$11,019
348

54
3
289
346

55
4
348
407

As of both December 2018 and December 2017, the
carrying values of
in
nonconsolidated VIEs are included in the consolidated
statements of financial condition as follows:
‰ Mortgage-backed: Assets were primarily included in

firm’s variable

interests

the

financial instruments owned.

‰ Real estate, credit- and power-related and other investing:
Assets were primarily included in financial instruments
owned and liabilities were
included in financial
instruments sold, but not yet purchased and other
liabilities.

‰ Corporate debt and other asset-backed: Assets were
primarily included in loans receivable and liabilities were
included in financial
instruments sold, but not yet
purchased.

‰ Investments in funds: Assets were included in financial

instruments owned.

Consolidated VIEs
The table below presents a summary of the carrying value
and classification of assets and liabilities in consolidated
VIEs.

Total consolidated VIEs
Assets
Cash and cash equivalents
Customer and other receivables
Loans receivable
Financial instruments owned
Other assets
Total

Liabilities
Other secured financings
Financial instruments sold, but not yet purchased
Unsecured short-term borrowings
Unsecured long-term borrowings
Other liabilities
Total

As of December

2018

2017

84
2
319
2,034
1,261
$3,700

$1,204
20
45
207
1,100
$2,576

$ 275
2
427
1,194
1,273
$3,171

$1,023
15
79
225
577
$1,919

In the table above:
‰ Assets and liabilities are presented net of intercompany
eliminations and exclude the benefit of offsetting financial
instruments that are held to mitigate the risks associated
with the firm’s variable interests.

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

‰ Substantially all assets can only be used to settle

obligations of the VIE.

Goldman Sachs 2018 Form 10-K 151

As of December

$ in millions

I N C . A N D S U B S I D I A R I E S
T H E G O L D M A N S A C H S G R O U P ,
Notes to Consolidated Financial Statements

The table below disaggregates, by principal business
activity, the information for consolidated VIEs included in
the summary table above.

$ in millions

As of December

2018

2017

Real estate, credit-related and other investing
Assets
Cash and cash equivalents
Loans receivable
Financial instruments owned
Other assets
Total

Liabilities
Other secured financings
Financial instruments sold, but not yet purchased
Other liabilities
Total

84
269
1,815
1,258
$ 3,426

596
20
1,100
$ 1,716

Mortgage-backed and other asset-backed
Assets
Customer and other receivables
Loans receivable
Financial instruments owned
Other assets
Total

Liabilities
Other secured financings
Total

Principal-protected notes
Assets
Financial instruments owned
Total

Liabilities
Other secured financings
Unsecured short-term borrowings
Unsecured long-term borrowings
Total

$
$

2
50
210
3
265

140
140

9
9

468
45
207
720

275
375
896
1,267
$ 2,813

$
$

327
15
577
919

2
52
242
6
302

207
207

56
56

489
79
225
793

In the table above:
‰ The majority of the assets in principal-protected notes VIEs

are intercompany and are eliminated in consolidation.

‰ Creditors and beneficial interest holders of real estate,
credit-related and other investing VIEs, and mortgage-
backed and other asset-backed VIEs do not have recourse
to the general credit of the firm.

Note 13.
Other Assets

The table below presents other assets by type.

$ in millions

As of December

2018

2017

Property, leasehold improvements and equipment $18,317
4,082
Goodwill and identifiable intangible assets
1,529
Income tax-related assets
6,712
Miscellaneous receivables and other
$30,640
Total

$15,094
4,038
3,728
5,486
$28,346

152 Goldman Sachs 2018 Form 10-K

in income

In the table above:
‰ Property, leasehold improvements and equipment is net
of accumulated depreciation and amortization of
$9.08 billion as of December 2018 and $8.28 billion as of
December 2017. Property, leasehold improvements and
equipment included $5.57 billion as of December 2018
and $5.97 billion as of December 2017 that the firm uses
in connection with its operations, and $896 million as of
December 2018 and $982 million as of December 2017
of foreclosed real estate primarily related to PCI loans.
The remainder is held by investment entities, including
VIEs, consolidated by the firm. Substantially all property
and equipment is depreciated on a straight-line basis over
the useful life of the asset. Leasehold improvements are
amortized on a straight-line basis over the shorter of the
useful life of the improvement or the term of the lease.
Capitalized costs of software developed or obtained for
internal use are amortized on a straight-line basis over
three years.
‰ The decrease

from
December 2017 to December 2018 reflected a decrease in
net current tax receivables, as the net deferred tax liability
related to the Tax Legislation repatriation tax became
current and was netted against current tax receivables.
See Note 24 for
information about Tax
Legislation.
‰ Miscellaneous

tax-related assets

receivables and other

included debt
of
securities
$1.29 billion as of December 2018 and $800 million as of
December 2017. As of December 2018, these securities
were primarily backed by residential real estate and had
maturities of greater than ten years. As of December 2017
these securities were backed by residential real estate and
had maturities of greater than ten years. Held-to-maturity
securities are carried at amortized cost and the carrying
value of these securities approximated fair value as of
both December 2018 and December 2017. As these
securities are not accounted for at fair value, they are not
included in the firm’s fair value hierarchy in Notes 5
through 8. Had these securities been included in the firm’s
fair value hierarchy, they would have been primarily
classified in level 2 as of December 2018 and substantially
all would have been classified in level 2 as of
December 2017.

held-to-maturity

accounted

further

for

‰ Miscellaneous receivables and other included investments
in qualified affordable housing projects of $653 million as
of December
of
and
December 2017.

$679 million

2018

I N C . A N D S U B S I D I A R I E S
T H E G O L D M A N S A C H S G R O U P ,
Notes to Consolidated Financial Statements

‰ Miscellaneous receivables and other included assets
classified as held for sale of $1.01 billion as of
December 2018 related to the firm’s new European
headquarters in London. During the third quarter of
the firm entered into a sale and leaseback
2018,
agreement, which closed in January 2019, to sell this
property for $1.53 billion. The assets were classified as
held for sale during the fourth quarter of 2018 when the
construction of the property was substantially completed.
Substantially all of the sale proceeds in excess of the
carrying value of the property will be recognized over the
life of the lease as a reduction to occupancy expense. In
accordance with ASU No. 2016-02, the firm recorded a
right-of-use asset upon the closing of the sale and lease
back agreement
in January 2019. See Note 3 for
information about ASU No. 2016-02.

‰ Miscellaneous receivables and other included other assets
classified as held for sale of $365 million as of
December 2018 and $634 million as of December 2017
related to the firm’s consolidated investments within its
Investing & Lending segment, substantially all of which
consisted of property and equipment.

‰ Miscellaneous receivables and other included equity-
method investments of $357 million as of December 2018
and $275 million as of December 2017.

Goodwill and Identifiable Intangible Assets
Goodwill. The table below presents the carrying value of
goodwill.

$ in millions

Investment Banking:
Financial Advisory
Underwriting

Institutional Client Services:
FICC Client Execution
Equities client execution
Securities services
Investing & Lending
Investment Management
Total

As of December

2018

2017

98
183

269
2,403
105
91
609
$3,758

269
2,403
105
2
605
$3,665

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

The quantitative goodwill test compares the estimated fair
value of each reporting unit with its estimated net book
value (including goodwill and identifiable intangible
assets). If the reporting unit’s estimated fair value exceeds
its estimated net book value, goodwill is not impaired. An
impairment is recognized if the estimated fair value of a
reporting unit is less than its estimated net book value. To
estimate the fair value of each reporting unit, a relative
value technique is used because the firm believes market
participants would use this technique to value the firm’s
reporting units. The relative value technique applies
observable price-to-earnings multiples or price-to-book
multiples and projected return on equity of comparable
competitors to reporting units’ net earnings or net book
value. The estimated net book value of each reporting unit
reflects an allocation of total shareholders’ equity and
represents the estimated amount of total shareholders’
equity required to support the activities of the reporting
unit under
capital
requirements.

regulatory

applicable

currently

In the fourth quarter of 2018, the firm assessed goodwill for
impairment for each of its reporting units by performing a
qualitative assessment. 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 estimated fair
value of any of these reporting units was less than its
estimated carrying value. The qualitative assessment also
considered changes since the prior quantitative tests.

The firm considered the following factors in the 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 value:
‰ Performance Indicators. During 2018, the firm’s net
revenues, diluted earnings per common share, return on
average common shareholders’ equity (ROE) and book
value per common share all increased compared with
2017. The firm’s operating expenses increased, reflecting
investments in growth and higher client activity. Despite
the increase in expenses,
the efficiency ratio (total
operating expenses divided by total net revenues) and
pre-tax margin for 2018 remained stable compared with
2017 and there were no significant negative changes to
the
the prior
quantitative goodwill tests were performed.

firm’s overall

structure

since

cost

‰ Firm and Industry Events. There were no events, entity-
specific or otherwise, that would have had a significant
negative impact on the valuation of the firm’s reporting
units.

‰ Macroeconomic Indicators. Since the prior quantitative
goodwill tests, the firm’s general operating environment
improved amid stronger global economic growth.

Goldman Sachs 2018 Form 10-K 153

I N C . A N D S U B S I D I A R I E S
T H E G O L D M A N S A C H S G R O U P ,
Notes to Consolidated Financial Statements

tests,

‰ Fair Value Indicators. Since the prior quantitative
goodwill
fair value indicators in the market
improved as global equity prices generally increased and
credit spreads generally tightened. For the firm and most
publicly traded participants in its industry, stock prices
increased since the prior tests. In addition, price-to-book
multiples generally remained greater than 1.0x and
price-to-earnings multiples, while
lower,
remained relatively solid.

generally

the qualitative assessment,

As a result of
the firm
determined that it was more likely than not that the
estimated fair value of each of the reporting units exceeded
its respective carrying value. Therefore, the firm determined
that goodwill for each reporting unit was not impaired and
that a quantitative goodwill test was not required.

Subsequent to the qualitative assessment, the firm’s stock
price declined towards the end of the year. Due to the short
period of time of this decline and continued favorable
outlook for the firm’s performance, the firm determined
that this was not a triggering event for further assessment.

Identifiable Intangible Assets. The table below presents
identifiable intangible assets by segment and type.

$ in millions

By Segment

Institutional Client Services:
FICC Client Execution
Equities client execution

Investing & Lending
Investment Management
Total

By Type
Customer lists
Gross carrying value
Accumulated amortization
Net carrying value

Acquired leases and other
Gross carrying value
Accumulated amortization
Net carrying value

Total gross carrying value
Total accumulated amortization
Total net carrying value

As of December

2018

2017

10
37
178
99
324

37
88
140
108
$ 373

$ 1,117
(970)
147

$ 1,091
(903)
188

636
(459)
177

584
(399)
185

1,753
(1,429)
324

1,675
(1,302)
$ 373

The firm acquired $137 million of intangible assets during
2018, primarily related to acquired leases, with a weighted
average amortization period of
four years. The firm
acquired $113 million of intangible assets during 2017,
primarily related to acquired leases, with a weighted
average amortization period of five years.

154 Goldman Sachs 2018 Form 10-K

Substantially all of the firm’s identifiable intangible assets
are considered to have finite useful lives and are amortized
over their estimated useful lives generally using the straight-
line method.

The tables below present information about amortization
of identifiable intangible assets.

$ in millions

Amortization

$ in millions

Estimated future amortization
2019
2020
2021
2022
2023

Year Ended December

2018

$152

2017

$150

2016

$162

As of
December 2018

$113
$ 56
$ 42
$ 32
$ 27

Impairments
The firm tests property,
leasehold improvements and
equipment, identifiable intangible assets and other assets for
impairment whenever events or changes in circumstances
suggest that an asset’s or asset group’s carrying value may
not be fully recoverable. To the extent the carrying value of
an asset 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.
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.

In addition,

impairments were not
During 2018, 2017 and 2016,
material to the firm’s results of operations or financial
condition.

Note 14.
Deposits

The table below presents the types and sources of deposits.

$ in millions

As of December 2018

Private bank deposits
Consumer deposits
Brokered certificates of deposit
Deposit sweep programs
Institutional deposits
Total

As of December 2017

Private bank deposits
Consumer deposits
Brokered certificates of deposit
Deposit sweep programs
Institutional deposits
Total

Savings and
Demand

Time

Total

$52,028
27,987
–
15,903
1
$95,919

$50,579
13,787
–
16,019
1
$80,386

$ 2,311
7,641
35,876
–
16,510
$62,338

$ 1,623
3,330
35,704
–
17,561
$58,218

$ 54,339
35,628
35,876
15,903
16,511
$158,257

$ 52,202
17,117
35,704
16,019
17,562
$138,604

I N C . A N D S U B S I D I A R I E S
T H E G O L D M A N S A C H S G R O U P ,
Notes to Consolidated Financial Statements

In the table above:
‰ Substantially all deposits are interest-bearing.
‰ Savings and demand accounts consist of money market
deposit accounts, negotiable order of withdrawal
accounts and demand deposit accounts that have no
stated maturity or expiration date.

‰ Time

$21.06

deposits

included

of
December 2018 and $22.90 billion as of December 2017
of deposits accounted for at fair value under the fair value
option. See Note 8 for further information about deposits
accounted for at fair value.

billion

‰ Time deposits had a weighted average maturity of
approximately 1.8 years as of December 2018 and
2.0 years as of December 2017.

‰ Deposit sweep programs represent long-term contractual
agreements with several U.S. broker-dealers who sweep
client cash to FDIC-insured deposits. As of both
December 2018 and December 2017, the firm had eight
deposit sweep program contractual arrangements.

‰ Deposits insured by the FDIC were $86.27 billion as of
December 2018 and $75.02 billion as of December 2017.

‰ Deposits

insured by the U.K.’s Financial Services
Compensation Scheme were $6.05 billion as of
December 2018 and $227 million as of December 2017.

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

The firm’s savings and demand deposits are recorded based
on the amount of cash received plus accrued interest, which
approximates fair value. In addition, the firm designates
certain derivatives as fair value hedges to convert a portion
of its time deposits not accounted for at fair value from
fixed-rate obligations into floating-rate obligations. The
carrying value of time deposits not accounted for at fair
value approximated fair value as of both December 2018
and December 2017. As these savings and demand deposits
and time deposits are not accounted for at fair value, they
are not included in the firm’s fair value hierarchy in Notes 5
through 8. Had these deposits been included in the firm’s
fair value hierarchy, they would have been classified in
level 2 as of both December 2018 and December 2017.

Note 15.
Short-Term Borrowings

The table below presents information about short-term
borrowings.

$ in millions

Other secured financings (short-term)
Unsecured short-term borrowings
Total

As of December

2018

2017

$ 9,555
40,502
$50,057

$14,896
46,922
$61,818

See Note 10 for
financings.

information about other

secured

$ in millions

U.S. offices
Non-U.S. offices
Total

As of December

2018

2017

$126,444
31,813
$158,257

$111,002
27,602
$138,604

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

In the table above, U.S. deposits were held at Goldman
Sachs Bank USA (GS Bank USA) and substantially all
Sachs
deposits were
non-U.S.
International Bank (GSIB).

at Goldman

held

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

$ in millions

2019
2020
2021
2022
2023
2024 - thereafter
Total

As of December 2018

U.S.

Non-U.S.

Total

$18,787
7,328
5,512
5,142
4,546
3,901
$45,216

$ 15,138
941
41
83
57
862
$ 17,122

$ 33,925
8,269
5,553
5,225
4,603
4,763
$ 62,338

As of December 2018, deposits in U.S. offices included
$3.78 billion and non-U.S. offices included $17.12 billion
of time deposits in denominations that met or exceeded the
applicable insurance limits, or were otherwise not covered
by insurance.

unsecured

information

The firm accounts for certain hybrid financial instruments
at fair value under the fair value option. See Note 8 for
short-term
about
further
borrowings that are accounted for at fair value. In addition,
the firm designates certain derivatives as fair value hedges
to convert a portion of its unsecured short-term borrowings
not accounted for at fair value from fixed-rate obligations
into floating-rate obligations. The carrying value of
unsecured short-term borrowings that are not recorded at
fair value generally approximates fair value due to the
short-term nature of the obligations. As these unsecured
short-term borrowings are not accounted for at fair value,
they are not included in the firm’s fair value hierarchy in
Notes 5 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 both December 2018 and
December 2017.

Goldman Sachs 2018 Form 10-K 155

I N C . A N D S U B S I D I A R I E S
T H E G O L D M A N S A C H S G R O U P ,
Notes to Consolidated Financial Statements

The table below presents information about unsecured
short-term borrowings.

$ in millions

As of December

2018

2017

Current portion of unsecured long-term borrowings $27,476 $30,090
12,973
Hybrid financial instruments
Other unsecured short-term borrowings
3,859
$40,502 $46,922
Total unsecured short-term borrowings

10,908
2,118

Weighted average interest rate

2.51% 2.28%

In the table above:
‰ The current portion of unsecured long-term borrowings
included $20.91 billion as of December 2018 and
$26.28 billion as of December 2017 issued by Group Inc.
‰ The weighted average interest rates for these borrowings
include the effect of hedging activities and exclude
unsecured short-term borrowings accounted for at fair
value under the fair value option. See Note 7 for further
information about hedging activities.

Note 16.
Long-Term Borrowings

The table below presents information about long-term
borrowings.

$ in millions

Other secured financings (long-term)
Unsecured long-term borrowings
Total

As of December

2018

2017

$ 11,878
224,149
$236,027

9,892
217,687
$227,579

See Note 10 for
financings.

information about other

secured

The table below presents information about unsecured
long-term borrowings.

$ in millions

As of December 2018

Fixed-rate obligations:

Group Inc.
Subsidiaries

Floating-rate obligations:

Group Inc.
Subsidiaries

Total

As of December 2017

Fixed-rate obligations:

Group Inc.
Subsidiaries

Floating-rate obligations:

Group Inc.
Subsidiaries

Total

U.S.
Dollar

Non-U.S.
Dollar

Total

$ 97,354
2,581

$34,030
2,624

$131,384
5,205

30,565
23,756
$154,256

21,157
12,082
$69,893

51,722
35,838
$224,149

$101,791
2,244

$35,116
1,859

$136,907
4,103

29,637
14,977
$148,649

23,938
8,125
$69,038

53,575
23,102
$217,687

156 Goldman Sachs 2018 Form 10-K

In the table above:
‰ Unsecured long-term borrowings consists principally of
senior borrowings, which have maturities extending
through 2067.

‰ Floating-rate obligations

includes equity-linked and
indexed instruments. Floating interest rates are generally
based on LIBOR or Euro Interbank Offered Rate.

‰ U.S. dollar-denominated debt had interest rates ranging
from 2.00% to 10.04% (with a weighted average rate of
4.22%) as of December 2018 and 1.60% to 10.04% (with
a weighted average rate of 4.24%) as of December 2017.
These rates exclude unsecured long-term borrowings
accounted for at fair value under the fair value option.

‰ Non-U.S. dollar-denominated debt had interest rates
ranging from 0.31% to 13.00% (with a weighted average
rate of 2.43%) as of December 2018 and 0.31% to
13.00% (with a weighted average rate of 2.60%) as of
December 2017. These rates exclude unsecured long-term
borrowings accounted for at fair value under the fair
value option.

The table below presents unsecured long-term borrowings
by maturity.

$ in millions

2020
2021
2022
2023
2024 - thereafter
Total

As of December 2018

Group Inc.

Subsidiaries

Total

$ 22,343
20,128
21,191
21,566
97,878
$183,106

$ 7,028
2,836
2,268
6,306
22,605
$41,043

$ 29,371
22,964
23,459
27,872
120,483
$224,149

In the table above:
‰ Unsecured long-term borrowings maturing within one
year of the financial statement date and unsecured long-
term borrowings that are redeemable within one year of
the financial statement date at the option of the holder are
excluded as they are included in unsecured short-term
borrowings.

‰ Unsecured long-term borrowings that are repayable prior
to maturity at the option of the firm are reflected at their
contractual maturity dates.

‰ Unsecured long-term borrowings that are redeemable
prior to maturity at the option of the holder are reflected
at the earliest dates such options become exercisable.

‰ Unsecured long-term borrowings included $4.24 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:
$94 million in 2020, $259 million in 2021, $(69) million
in 2022, $(36) million in 2023, and $3.99 billion in 2024
and thereafter.

I N C . A N D S U B S I D I A R I E S
T H E G O L D M A N S A C H S G R O U P ,
Notes to Consolidated Financial Statements

During 2018, the firm repurchased unsecured short-term and
long-term borrowings with a principal amount of $4.10 billion
(carrying value of $4.53 billion)
for $4.37 billion and
recognized a net gain of $160 million, of which $112 million
was included in the Institutional Client Services segment and
$48 million was included in the Investing & Lending segment.

The firm designates certain derivatives as fair value hedges
to convert a portion of fixed-rate unsecured long-term
borrowings not accounted for at fair value into floating-
rate obligations. See Note 7 for further information about
hedging activities.

The table below presents unsecured long-term borrowings,
after giving effect to such hedging activities.

$ in millions

Group Inc.

Subsidiaries

Total

As of December 2018

Fixed-rate obligations:

At fair value
At amortized cost

Floating-rate obligations:

At fair value
At amortized cost

Total

As of December 2017

Fixed-rate obligations:

At fair value
At amortized cost

Floating-rate obligations:

At fair value
At amortized cost

Total

–
71,221

16,387
95,498
$183,106

–
86,951

18,207
85,324
$190,482

28
3,331

28
74,552

30,169
7,515
$41,043

46,556
103,013
$224,149

147
3,852

147
90,803

20,284
2,922
$27,205

38,491
88,246
$217,687

In the table above, the aggregate amounts of unsecured long-
term borrowings had weighted average interest rates of
3.21% (3.79% related to fixed-rate obligations and 2.79%
related to floating-rate obligations) as of December 2018 and
2.86% (3.67% related to fixed-rate obligations and 2.02%
related to floating-rate obligations) as of December 2017.
These rates exclude unsecured long-term borrowings
accounted for at fair value under the fair value option.

As of December 2018 and December 2017, the carrying value
of unsecured long-term borrowings for which the firm did not
elect the fair value option approximated fair value. As these
borrowings are not accounted for at fair value, they are not
included in the firm’s fair value hierarchy in Notes 5 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 both December 2018 and December 2017.

Subordinated Borrowings
Unsecured long-term borrowings includes subordinated
debt and junior subordinated debt. Junior subordinated
debt is junior in right of payment to other subordinated
borrowings, which are junior
to senior borrowings.
Subordinated debt had maturities ranging from 2021 to
2045 as of December 2018 and 2020 to 2045 as of
December 2017. Subordinated debt that matures within
one year is included in unsecured short-term borrowings.

The table below presents information about subordinated
borrowings.

$ in millions

As of December 2018

Subordinated debt
Junior subordinated debt
Total

As of December 2017

Subordinated debt
Junior subordinated debt
Total

Par
Amount

Carrying
Value

$14,023
1,140
$15,163

$15,703
1,425
$17,128

Rate

4.09%
3.19%
4.02%

$14,117
1,168
$15,285

$16,235
1,539
$17,774

3.31%
2.37%
3.24%

In the table above:
‰ The par amount of subordinated debt issued by Group
Inc. was $14.02 billion as of December 2018 and
$13.96 billion as of December 2017, and the carrying
value of subordinated debt issued by Group Inc. was
$15.70 billion as of December 2018 and $16.08 billion as
of December 2017.

‰ The rate is the weighted average interest rate for these
borrowings (excluding borrowings accounted for at fair
value under the fair value option), including the effect of
fair value hedges used to convert fixed-rate obligations
into floating-rate obligations. See Note 7 for further
information about hedging activities.

issued $2.84 billion of

Junior Subordinated Debt
In 2004, Group Inc.
junior
subordinated debt to Goldman Sachs Capital I (Trust), a
Delaware statutory trust. The Trust issued $2.75 billion of
guaranteed preferred beneficial interests (Trust Preferred
Securities) to third parties and $85 million of common
beneficial interests to Group Inc. and used the proceeds
from the issuances to purchase the junior subordinated debt
from Group Inc. As of December 2018, the outstanding par
amount of junior subordinated debt held by the Trust was
$1.14 billion and the outstanding par amount of Trust
Preferred Securities and common beneficial interests issued
by the Trust was $1.11 billion and $34.1 million,
respectively. During
firm purchased
2018,
$27.8 million (par amount) of Trust Preferred Securities
and delivered these securities, along with $1.0 million of
common beneficial interests, to the Trust in exchange for a
corresponding par amount of the junior subordinated debt.
Following the exchanges, these Trust Preferred Securities,
common beneficial interests and junior subordinated debt
were extinguished. As of December 2017, the outstanding
par amount of junior subordinated debt held by the Trust
was $1.17 billion and the outstanding par amount of Trust
Preferred Securities and common beneficial interests issued
by the Trust was $1.13 billion and $35.1 million,
respectively. The Trust
is a wholly-owned finance
subsidiary of the firm for regulatory and legal purposes but
is not consolidated for accounting purposes.

the

Goldman Sachs 2018 Form 10-K 157

I N C . A N D S U B S I D I A R I E S
T H E G O L D M A N S A C H S G R O U P ,
Notes to Consolidated Financial Statements

interest

to defer payment of

semi-annually on the junior
The firm pays
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

III

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 Goldman Sachs Capital II and Goldman Sachs
Capital
(APEX Trusts) or shares of Group Inc.’s
Perpetual Non-Cumulative Preferred Stock, Series E
(Series E Preferred Stock), Perpetual Non-Cumulative
Preferred Stock, Series F (Series F Preferred Stock) or
Perpetual Non-Cumulative Preferred Stock, Series O, if the
redemption or purchase results in less than $253 million
aggregate liquidation preference of that series outstanding,
prior to specified dates in 2022 for a price that exceeds a
maximum amount determined by reference to the net cash
proceeds that the firm has received from the sale of
qualifying securities.

The APEX Trusts hold Group Inc.’s Series E Preferred
Stock and Series F Preferred Stock. These trusts are
Delaware statutory trusts sponsored by the firm and
firm for
wholly-owned finance
regulatory and legal purposes but are not consolidated for
accounting purposes.

subsidiaries of

the

In the table above:
‰ The decrease in income tax-related liabilities from
December 2017 to December 2018 reflected a decrease in
the net deferred tax liability related to the Tax Legislation
repatriation tax, which became current and was netted
against current tax receivables. See Note 24 for further
information about Tax Legislation.

‰ The

increase

noncontrolling

from
December 2017 to December 2018 primarily reflected a
noncontrolling interest in a consolidated special purpose
acquisition company, which completed its initial public
offering during the second quarter of 2018.

interests

contract

‰ Beginning in January 2018, accrued expenses and other
includes
represent
liabilities,
consideration received by the firm, in connection with its
contracts with clients, prior to providing the service. As of
December 2018, the firm’s contract liabilities were not
material.

which

Note 18.
Commitments, Contingencies and Guarantees

Commitments
The table below presents commitments by type.

$ in millions

Commercial lending:
Investment-grade
Non-investment-grade

Warehouse financing
Total lending commitments
Contingent and forward starting collateralized

agreements

Forward starting collateralized financings
Letters of credit
Investment commitments
Other
Total commitments

As of December

2018

2017

$ 81,729
51,793
4,060
137,582

54,480
15,429
445
7,595
4,892
$220,423

$ 93,115
45,291
5,340
143,746

41,756
16,902
437
6,840
6,310
$215,991

The table below presents commitments by expiration.

Note 17.
Other Liabilities

The table below presents other liabilities by type.

$ in millions

Compensation and benefits
Income tax-related liabilities
Noncontrolling interests
Employee interests in consolidated funds
Accrued expenses and other
Total

As of December

2018

2017

$ 6,834
2,864
1,568
122
6,219
$17,607

$ 6,710
4,051
553
156
5,452
$16,922

158 Goldman Sachs 2018 Form 10-K

$ in millions

Commercial lending:
Investment-grade
Non-investment-grade

Warehouse financing
Total lending commitments
Contingent and forward starting
collateralized agreements
Forward starting collateralized

financings
Letters of credit
Investment commitments
Other
Total commitments

As of December 2018

2019

2020 -
2021

2022 -
2023

2024 -
Thereafter

$13,101 $27,859 $39,409 $ 1,360
8,255
629
10,244

4,884 11,851 26,803
589
2,143
18,684 41,853 66,801

699

54,477

–

15,429
401
3,587
4,815

–
40
1,986
–
$97,393 $42,750 $68,010 $12,270

–
3
1,203
–

–
1
819
77

I N C . A N D S U B S I D I A R I E S
T H E G O L D M A N S A C H S G R O U P ,
Notes to Consolidated Financial Statements

conditions

contractual

Lending Commitments
The firm’s lending commitments are agreements to lend
with fixed termination dates and depend on the satisfaction
of all
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 of these
commitments. In addition, commitments can expire unused
or be reduced or cancelled at the counterparty’s request.

The table below presents information about
commitments.

lending

$ in millions

Held for investment
Held for sale
At fair value
Total

As of December

2018

2017

$120,997
8,602
7,983
$137,582

$124,504
9,838
9,404
$143,746

In the table above:
‰ Held for investment lending commitments are accounted
further

for on an accrual basis. See Note 9 for
information about such commitments.

‰ Held for sale lending commitments are accounted for at

the lower of cost or fair value.

‰ Gains or losses related to lending commitments at fair
value, if any, are generally recorded, net of any fees in
other principal transactions.

‰ Substantially all lending commitments relates to the firm’s

Investing & Lending segment.

borrowers.

commitments

Commercial Lending. The firm’s commercial
lending
commitments were primarily extended to investment-grade
corporate
included
Such
$93.99 billion as of December 2018 and $85.98 billion as
of December 2017, related to relationship lending activities
(principally used for operating and general corporate
purposes) and $27.92 billion as of December 2018 and
$42.41 billion as of December 2017, related to other
investment banking activities
(generally extended for
contingent acquisition financing and are often intended to
be short-term in nature, as borrowers often seek to replace
them with other funding sources). The firm also extends
lending commitments in connection with other types of
corporate lending, as well as commercial real estate
financing. See Note 9 for further information about funded
loans.

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 $15.52 billion as of December 2018 and
$25.70 billion as of December 2017. 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 $1.0 billion, of which
$550 million of protection had been provided as of both
December 2018 and December 2017. 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 consumer and corporate loans.

Contingent and Forward Starting Collateralized
Agreements
/ Forward Starting Collateralized
Financings
Forward starting collateralized agreements includes resale
and securities borrowing agreements, and forward starting
collateralized financings includes 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
Investment commitments includes commitments to invest in
private equity, real estate and other assets directly and
through funds that the firm raises and manages. Investment
commitments included $2.42 billion as of December 2018
and $2.09 billion as of December 2017, related to
commitments to invest in funds managed by the firm. If
these commitments are called, they would be funded at
market value on the date of investment.

Goldman Sachs 2018 Form 10-K 159

I N C . A N D S U B S I D I A R I E S
T H E G O L D M A N S A C H S G R O U P ,
Notes to Consolidated Financial Statements

Leases
The firm has contractual obligations under long-term
noncancelable lease agreements 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

2019
2020
2021
2022
2023
2024 - thereafter
Total

As of
December 2018

$ 281
271
218
177
142
1,310
$2,399

Rent charged to operating expense was $292 million for
2018, $273 million for 2017 and $244 million for 2016.

The amounts in the table above do not include lease
payments arising from the sale and leaseback of the firm’s
new European headquarters as this agreement closed in
January 2019. See Note 13 for further information about
the sale and leaseback agreement.

Operating leases include office space held in excess of
current requirements. Rent expense relating to space held
for growth is included in occupancy expenses. 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. Total occupancy expenses for
space held in excess of the firm’s current requirements and
exit costs related to its office space were not material for
both 2018 and 2017, and were approximately $68 million
for 2016.

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. During the
period 2005 through 2008 in connection with both sales
and securitizations of loans, the firm provided loan-level
loan-level
representations
representations from the party from whom the firm
purchased the loans.

assigned

and/or

the

160 Goldman Sachs 2018 Form 10-K

loans

based

alleged

breaches

The firm’s exposure to claims for repurchase of residential
mortgage
of
representations will depend on a number of factors such as
the extent to which these claims are made within the statute
of limitations, taking into consideration the agreements to
toll the statute of limitations the firm entered into with
trustees representing certain trusts. Based upon the large
number of defaults in residential mortgages, including those
sold or securitized by the firm, there is a potential for
repurchase claims. However, the firm is not in a position to
make a meaningful estimate of that exposure at this time.

Other Contingencies. In connection with the sale of Metro
International Trade Services (Metro), the firm agreed to
provide indemnities to the buyer, which primarily relate to
fundamental representations and warranties, and potential
liabilities for legal or regulatory proceedings arising out of
the conduct of Metro’s business while the firm owned it.

In connection with the settlement agreement with the
Residential Mortgage-Backed Securities Working Group of
the U.S. Financial Fraud Enforcement Task Force, the firm
agreed to provide $1.80 billion in consumer relief by
January 2021. As of December 2018, approximately
$1.20 billion of such relief was provided. This relief was
for
form of principal
provided in the
underwater homeowners
and distressed borrowers;
financing for construction, rehabilitation and preservation
of affordable housing; and support for debt restructuring,
foreclosure prevention and housing quality improvement
programs, as well as land banks.

forgiveness

Guarantees
The table below presents derivatives
a
definition
indemnifications and certain other financial guarantees.

that meet

guarantee,

securities

the
lending

$ in millions

Derivatives

As of December 2018

Securities
lending
indemnifications

Other
financial
guarantees

Carrying Value of Net Liability $

4,105

–

Maximum Payout/Notional Amount by Period of Expiration
2019
2020 - 2021
2022 - 2023
2024 - thereafter
Total

$101,169
77,955
17,813
67,613
$264,550

$27,869
–
–
–
$27,869

$1,379
2,252
2,021
241
$5,893

As of December 2017

Carrying Value of Net Liability

3,843

–

Maximum Payout/Notional Amount by Period of Expiration
2018
2019 - 2020
2021 - 2022
2023 - thereafter
Total

$113,766
59,314
24,712
45,343
$243,135

$37,959
–
–
–
$37,959

$ 723
1,515
1,209
137
$3,584

I N C . A N D S U B S I D I A R I E S
T H E G O L D M A N S A C H S G R O U P ,
Notes to Consolidated Financial Statements

In the table above:
‰ The maximum payout is based on the notional amount of
the contract and does not represent anticipated losses.
‰ Amounts exclude certain commitments to issue standby
letters of credit that are included in lending commitments.
See the tables in “Commitments” above for a summary of
the firm’s commitments.

‰ The carrying value for derivatives included derivative
assets of $1.48 billion as of December 2018 and
$1.33 billion as of December 2017, and derivative
liabilities of $5.59 billion as of December 2018 and
$5.17 billion as of December 2017.

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
$28.75 billion as of December 2018 and $39.03 billion as
of December 2017. Because the contractual nature of these
arrangements requires the firm to obtain collateral with a
market value that exceeds the value of the securities lent to
the borrower, there is minimal performance risk associated
with these guarantees.

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 table above
do not reflect the firm’s overall risk related to 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,
clearing
central
investment
counterparties
counterparties.
certain
Accordingly, the firm has not included such contracts in the
table above. In addition, during 2018, the firm concluded
that these conditions have also been met for hedge fund
counterparties and, therefore, has not included contracts
with these counterparties in the table above. Prior periods
have been conformed to the current presentation. See
Note 7 for information about credit derivatives that meet
the definition of a guarantee, which are not included in the
table above.

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 table above exclude the effect of
counterparty and cash collateral netting.

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

Guarantees of Securities Issued by Trusts. The firm has
established trusts, including Goldman Sachs Capital I, the
APEX 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 and the APEX Trusts.

The firm effectively provides for the full and unconditional
guarantee of the securities issued by these entities. Timely
payment by the firm of amounts due to these entities under
the guarantee, borrowing, preferred stock and related
to cover
contractual arrangements will be sufficient
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
custody agents,
trustees and administrators, against
specified potential losses in connection with their acting as
an agent of, or providing services to, the firm or its
affiliates.

Goldman Sachs 2018 Form 10-K 161

I N C . A N D S U B S I D I A R I E S
T H E G O L D M A N S A C H S G R O U P ,
Notes to Consolidated Financial Statements

third-party service providers,

The firm may also be liable to some clients or other parties
for losses arising from its custodial role or caused by acts or
omissions of
including
sub-custodians and third-party brokers. In certain cases, the
firm has the right to seek indemnification from these third-
party service providers for certain relevant losses incurred
by the firm. In addition, the firm is a member of payment,
clearing and settlement networks, as well as securities
exchanges around the world that may require the firm to
meet the obligations of such networks and exchanges in the
event of member defaults and other loss scenarios.

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

The firm is unable to develop an estimate of the maximum
these guarantees and indemnifications.
payout under
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
both December 2018 and December 2017.

Warranties

Representations,

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

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

162 Goldman Sachs 2018 Form 10-K

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 both
December 2018 and December 2017.

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. LLC (GS&Co.) and GS Bank USA,
subject to certain exceptions.

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

obligations

also

are

Note 19.
Shareholders’ Equity

Common Equity
As of both December 2018 and December 2017, the firm
had 4.00 billion authorized shares of common stock and
200 million authorized shares of nonvoting common stock,
each with a par value of $0.01 per share.

The firm’s share repurchase program is intended to help
maintain the appropriate level of common equity. The
share repurchase program is effected primarily through
(which may include
regular open-market purchases
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, and
capital deployment opportunities, but which may also be
influenced by general market conditions and the prevailing
price and trading volumes of the firm’s common stock.
Prior to repurchasing common stock, the firm must receive
confirmation that the FRB does not object to such capital
action.

I N C . A N D S U B S I D I A R I E S
T H E G O L D M A N S A C H S G R O U P ,
Notes to Consolidated Financial Statements

The table below presents the amount of common stock
repurchased under the share repurchase program.

in millions, except per share amounts

2018

2017

2016

Year Ended December

36.6
Common share repurchases
Average cost per share
$236.22 $231.87 $165.88
Total cost of common share repurchases $ 3,294 $ 6,721 $ 6,069

13.9

29.0

share-based awards

Pursuant to the terms of certain share-based compensation
plans, employees may remit shares to the firm or the firm
may cancel
to satisfy statutory
employee tax withholding requirements and the exercise
price of stock options. Under these plans, 1,120 shares in
2018, 12,165 shares in 2017, and 49,374 shares in 2016
were remitted with a total value of $0.3 million in 2018,
$3 million in 2017 and $7 million in 2016, and the firm
in 2018,
cancelled 5.0 million share-based awards
12.7 million in 2017 and 11.6 million in 2016 with a total
value of $1.24 billion in 2018, $3.03 billion in 2017 and
$2.03 billion in 2016.

The table below presents common stock dividends
declared.

Year Ended December

2018

2017

2016

Dividends declared per common share

3.15 $

2.90 $

2.60

On January 15, 2019, the Board of Directors of Group Inc.
(Board) declared a dividend of $0.80 per common share to
be paid on March 28, 2019 to common shareholders of
record on February 28, 2019.

Preferred Equity
The tables below present information about the perpetual
preferred
of
December 2018.

outstanding

issued

stock

and

Series

A
B
C
D
E
F
J
K
L
M
N
O
P
Total

Shares
Authorized

Shares
Issued

Shares
Outstanding

Depositary Shares
Per Share

50,000
50,000
25,000
60,000
17,500
5,000
46,000
32,200
52,000
80,000
31,050
26,000
66,000
540,750

30,000
6,000
8,000
54,000
7,667
1,615
40,000
28,000
52,000
80,000
27,000
26,000
60,000
420,282

29,999
6,000
8,000
53,999
7,667
1,615
40,000
28,000
52,000
80,000
27,000
26,000
60,000
420,280

1,000
1,000
1,000
1,000
N/A
N/A
1,000
1,000
25
25
1,000
25
25

Series

A
B
C
D
E
F
J
K
L
M
N
O
P
Total

Earliest Redemption Date

Currently redeemable
Currently redeemable
Currently redeemable
Currently redeemable
Currently redeemable
Currently redeemable
May 10, 2023
May 10, 2024
May 10, 2019
May 10, 2020
May 10, 2021
November 10, 2026
November 10, 2022

Liquidation
Preference

Redemption
Value
($ in millions)

$ 25,000
$ 25,000
$ 25,000
$ 25,000
$100,000
$100,000
$ 25,000
$ 25,000
$ 25,000
$ 25,000
$ 25,000
$ 25,000
$ 25,000

750
150
200
1,350
767
161
1,000
700
1,300
2,000
675
650
1,500
$11,203

In the tables above:
‰ All shares have a par value of $0.01 per share and, where
applicable, each share is represented by the specified
number of depositary shares.

‰ The earliest redemption date represents the date on which
each share of non-cumulative Preferred Stock is
redeemable at the firm’s option.

‰ Prior to redeeming preferred stock, the firm must receive
confirmation that the FRB does not object to such action.
‰ The redemption price per share for Series A through F
Preferred Stock is the liquidation preference plus declared
and unpaid dividends. The redemption price per share for
Series J through P Preferred Stock is the liquidation
preference plus accrued and unpaid dividends. Each share
of 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 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.

‰ All series of preferred stock are pari passu and have a
preference over the firm’s common stock on liquidation.
‰ The firm’s ability to declare or pay dividends on, or
purchase, redeem or otherwise acquire, its common stock
is subject to certain restrictions in the event that the firm
fails to pay or set aside full dividends on the preferred
stock for the latest completed dividend period.

In 2018, the firm redeemed 26,000 shares of its outstanding
Series B 6.20% Non-Cumulative Preferred Stock (Series B
Preferred Stock) with a redemption value of $650 million
share). The difference between the
($25,000 per
redemption value of the Series B Preferred Stock and the net
carrying value at the time of redemption was $15 million,
which was recorded as an addition to preferred stock
dividends in 2018.

Goldman Sachs 2018 Form 10-K 163

I N C . A N D S U B S I D I A R I E S
T H E G O L D M A N S A C H S G R O U P ,
Notes to Consolidated Financial Statements

In 2017, the firm redeemed the 34,000 shares of Series I
5.95% Non-Cumulative Preferred Stock (Series I Preferred
Stock) for the stated redemption price of $850 million
($25,000 per share), plus accrued and unpaid dividends.
The difference between the redemption value of the Series I
Preferred Stock and the net carrying value at the time of
redemption was $14 million, which was recorded as an
addition to preferred stock dividends in 2017.

In 2016, the firm delivered a par amount of $1.32 billion
(fair value of $1.04 billion) of APEX to the APEX Trusts in
exchange for 9,833 shares of Series E Preferred Stock and
3,385 shares of Series F Preferred Stock for a total
redemption value of $1.32 billion (net carrying value of
$1.31 billion). Following the exchange, these shares of
Series E and Series F Preferred Stock were cancelled. The
difference between the fair value of the APEX and the net
the time of
carrying value of
cancellation was $266 million, which was recorded as a
reduction to preferred stock dividends in 2016.

the preferred stock at

The table below presents the dividend rates of perpetual
preferred stock as of December 2018.

Series

Per Annum Dividend Rate

A
B
C
D
E
F

3 month LIBOR + 0.75%, with floor of 3.75%, payable quarterly
6.20%, payable quarterly
3 month LIBOR + 0.75%, with floor of 4.00%, payable quarterly
3 month LIBOR + 0.67%, with floor of 4.00%, payable quarterly
3 month LIBOR + 0.77%, with floor of 4.00%, payable quarterly
3 month LIBOR + 0.77%, with floor of 4.00%, payable quarterly
5.50% to, but excluding, May 10, 2023;
3 month LIBOR + 3.64% thereafter, payable quarterly
6.375% to, but excluding, May 10, 2024;
3 month LIBOR + 3.55% thereafter, payable quarterly
5.70%, payable semi-annually, from issuance date to, but excluding,
May 10, 2019; 3 month LIBOR + 3.884%, payable quarterly, thereafter
5.375%, payable semi-annually, from issuance date to, but excluding,
May 10, 2020; 3 month LIBOR + 3.922%, payable quarterly, thereafter
6.30%, payable quarterly
5.30%, payable semi-annually, from issuance date to, but excluding,
November 10, 2026; 3 month LIBOR + 3.834%, payable quarterly, thereafter
5.00%, payable semi-annually, from issuance date to, but excluding,
November 10, 2022; 3 month LIBOR + 2.874%, payable quarterly, thereafter

In the table above, dividends on each series of preferred
stock are payable in arrears for the periods specified.

164 Goldman Sachs 2018 Form 10-K

The table below presents preferred stock dividends declared.

Year Ended December

2018

2017

2016

per
share

$ in
millions

per
share

$ in
millions

per
share

$ in
millions

$ 958.33
$1,550.00
$1,022.23
$1,022.23
$4,077.78
$4,077.78
$
–
$1,375.00
$1,593.76
$1,425.00
$1,343.76
$1,575.00
$1,325.00
$1,281.25

$ 29 $ 950.51
19 $1,550.00
8 $1,013.90
55 $1,013.90
31 $4,055.55
7 $4,055.55
– $1,487.52
55 $1,375.00
45 $1,593.76
74 $1,425.00
107 $1,343.76
43 $1,575.00
34 $1,325.00
–
77 $

$ 29 $ 953.12
50 $1,550.00
8 $1,016.68
55 $1,016.68
31 $4,066.66
6 $4,066.66
51 $1,487.52
55 $1,375.00
45 $1,593.76
74 $1,425.00
107 $1,343.76
42 $1,124.38
34 $ 379.10
–

– $

$584

$587

$ 29
50
8
55
50
13
51
55
45
74
107
30
10
–
$577

Series

A
B
C
D
E
F
I
J
K
L
M
N
O
P
Total

In the table above, the total preferred dividend amounts for
Series E and Series F Preferred Stock for 2016 include
prorated dividends of $866.67 per share related to 4,861
shares of Series E Preferred Stock and 1,639 shares of
Series F Preferred Stock, which were cancelled during 2016.

On January 7, 2019, Group Inc. declared dividends of
$234.38 per share of Series A Preferred Stock, $387.50 per
share of Series B Preferred Stock, $250.00 per share of
Series C Preferred Stock, $250.00 per share of Series D
Preferred Stock, $343.75 per share of Series J Preferred
Stock, $398.44 per share of Series K Preferred Stock and
$393.75 per share of Series N Preferred Stock to be paid on
February 11, 2019 to preferred shareholders of record on
January 27, 2019. In addition, the firm declared dividends
of $977.78 per each share of Series E Preferred Stock and
Series F Preferred Stock, to be paid on March 1, 2019 to
preferred shareholders of record on February 14, 2019.

Accumulated Other Comprehensive Income/(Loss)
The table below presents changes in the accumulated other
comprehensive income/(loss), net of tax, by type.

$ in millions

Year Ended December 2018
Currency translation
Debt valuation adjustment
Pension and postretirement liabilities
Available-for-sale securities
Total

Year Ended December 2017
Currency translation
Debt valuation adjustment
Pension and postretirement liabilities
Available-for-sale securities
Total

Year Ended December 2016
Currency translation
Debt valuation adjustment
Pension and postretirement liabilities
Total

Other
comprehensive
income/(loss)
adjustments,
net of tax

Ending
balance

Beginning
balance

$ (625)
(1,046)
(200)
(9)
$(1,880)

$ (647)
(239)
(330)
–
$(1,216)

$ (587)
305
(131)
$ (413)

4
2,553
119
(103)
$2,573

$ (621)
1,507
(81)
(112)
$ 693

22
(807)
130
(9)

$ (625)
(1,046)
(200)
(9)
$ (664) $(1,880)

$ (60) $ (647)
(239)
(330)
$ (803) $(1,216)

(544)
(199)

I N C . A N D S U B S I D I A R I E S
T H E G O L D M A N S A C H S G R O U P ,
Notes to Consolidated Financial Statements

Note 20.
Regulation and Capital Adequacy

The FRB is the primary regulator of Group Inc., a bank
holding company (BHC) under the U.S. Bank Holding
Company Act of 1956 and a financial holding company
under amendments to this Act. As a BHC, the firm is
subject to consolidated regulatory capital requirements
which are calculated in accordance with the regulations of
the FRB (Capital Framework).

The capital requirements are expressed as risk-based capital
and leverage ratios that compare measures of regulatory
capital to risk-weighted assets (RWAs), average assets and
off-balance-sheet exposures. Failure to comply with these
capital requirements could result
in restrictions being
imposed by the firm’s regulators and could limit the firm’s
ability to distribute capital, including share repurchases and
dividend payments, and to make certain discretionary
compensation payments. The firm’s capital levels are also
subject to qualitative judgments by the regulators about
components of capital, risk weightings and other factors.
Furthermore, certain of the firm’s subsidiaries are subject to
separate regulations and capital requirements.

Capital Framework
The regulations under the Capital Framework are largely
based on the Basel Committee on Banking Supervision’s
(Basel Committee) capital framework for strengthening
international
III) and also
standards
capital
(Basel
the Dodd-Frank Act.
implement certain provisions of
Under the Capital Framework, the firm is an “Advanced
approach” banking organization and has been designated
as a global systemically important bank (G-SIB).

The Capital Framework includes risk-based capital buffers
which began to phase in ratably on January 1, 2016, and
became fully effective on January 1, 2019. The risk-based
capital buffers include the capital conservation buffer,
G-SIB buffer and countercyclical capital buffer, if any, all of
which must consist entirely of capital that qualifies as
Common Equity Tier 1 (CET1). The G-SIB buffer is an
extension of the capital conservation buffer, is updated
annually based on financial data from the prior year and is
generally
year. The
countercyclical capital buffer is also an extension of the
capital conservation buffer and is intended to counteract
systemic vulnerabilities. The Capital Framework also
requires deductions from regulatory capital that phased in
ratably per year from 2014 to 2018. In addition, junior
subordinated debt issued to trusts will be fully phased out
of regulatory capital by 2022.

applicable

following

the

for

The firm calculates its CET1, Tier 1 capital and Total
capital ratios in accordance with (i) the Standardized
approach and market risk rules set out in the Capital
Framework (together, the Standardized Capital Rules) and
(ii) the Advanced approach and market risk rules set out in
the Capital Framework (together, the Basel III Advanced
Rules). The lower of each risk-based capital ratio calculated
in (i) and (ii) is the ratio against which the firm’s compliance
with its minimum risk-based ratio requirements is assessed.
Under the Capital Framework, the firm is also subject to
Tier 1 leverage requirements established by the FRB. The
Capital Framework also introduced a supplementary
leverage
effective on
January 1, 2018.

ratio (SLR) which became

Consolidated Regulatory Risk-Based Capital and
Leverage Ratios
The table below presents the minimum risk-based capital
and leverage ratios.

Risk-based capital ratios
CET1 ratio
Tier 1 capital ratio
Total capital ratio

Leverage ratios
Tier 1 leverage ratio
SLR

As of December

2018

2017

8.3%
9.8%
11.8%

7.0%
8.5%
10.5%

4.0%
5.0%

4.0%
N/A

The table below presents information about the risk-based
capital ratios.

$ in millions

As of December 2018

CET1
Tier 1 capital
Tier 2 capital
Total capital
RWAs

CET1 ratio
Tier 1 capital ratio
Total capital ratio

As of December 2017

CET1
Tier 1 capital
Tier 2 capital
Total capital
RWAs

CET1 ratio
Tier 1 capital ratio
Total capital ratio

Standardized

Basel III
Advanced

$ 73,116
$ 83,702
$ 14,926
$ 98,628
$547,910

13.3%
15.3%
18.0%

$ 67,110
$ 78,331
$ 14,977
$ 93,308
$555,611

12.1%
14.1%
16.8%

$ 73,116
$ 83,702
$ 13,743
$ 97,445
$558,111

13.1%
15.0%
17.5%

$ 67,110
$ 78,331
$ 13,899
$ 92,230
$617,646

10.9%
12.7%
14.9%

Goldman Sachs 2018 Form 10-K 165

I N C . A N D S U B S I D I A R I E S
T H E G O L D M A N S A C H S G R O U P ,
Notes to Consolidated Financial Statements

The table below presents information about the leverage
ratios.

‰ Average total assets represents the daily average assets for

the quarter.

$ in millions

Tier 1 capital

Average total assets
Deductions from Tier 1 capital
Average adjusted total assets
Off-balance-sheet exposures
Total leverage exposure

Tier 1 leverage ratio
SLR

For the Three Months
Ended or as of December

2018

2017

83,702

78,331

945,961
(4,754)
941,207
401,699
$1,342,906

937,424
(4,508)
932,916
408,164
$1,341,080

8.9%
6.2%

8.4%
5.8%

In the tables above:
‰ Each of

the risk-based capital ratios calculated in
accordance with the Basel III Advanced Rules was lower
than that calculated in accordance with the Standardized
Capital Rules and therefore the Basel III Advanced ratios
were the ratios that applied to the firm as of both
December 2018 and December 2017.

‰ Effective January 2018, the firm became subject to CET1
ratios calculated on a fully phased-in basis. As of
December 2017, the firm’s CET1 ratios calculated in
accordance with the Standardized Capital Rules and
Basel III Advanced Rules on a fully phased-in basis were
0.2 percentage points lower than on a transitional basis.
‰ Beginning in the fourth quarter of 2018, the firm’s default
experience was incorporated into the determination of
probability of default for the calculation of Basel III
Advanced RWAs. The impact of this change was an
increase in the firm’s Basel III Advanced CET1 ratio of
approximately 0.8 percentage points.

‰ The minimum risk-based

of
December 2018 reflect (i) the 75% phase-in of the capital
conservation buffer of 2.5%, (ii) the 75% phase-in of the
G-SIB buffer of 2.5%, and (iii) the countercyclical capital
buffer, which the FRB has set to zero.

capital

ratios

‰ The minimum risk-based

of
December 2017 reflect (i) the 50% phase-in of the capital
conservation buffer of 2.5%, (ii) the 50% phase-in of the
G-SIB buffer of 2.5%, and (iii) the countercyclical capital
buffer, which the FRB has set to zero.

capital

ratios

‰ The minimum SLR as of December 2018 reflects the 2%

buffer applicable to G-SIBs.

‰ Tier 1 capital and deductions from Tier 1 capital are
calculated on a transitional basis as of December 2017.

166 Goldman Sachs 2018 Form 10-K

‰ Off-balance-sheet exposures

the monthly
average and consists of derivatives, securities financing
transactions, commitments and guarantees.

represents

‰ Tier 1 leverage ratio is calculated as Tier 1 capital divided

by average adjusted total assets.

‰ SLR is calculated as Tier 1 capital divided by total

leverage exposure.

Risk-based Capital. The table below presents information
about risk-based capital.

$ in millions

Common shareholders’ equity
Deduction for goodwill
Deduction for identifiable intangible assets
Other adjustments
CET1
Preferred stock
Deduction for investments in covered funds
Other adjustments
Tier 1 capital

Standardized Tier 2 and Total capital
Tier 1 capital
Qualifying subordinated debt
Junior subordinated debt
Allowance for credit losses
Other adjustments
Standardized Tier 2 capital
Standardized Total capital

Basel III Advanced Tier 2 and Total capital
Tier 1 capital
Standardized Tier 2 capital
Allowance for credit losses
Other adjustments
Basel III Advanced Tier 2 capital
Basel III Advanced Total capital

As of December

2018

2017

$78,982
(3,097)
(297)
(2,472)
73,116
11,203
(615)
(2)
$83,702

$83,702
13,147
442
1,353
(16)
14,926
$98,628

$83,702
14,926
(1,353)
170
13,743
$97,445

$70,390
(3,011)
(258)
(11)
67,110
11,853
(590)
(42)
$78,331

$78,331
13,360
567
1,078
(28)
14,977
$93,308

$78,331
14,977
(1,078)
–
13,899
$92,230

In the table above:
‰ Deduction for goodwill was net of deferred tax liabilities
of $661 million as of December 2018 and $654 million as
of December 2017.

tax

liabilities

$27 million

‰ Deduction for identifiable intangible assets was net of
deferred
of
December 2018 and $40 million as of December 2017.
The deduction for identifiable intangible assets was fully
phased
of
December 2017, CET1 reflects 80% of the identifiable
intangible assets deduction and the remaining 20% was
risk weighted.

into CET1

2018. As

January

‰ Deduction for investments in covered funds represents the
firm’s aggregate investments in applicable covered funds,
excluding investments that are subject to an extended
conformance period. See Note 6 for further information
about the Volcker Rule.

I N C . A N D S U B S I D I A R I E S
T H E G O L D M A N S A C H S G R O U P ,
Notes to Consolidated Financial Statements

and

liabilities,

‰ Other adjustments within CET1 and Tier 1 capital
credit valuation adjustments on
primarily include
derivative
postretirement
pension
liabilities, the overfunded portion of the firm’s defined
benefit pension plan obligation net of associated deferred
tax liabilities, disallowed deferred tax assets, debt
valuation adjustments and other required credit risk-
based deductions. The deduction for such items was fully
of
phased
December 2017, CET1 reflects 80% of such deduction.
Substantially all of the balance that was not deducted
from CET1 as of December 2017 was deducted from
adjustments. Other
Tier 1 capital within other
adjustments within Basel III Advanced Tier 2 capital
include eligible credit reserves.

into CET1

2018. As

January

‰ Qualifying subordinated debt is subordinated debt issued
by Group Inc. with an original maturity of five years or
greater. The outstanding amount of subordinated debt
qualifying for Tier 2 capital is reduced upon reaching a
remaining maturity of five years. See Note 16 for further
information about the firm’s subordinated debt.

‰ Junior subordinated debt represents debt issued to Trust.
As of December 2018, 40% of this debt was included in
Tier 2 capital and 60% was fully phased out of regulatory
capital. As of December 2017, 50% of this debt was
included in Tier 2 capital and 50% was fully phased out
of regulatory capital. Junior subordinated debt is reduced
by the amount of trust preferred securities purchased by
the firm and will be fully phased out of Tier 2 capital by
2022 at a rate of 10% per year. See Note 16 for further
information about the firm’s junior subordinated debt
and trust preferred securities purchased by the firm.

The tables below present changes in CET1, Tier 1 capital
and Tier 2 capital.

$ in millions

CET1
Beginning balance
Change in:

Common shareholders’ equity
Transitional provisions
Deduction for goodwill
Deduction for identifiable intangible assets
Other adjustments

Ending balance
Tier 1 capital
Beginning balance
Change in:
CET1
Transitional provisions
Deduction for investments in covered funds
Preferred stock
Other adjustments

Ending balance
Tier 2 capital
Beginning balance
Change in:

Qualifying subordinated debt
Junior subordinated debt
Allowance for credit losses
Other adjustments

Ending balance
Total capital

$ in millions

CET1
Beginning balance
Change in:

Common shareholders’ equity
Transitional provisions
Deduction for goodwill
Deduction for identifiable intangible assets
Deduction for investments in financial institutions
Other adjustments

Ending balance
Tier 1 capital
Beginning balance
Change in:
CET1
Transitional provisions
Deduction for investments in covered funds
Preferred stock
Other adjustments

Ending balance
Tier 2 capital
Beginning balance
Change in:

Qualifying subordinated debt
Junior subordinated debt
Allowance for credit losses
Other adjustments

Ending balance
Total capital

Year Ended
December 2018

Standardized

Basel III
Advanced

$67,110

8,592
(117)
(86)
26
(2,409)
$73,116

$78,331

6,006
13
(25)
(650)
27
83,702

14,977

13,899

(213)
(125)
275
12
14,926
$98,628

(213)
(125)
–
182
13,743
$97,445

Year Ended
December 2017

Standardized

Basel III
Advanced

$72,046

(5,300)
(426)
(348)
24
586
528
$67,110

$82,440

(4,936)
152
(145)
650
170
78,331

16,074

15,352

(1,206)
(225)
356
(22)
14,977
$93,308

(1,206)
(225)
–
(22)
13,899
$92,230

In the tables above, the change in transitional provisions
represents the increased phase-in of certain deductions and
adjustments from 80% to 100% (effective January 1, 2018)
for 2018 and from 60% to 80% (effective January 1, 2017)
for 2017.

Goldman Sachs 2018 Form 10-K 167

I N C . A N D S U B S I D I A R I E S
T H E G O L D M A N S A C H S G R O U P ,
Notes to Consolidated Financial Statements

Risk-Weighted Assets. RWAs
calculated in
accordance with both the Standardized Capital Rules and
the Basel III Advanced Rules.

are

Credit Risk
Credit RWAs are calculated based upon measures of
exposure, which are then risk weighted under
the
Standardized Capital Rules and Basel III Advanced Rules:
‰ The Standardized Capital Rules apply prescribed risk-
weights, which depend largely on the
type of
counterparty. The exposure measure for derivatives and
securities financing transactions are based on specific
formulas which take certain factors into consideration.
‰ Under the Basel III Advanced Rules, the firm computes
risk-weights for wholesale and retail credit exposures in
accordance with the Advanced Internal Ratings-Based
approach. The exposure measures for derivatives and
securities financing transactions are computed utilizing
internal models.

‰ For both Standardized and Basel III Advanced credit
RWAs, the risk-weights for securitizations and equities
are based on specific required formulaic approaches.

Market Risk
RWAs for market risk in accordance with the Standardized
Capital Rules and the Basel
III Advanced Rules are
generally consistent. Market RWAs are calculated based on
measures of exposure which include Value-at-Risk (VaR),
incremental risk and comprehensive risk
stressed VaR,
based on internal models, and a standardized measurement
method for specific risk.
‰ 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 net revenues used to determine risk management
VaR exceptions (i.e., comparing the daily net revenues to
the VaR measure calculated as of the end of the prior
business day) include intraday activity, whereas the FRB’s
regulatory capital rules require that intraday activity be
excluded from daily net revenues when calculating
regulatory VaR exceptions. Intraday activity includes bid/
offer net revenues, which are more likely than not to be
positive by their nature.

168 Goldman Sachs 2018 Form 10-K

As a result, there may be differences in the number of VaR
exceptions and the amount of daily net
revenues
calculated for regulatory VaR compared to the amounts
calculated for
risk management VaR. The firm’s
positional losses observed on a single day exceeded its
99% one-day regulatory VaR on two occasions during
2018 and did not exceed its 99% one-day regulatory VaR
during 2017. There was no change in the VaR multiplier
used to calculate Market RWAs;

‰ Stressed VaR is the potential loss in value of inventory
positions, as well as certain other financial assets and
financial liabilities, during a period of significant market
stress;

‰ Incremental

risk is

in value of
the potential
non-securitized inventory positions due to the default or
credit migration of issuers of financial instruments over a
one-year time horizon;

loss

‰ Comprehensive risk is the potential loss in value, due to
price risk and defaults, within the firm’s credit correlation
positions; and

‰ Specific risk is the risk of loss on a position that could
result from factors other than broad market movements,
including event risk, default risk and idiosyncratic risk.
The standardized measurement method is used to
determine specific risk RWAs, by applying supervisory
defined risk-weighting factors after applicable netting is
performed.

Operational Risk
Operational RWAs are only required to be included under
the Basel III Advanced Rules. The firm utilizes an internal
risk-based model to quantify Operational RWAs.

The tables below present information about RWAs.

$ in millions

Credit RWAs
Derivatives
Commitments, guarantees and loans
Securities financing transactions
Equity investments
Other
Total Credit RWAs
Market RWAs
Regulatory VaR
Stressed VaR
Incremental risk
Comprehensive risk
Specific risk
Total Market RWAs
Total RWAs

Standardized Capital Rules
as of December

2018

2017

$122,511
160,305
66,363
53,563
70,596
473,338

7,782
27,952
10,469
2,770
25,599
74,572
$547,910

$126,076
145,104
77,962
48,155
70,933
468,230

7,532
32,753
8,441
2,397
36,258
87,381
$555,611

I N C . A N D S U B S I D I A R I E S
T H E G O L D M A N S A C H S G R O U P ,
Notes to Consolidated Financial Statements

$ in millions

Basel III Advanced Rules
as of December

2018

2017

$ 82,301
143,356
18,259
55,154
69,681
368,751

7,782
27,952
10,469
2,770
25,599
74,572
114,788
$558,111

$102,986
163,375
19,362
51,626
75,968
413,317

7,532
32,753
8,441
1,870
36,258
86,854
117,475
$617,646

In the tables above:
‰ Securities financing transactions represent resale and
repurchase agreements and securities borrowed and
loaned transactions.

‰ Other includes receivables, certain debt securities, cash

and cash equivalents and other assets.

The tables below present changes in RWAs.

$ in millions

Risk-Weighted Assets
Beginning balance
Credit RWAs
Change in:

Transitional provisions
Derivatives
Commitments, guarantees and loans
Securities financing transactions
Equity investments
Other

Change in Credit RWAs
Market RWAs
Change in:

Regulatory VaR
Stressed VaR
Incremental risk
Comprehensive risk
Specific risk

Change in Market RWAs
Operational RWAs
Change in operational risk
Change in Operational RWAs
Ending balance

Year Ended
December 2018

Standardized

Basel III
Advanced

$555,611

$617,646

7,766
(3,565)
15,201
(11,599)
(2,241)
(454)
5,108

250
(4,801)
2,028
373
(10,659)
(12,809)

8,232
(20,685)
(20,019)
(1,103)
(4,580)
(6,411)
(44,566)

250
(4,801)
2,028
900
(10,659)
(12,282)

–
–
$547,910

(2,687)
(2,687)
$558,111

$ in millions

Risk-Weighted Assets
Beginning balance
Credit RWAs
Change in:

Transitional provisions
Derivatives
Commitments, guarantees and loans
Securities financing transactions
Equity investments
Other

Change in Credit RWAs
Market RWAs
Change in:

Regulatory VaR
Stressed VaR
Incremental risk
Comprehensive risk
Specific risk

Change in Market RWAs
Operational RWAs
Change in operational risk
Change in Operational RWAs
Ending balance

Year Ended
December 2017

Standardized

Basel III
Advanced

$496,676

$549,650

(233)
1,790
29,360
6,643
6,889
12,368
56,817

(2,218)
10,278
566
(2,941)
(3,567)
2,118

(233)
(2,110)
40,583
4,689
7,693
12,608
63,230

(2,218)
10,278
566
(2,680)
(3,567)
2,379

–
–
$555,611

2,387
2,387
$617,646

RWAs Rollforward Commentary
Year Ended December 2018. Standardized Credit RWAs
as of December 2018 increased by $5.11 billion compared
with December 2017, primarily reflecting an increase in
commitments, guarantees and loans, principally due to an
increase in lending activity. This increase was partially
offset by a decrease in securities financing transactions,
principally due to reduced exposures. Standardized Market
RWAs as of December 2018 decreased by $12.81 billion
compared with December 2017, primarily reflecting a
decrease in specific risk on positions for which the firm
obtained increased transparency into the underliers and as a
result utilized a modeled approach to calculate RWAs.

billion

$44.57

compared

Basel III Advanced Credit RWAs as of December 2018
with
decreased
December 2017. Beginning in the fourth quarter of 2018,
the firm’s default experience was incorporated into the
determination of probability of default, which resulted in a
decrease in Credit RWAs, primarily in commitments,
guarantees and loans and derivatives. Basel III Advanced
Market RWAs as of December 2018 decreased by
$12.28 billion compared with December 2017, primarily
reflecting a decrease in specific risk on positions for which
the firm obtained increased transparency into the underliers
and as a result utilized a modeled approach to calculate
RWAs.

Goldman Sachs 2018 Form 10-K 169

I N C . A N D S U B S I D I A R I E S
T H E G O L D M A N S A C H S G R O U P ,
Notes to Consolidated Financial Statements

Year Ended December 2017. Standardized Credit RWAs
as of December 2017 increased by $56.82 billion compared
with December 2016, primarily reflecting an increase in
commitments, guarantees and loans, principally due to
increased lending activity. Standardized Market RWAs as
of December 2017 increased by $2.12 billion compared
with December 2016, primarily reflecting an increase in
stressed VaR as a result of increased risk exposures partially
offset by decreases in specific risk, as a result of changes in
risk exposures, and comprehensive risk, as a result of
changes in risk measurements.

Similar to the firm, GS Bank USA is required to calculate
each of the CET1, Tier 1 capital and Total capital ratios in
accordance with both the Standardized Capital Rules and
Basel III Advanced Rules. The lower of each risk-based
capital ratio calculated in accordance with the Standardized
Capital Rules and Basel III Advanced Rules is the ratio
against which GS Bank USA’s compliance with its
minimum ratio requirements is assessed.

The table below presents GS Bank USA’s minimum risk-
based capital and leverage ratios and “well-capitalized”
minimum ratios.

billion

$63.23

compared

Basel III Advanced Credit RWAs as of December 2017
with
increased
December 2016, primarily reflecting an increase in
commitments, guarantees and loans, principally due to
increased lending activity. Basel III Advanced Market
RWAs as of December 2017 increased by $2.38 billion
compared with December 2016, primarily reflecting an
increase in stressed VaR as a result of increased risk
exposures partially offset by decreases in specific risk, as a
result of changes in risk exposures, and comprehensive risk,
as a result of changes in risk measurements.

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 FRB, the FDIC, the New York State Department of
Financial Services and the Bureau of Consumer Financial
Protection, and is subject to regulatory capital requirements
that are calculated in substantially the same manner as
those applicable to BHCs. For purposes of assessing the
adequacy of its capital, GS Bank USA calculates its capital
capital
ratios
requirements applicable to state member banks. Those
requirements are based on the Capital Framework
described above. GS Bank USA is an Advanced approach
banking organization under the Capital Framework.

in accordance with the

regulatory

Under the regulatory framework for prompt corrective
action applicable to GS Bank USA, in order to meet the
quantitative requirements for being a “well-capitalized”
depository institution, GS Bank USA must meet higher
minimum requirements than the minimum ratios in the
table below. In order to be considered a “well-capitalized”
depository institution, GS Bank USA must meet the SLR
requirement of 6.0% or greater, which became effective on
January 1, 2018.

GS Bank USA’s capital levels and prompt corrective action
classification are also subject to qualitative judgments by
the regulators about components of capital, risk weightings
and other factors. Failure to comply with these capital
requirements, including a breach of the buffers described
above, could result in restrictions being imposed by GS
Bank USA’s regulators.

170 Goldman Sachs 2018 Form 10-K

Minimum Ratio as of December

2018

2017

“Well-capitalized”
Minimum Ratio

Risk-based capital ratios
CET1 ratio
Tier 1 capital ratio
Total capital ratio

Leverage ratios
Tier 1 leverage ratio
SLR

6.4%
7.9%
9.9%

4.0%
3.0%

5.8%
7.3%
9.3%

4.0%
N/A

6.5%
8.0%
10.0%

5.0%
6.0%

The table below presents information about GS Bank USA’s
risk-based capital ratios.

$ in millions

As of December 2018

CET1
Tier 1 capital
Tier 2 capital
Total capital
RWAs

CET1 ratio
Tier 1 capital ratio
Total capital ratio

As of December 2017

CET1
Tier 1 capital
Tier 2 capital
Total capital
RWAs

CET1 ratio
Tier 1 capital ratio
Total capital ratio

Standardized

Basel III
Advanced

$ 27,467
$ 27,467
$
5,069
$ 32,536
$248,356

11.1%
11.1%
13.1%

$ 25,343
$ 25,343
$
2,547
$ 27,890
$229,775

11.0%
11.0%
12.1%

$ 27,467
$ 27,467
$
4,446
$ 31,913
$149,019

18.4%
18.4%
21.4%

$ 25,343
$ 25,343
$
2,000
$ 27,343
$164,602

15.4%
15.4%
16.6%

The table below presents information about GS Bank USA’s
leverage ratios.

$ in millions

Tier 1 capital
Average adjusted total assets
Total leverage exposure

Tier 1 leverage ratio
SLR

For the Three Months
Ended or as of December

2018

2017

$ 27,467
$188,606
$368,062

$ 25,343
$168,842
$345,734

14.6%
7.5%

15.0%
7.3%

I N C . A N D S U B S I D I A R I E S
T H E G O L D M A N S A C H S G R O U P ,
Notes to Consolidated Financial Statements

In the tables above:
‰ Each of

the risk-based capital ratios calculated in
accordance with the Standardized Capital Rules was
lower than that calculated in accordance with the Basel III
Advanced Rules and therefore the Standardized Capital
ratios were the ratios that applied to GS Bank USA as of
both December 2018 and December 2017.

ratios

capital

‰ The minimum risk-based

of
December 2018 reflect (i) the 75% phase-in of the capital
conservation buffer of 2.5% and (ii) the countercyclical
capital buffer of zero percent.
‰ The minimum risk-based

of
December 2017 reflect (i) the 50% phase-in of the capital
conservation buffer of 2.5% and (ii) the countercyclical
capital buffer of zero percent.

capital

ratios

‰ Beginning in the fourth quarter of 2018, the firm’s default
experience was incorporated into the determination of
probability of default for the calculation of Basel III
Advanced RWAs. The impact of this change was an
increase in GS Bank USA’s Basel III Advanced CET1 ratio
of approximately 1.6 percentage points.

‰ The Standardized CET1 ratio and Tier 1 capital ratio
from
essentially

unchanged

both
December 2017 to December 2018.

remained

‰ The Standardized Total capital ratio increased from
December 2017 to December 2018 primarily due to an
increase in Total capital, principally due to the issuance of
subordinated debt.

‰ The Basel III Advanced CET1 ratio, Tier 1 capital ratio
and Total capital ratio increased from December 2017 to
December 2018. Beginning in the fourth quarter of 2018,
the firm’s default experience was incorporated into the
determination of probability of default, which resulted in
a decrease in Credit RWAs, primarily in commitments,
guarantees and loans and derivatives.

‰ Tier 1 capital and deductions from Tier 1 capital are
calculated on a transitional basis as of December 2017.
‰ Tier 1 leverage ratio is calculated as Tier 1 capital divided

by average adjusted total assets.

‰ SLR is calculated as Tier 1 capital divided by total

leverage exposure.

institution,

The firm’s principal non-U.S. bank subsidiary, GSIB, is a
wholly-owned credit
the
Prudential Regulation Authority and the Financial Conduct
Authority and is subject to minimum capital requirements.
As of both December 2018 and December 2017, GSIB was
in compliance with all regulatory capital requirements.

regulated by

Other. The deposits of GS Bank USA are insured by the
FDIC to the extent provided by law. The FRB requires that
GS Bank USA maintain cash reserves with the Federal
Reserve Bank of New York. The amount deposited by GS
Bank USA at the Federal Reserve Bank of New York was
$29.20 billion as of December 2018 and $50.86 billion as
of December 2017, which exceeded required reserve
amounts by $29.03 billion as of December 2018 and
$50.74 billion as of December 2017.

limitations

Restrictions on Payments
Group Inc. may be limited in its ability to access capital held
at certain subsidiaries as a result of regulatory, tax or other
include provisions of
constraints. These
applicable law and regulations and other regulatory
restrictions that limit the ability of those subsidiaries to
declare and pay dividends without prior
regulatory
approval (e.g., dividends that may be paid by GS Bank USA
are limited to the lesser of the amounts calculated under a
recent earnings test and an undivided profits test) even if the
relevant
subsidiary would satisfy the equity capital
requirements applicable to it after giving effect to the
dividend. For example, the FRB, the FDIC and the New
York State Department of Financial Services have authority
to prohibit or to limit the payment of dividends by the
banking organizations they supervise (including GS Bank
USA) if, in the regulator’s opinion, payment of a dividend
would constitute an unsafe or unsound practice in the light
of the financial condition of the banking organization.

In addition, subsidiaries not subject to separate regulatory
capital requirements may hold capital to satisfy local tax
and legal guidelines, rating agency requirements (for
entities with assigned credit ratings) or internal policies,
including policies concerning the minimum amount of
capital a subsidiary should hold based on its underlying
level of risk.

in subsidiaries was
Group Inc.’s equity investment
$90.22 billion as of December 2018 and $93.88 billion as
of December 2017, of which Group Inc. was required to
maintain $52.92 billion as of December 2018 and
$53.02 billion as of December 2017, of minimum equity
capital in its regulated subsidiaries in order to satisfy the
regulatory requirements of such subsidiaries.

Group Inc.’s capital invested in certain non-U.S. subsidiaries
is exposed to foreign exchange risk, substantially all of which
is managed through a combination of derivatives and
non-U.S. denominated debt. See Note 7 for information
about the firm’s net investment hedges used to hedge this
risk.

Goldman Sachs 2018 Form 10-K 171

I N C . A N D S U B S I D I A R I E S
T H E G O L D M A N S A C H S G R O U P ,
Notes to Consolidated Financial Statements

Note 21.
Earnings Per Common Share

Note 22.
Transactions with Affiliated Funds

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 and restricted stock units (RSUs) for which no
future service is required as a condition to the delivery of
the underlying common stock (collectively, basic shares).
Diluted EPS includes the determinants of basic EPS and, in
addition, reflects the dilutive effect of the common stock
deliverable for stock options and for RSUs for which future
service is required as a condition to the delivery of the
underlying common stock.

The table below presents information about basic and
diluted EPS.

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

2018

2017

2016

Fees earned from funds

$3,571

$2,932

$2,777

in millions, except per share amounts

2018

2017

2016

Year Ended December

Net earnings applicable to common

shareholders

Weighted average basic shares
Effect of dilutive securities:

RSUs
Stock options
Dilutive securities
Weighted average basic shares and

$9,860
385.4

$3,685
401.6

$7,087
427.4

3.9
0.9
4.8

5.3
2.2
7.5

4.7
3.0
7.7

dilutive securities

390.2

409.1

435.1

Basic EPS
Diluted EPS

$25.53
$25.27

$ 9.12
$ 9.01

$16.53
$16.29

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 2018, $0.06 for 2017 and $0.05 for
2016.

‰ Diluted EPS does not include antidilutive securities (RSUs
and common shares underlying stock options) of less than
0.1 million for 2018, 0.1 million for 2017 and 2.8 million
for 2016.

$ in millions

Fees receivable from funds
Aggregate carrying value of interests in funds

As of December

2018

2017

$ 610
$4,994

$ 637
$4,993

The firm may periodically determine to waive certain
management
funds.
Management fees waived were $51 million for 2018 and
$98 million for 2017.

fees on selected money market

The Volcker Rule restricts the firm from providing financial
support to covered funds (as defined in the rule) after the
expiration of the conformance period. As a general matter,
in the ordinary course of business, the firm does not expect
to provide additional voluntary financial support to any
covered funds but may choose to do so with respect to
funds that are not subject to the Volcker Rule; however, in
the event that such support is provided, the amount is not
expected to be material.

The firm had an outstanding guarantee, as permitted under
the Volcker Rule, on behalf of its funds of $154 million as
of both December 2018 and December 2017. The firm has
voluntarily provided this guarantee in connection with a
financing agreement with a third-party lender executed by
one of the firm’s real estate funds that is not covered by the
Volcker Rule. As of both December 2018 and
December 2017, except as noted above, the firm has not
provided any additional financial support to its affiliated
funds.

In addition, in the ordinary course of business, the firm may
also engage in other activities with its affiliated funds
trade
including,
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,

172 Goldman Sachs 2018 Form 10-K

I N C . A N D S U B S I D I A R I E S
T H E G O L D M A N S A C H S G R O U P ,
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 sources of interest income and
interest expense.

$ in millions

2018

2017

2016

Year Ended December

Interest income
Deposits with banks
Collateralized agreements
Financial instruments owned
Loans receivable
Other interest
Total interest income
Interest expense
Deposits
Collateralized financings
Financial instruments sold,
but not yet purchased

Secured and unsecured borrowings:

Short-term
Long-term
Other interest
Total interest expense
Net interest income

$ 1,418
3,852
6,894
4,148
3,367
19,679

819
1,661
5,904
2,678
2,051
13,113

$ 452
691
5,444
1,843
1,261
9,691

2,606
2,051

1,380
863

878
442

1,554

1,388

1,251

695
5,555
3,451
15,912
$ 3,767

698
4,599
1,253
10,181
$ 2,932

446
4,242
(155)
7,104
$2,587

In the table above:
‰ Collateralized agreements includes rebates paid and

interest income on securities borrowed.

‰ Other

interest

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

income includes

interest

‰ Collateralized

financings

consists

repurchase

agreements and securities loaned.

‰ Other interest expense includes rebates received on other
expense on

interest-bearing liabilities and interest
customer credit balances.

Tax Legislation
The provision for taxes for 2017 reflected an estimated
impact of Tax Legislation of $4.40 billion. The
$4.40 billion income tax expense included the repatriation
tax on undistributed earnings of foreign subsidiaries, the
effects of the implementation of a territorial tax system, and
the remeasurement of U.S. deferred tax assets at lower
enacted tax rates. During 2018, the firm finalized this
estimate to reflect the impact of updated information,
including subsequent guidance issued by the U.S. Internal
Revenue Service (IRS), resulting in a $487 million income
tax benefit.

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 table below presents information about the provision
for taxes.

$ in millions

Year Ended December

2018

2017

2016

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

$ 2,986
379
1,302
4,667

(2,711)
58
8
(2,645)
$ 2,022

$ 320
64
1,004
1,388

5,083
157
218
5,458
$6,846

$1,032
139
1,184
2,355

399
51
101
551
$2,906

In the table above:
‰ State and local current taxes in 2017 and 2016 includes
the impact of settlements of state and local examinations.
‰ U.S. federal current tax expense and U.S. federal deferred
tax expense in 2018 and 2017 includes the impact of Tax
Legislation.

Goldman Sachs 2018 Form 10-K 173

I N C . A N D S U B S I D I A R I E S
T H E G O L D M A N S A C H S G R O U P ,
Notes to Consolidated Financial Statements

The table below presents a reconciliation of the U.S. federal
statutory income tax rate to the effective income tax rate.

The table below presents information about deferred tax
assets and liabilities, excluding the impact of netting within
tax jurisdictions.

Year Ended December

2018

2017

2016

$ in millions

U.S. federal statutory income tax rate
State and local taxes, net of U.S. federal

21.0% 35.0% 35.0%

income tax effects

2.0

1.5

0.9

ASU No. 2016-09 Tax benefits on settlement

of employee share-based awards

Non-U.S. operations
Tax credits
Tax-exempt income, including dividends
Tax Legislation
Non-deductible legal expenses
Other
Effective income tax rate

(2.2)
(0.7)
(1.4)
(0.6)
(3.9)
1.2
0.8

–
(6.7)
(2.0)
(0.3)
–
1.0
0.3
16.2% 61.5% 28.2%

(6.4)
(6.3)
(2.1)
(0.2)
39.5
0.5
–

In the table above:
‰ Non-U.S. operations in 2018 includes the impact of the
Base Erosion and Anti-Abuse Tax and Global Intangible
Low Taxed Income (GILTI).

‰ Non-U.S. operations in 2017 and 2016 includes the
impact of permanently reinvested earnings and excludes
the estimated impact of Tax Legislation.

‰ State and local taxes in 2017 and 2016, net of U.S. federal
income tax effects, includes the impact of settlements of
state and local examinations.

the net

Deferred Income Taxes
tax effects of
Deferred income taxes reflect
temporary differences between the financial reporting and
tax bases of assets and liabilities. These temporary
differences result in taxable or deductible amounts in future
years and are measured using the tax rates and laws that
will be in effect when such differences are expected to
reverse. Valuation allowances are established to reduce
deferred tax assets to the amount that more likely than not
will be realized and primarily relate to the ability to utilize
losses in various tax jurisdictions. Tax assets are included in
other assets and tax liabilities are included in other
liabilities.

Deferred tax assets
Compensation and benefits
ASC 740 asset related to unrecognized tax benefits
Non-U.S. operations
Net operating losses
Occupancy-related
Other comprehensive income-related
Tax credits carryforward
Other, net
Subtotal
Valuation allowance
Total deferred tax assets

Deferred tax liabilities
Depreciation and amortization
Tax Legislation — repatriation tax
Non-U.S. operations
Unrealized gains
Other comprehensive income-related
Total deferred tax liabilities

As of December

2018

2017

$1,296
152
264
688
71
–
62
434
2,967
(245)
$2,722

$ 996
–
–
1,290
84
$2,370

$1,233
75
–
428
67
408
1,006
113
3,330
(156)
$3,174

$ 826
3,114
180
742
–
$4,862

The firm has recorded deferred tax assets of $688 million as
of December 2018 and $428 million as of December 2017,
in connection with U.S. federal, state and local and foreign
net operating loss carryforwards. The firm also recorded a
valuation allowance of $81 million as of December 2018
and $128 million as of December 2017, related to these net
operating loss carryforwards.

As of December 2018, the U.S. federal net operating loss
carryforward was $259 million, the state and local net operating
loss carryforward was $1.35 billion, and the foreign net
operating loss carryforward was $2.39 billion. If not utilized,
the U.S. federal, state and local, and foreign net operating loss
carryforwards will begin to expire in 2019.
these
carryforwards expire, they will not have a material impact on
the firm’s results of operations. As of December 2018, the firm
has recorded deferred tax assets of $24 million in connection
with foreign tax credit carryforwards and a valuation allowance
of $24 million related to these foreign tax credit carryforwards.
As of December 2018, the firm has recorded deferred tax assets
of $38 million in connection with state and local tax credit
carryforwards.
foreign tax credit
carryforward will expire in 2028 and the state and local tax
credit carryforward will begin to expire in 2020. As of
December 2018, the firm did not have any general business
credit carryforwards.

If not utilized,

the

As of both December 2018 and December 2017, the firm
had no U.S. capital loss carryforwards and no related net
deferred income tax assets. As of December 2018, the firm
had deferred tax assets of $77 million in connection with
carryforwards and a valuation
foreign capital
allowance of $77 million related to these capital
loss
carryforwards. As of December 2017, there were no foreign
capital loss carryforwards.

loss

174 Goldman Sachs 2018 Form 10-K

I N C . A N D S U B S I D I A R I E S
T H E G O L D M A N S A C H S G R O U P ,
Notes to Consolidated Financial Statements

The valuation allowance increased by $89 million during
2018 and increased by $41 million during 2017. The
increases in both 2018 and 2017 were primarily due to an
increase in deferred tax assets from which the firm does not
expect to realize any benefit.

The firm permanently reinvested eligible earnings of certain
foreign subsidiaries. As of December 2018, all U.S. taxes
were accrued on these subsidiaries’ distributable earnings,
substantially all of which resulted from the Tax Legislation
repatriation tax and GILTI. As of December 2017,
substantially all U.S.
taxes were accrued on these
subsidiaries’ earnings and profits as a result of the Tax
Legislation repatriation tax.

Unrecognized Tax Benefits
The firm recognizes tax positions in the consolidated
financial statements only when it is more likely than not
that the position will be sustained on examination by the
relevant taxing authority based on the technical merits of
the position. A position that meets this standard is
measured at the largest amount of benefit that will more
likely than not be realized on settlement. A liability is
established for differences between positions taken in a tax
return and amounts
recognized in the consolidated
financial statements.

The accrued liability for interest expense related to income
tax matters and income tax penalties was $107 million as of
December 2018 and $81 million as of December 2017. The
firm recognized interest expense and income tax penalties
of $18 million for 2018, $63 million for 2017 and
$27 million for 2016.
is reasonably possible that
unrecognized tax benefits could change significantly during
the twelve months subsequent to December 2018 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, which is included in other
liabilities.

$ in millions

Beginning balance
Increases based on tax positions related

to the current year

Increases based on tax positions related

to prior years

Decreases based on tax positions related

to prior years

Decreases related to settlements
Exchange rate fluctuations
Ending balance

Related deferred income tax asset
Net unrecognized tax benefit

Year Ended or as of December

2018

$ 665

2017

$ 852

2016

$ 825

197

232

(39)
(3)
(1)
$1,051

152
$ 899

101

(128)
(255)
1
$ 665

75
$ 590

113

188

(88)
(186)
–
$ 852

231
$ 621

Regulatory Tax Examinations
The firm is subject to examination by the IRS and other
taxing authorities in jurisdictions where the firm has
significant business operations,
the United
Kingdom, Japan, Hong Kong and various states, such as
New York. The tax years under examination vary by
jurisdiction. The firm does not expect completion of these
audits to have a material impact on the firm’s financial
condition but it may be material to operating results for a
particular period, depending, in part, on the operating
results for that period.

such as

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

As of
December 2018

2011
2011
2014
2014
2011

U.S. Federal examinations of 2011 and 2012 began in
2013. The firm has been accepted into the Compliance
Assurance Process program by the IRS for each of the tax
years from 2013 through 2019. This program allows the
firm to work with the IRS to identify and resolve potential
U.S. Federal tax issues before the filing of tax returns. The
2013 through 2017 tax years remain subject to post-filing
review.

New York State and City examinations (excluding GS Bank
USA) of 2011 through 2014 began in 2017. New York
State and City examinations for GS Bank USA have been
completed through 2014.

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

that

Goldman Sachs 2018 Form 10-K 175

I N C . A N D S U B S I D I A R I E S
T H E G O L D M A N S A C H S G R O U P ,
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 the performance of the segments.

176 Goldman Sachs 2018 Form 10-K

Management believes that
this allocation provides a
reasonable representation of each segment’s contribution to
consolidated pre-tax earnings and total assets. Transactions
between segments are based on specific criteria or
approximate third-party rates.

The table below presents net revenues, provision for credit
losses, operating expenses and pre-tax earnings by segment.

$ in millions

Investment Banking
Financial Advisory

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

Institutional Client Services
FICC Client Execution

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

Investing & Lending
Equity securities
Debt securities and loans
Total net revenues
Provision for credit losses
Operating expenses
Pre-tax earnings

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

Total net revenues
Provision for credit losses
Total operating expenses
Total pre-tax earnings

Year Ended December

2018

2017

2016

$ 3,507

1,646
2,709
4,355
7,862
4,346
$ 3,516

$ 5,882

2,835
3,055
1,710
7,600
13,482
10,351
$ 3,131

$ 4,455
3,795
8,250
674
3,365
$ 4,211

$ 5,438
830
754
7,022
5,267
$ 1,755

$36,616
674
23,461
$12,481

$ 3,188

1,243
2,940
4,183
7,371
3,526
$ 3,845

$ 5,299

2,046
2,920
1,637
6,603
11,902
9,692
$ 2,210

$ 4,578
2,660
7,238
657
2,796
$ 3,785

$ 5,144
417
658
6,219
4,800
$ 1,419

$32,730
657
20,941
$11,132

$ 2,932

891
2,450
3,341
6,273
3,437
$ 2,836

$ 7,556

2,194
3,078
1,639
6,911
14,467
9,713
$ 4,754

$ 2,573
1,689
4,262
182
2,386
$ 1,694

$ 4,798
421
569
5,788
4,654
$ 1,134

$30,790
182
20,304
$10,304

I N C . A N D S U B S I D I A R I E S
T H E G O L D M A N S A C H S G R O U P ,
Notes to Consolidated Financial Statements

In the table above:
‰ Revenues and expenses directly associated with each
segment are included in determining pre-tax earnings.
‰ Net revenues in the firm’s segments include allocations of
interest
income and expense to specific securities,
commodities and other positions in relation to the cash
generated by, or funding requirements of, such positions.
Net interest is included in segment net revenues as it is
consistent with how management assesses
segment
performance.

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

‰ Provision for credit

losses, previously reported in
is now
Investing & Lending segment net revenues,
reported as a separate line item in the consolidated
statements of earnings. Previously reported amounts have
been conformed to the current presentation.

‰ All operating expenses have been allocated to the firm’s
segments
contributions of
$132 million for 2018, $127 million for 2017 and
$114 million for 2016.

charitable

except

for

‰ Total operating expenses included net provisions for
litigation and regulatory proceedings of $844 million for
2018, $188 million for 2017 and $396 million for 2016.

The table below presents assets by segment.

$ in millions

Investment Banking
Institutional Client Services
Investing & Lending
Investment Management
Total assets

As of December

2018

2017

1,748
656,920
259,104
14,024
$931,796

2,202
675,255
226,016
13,303
$916,776

The table below presents net interest income by segment.

$ in millions

Investment Banking
Institutional Client Services
Investing & Lending
Investment Management
Total net interest income

Year Ended December

2018

2017

2016

–
976
2,427
364
$3,767

–
1,322
1,325
285
$2,932

–
1,456
880
251
$2,587

The table below presents depreciation and amortization
expense by segment.

$ in millions

Investment Banking
Institutional Client Services
Investing & Lending
Investment Management
Total depreciation and amortization

Year Ended December

2018

2017

$ 114
567
426
221
$1,328

$ 124
514
314
200
$1,152

2016

$126
489
215
168
$998

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.

Geographic results are generally allocated as follows:
‰ Investment Banking: location of the client and investment

banking team.

‰ Institutional Client Services: FICC 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 total net revenues, pre-tax
earnings and net earnings
(excluding Corporate) by
geographic region allocated based on the methodology
referred to above.

$ in millions

2018

2017

2016

Year Ended December

Net revenues
Americas
Europe, Middle East and

Africa

Asia
Total net revenues

Pre-tax earnings
Americas
Europe, Middle East and

Africa

$22,339

61% $19,737

60% $18,301

60%

9,244
5,033

26%
14%
$36,616 100% $32,730 100% $30,790 100%

25% 8,065
15% 4,424

25% 8,168
14% 4,825

$ 8,235

65% $ 7,119

63% $ 6,352

61%

Asia
Subtotal
Corporate
(132)
Total pre-tax earnings $12,481

3,266
1,112

28%
11%
12,613 100% 11,259 100% 10,418 100%

23% 2,883
14% 1,183

26% 2,583
9% 1,557

(127)
$11,132

(114)
$10,304

Net earnings
Americas
Europe, Middle East and

Africa

Asia
Subtotal
Corporate
Total net earnings

$ 6,960

66% $

997

23% $ 4,337

58%

2,636
966

30%
12%
10,562 100% 4,382 100% 7,477 100%

49% 2,270
870
28%

25% 2,144
9% 1,241

(103)
$10,459

(96)
$ 4,286

(79)
$ 7,398

Goldman Sachs 2018 Form 10-K 177

I N C . A N D S U B S I D I A R I E S
T H E G O L D M A N S A C H S G R O U P ,
Notes to Consolidated Financial Statements

In the table above:
‰ Americas net earnings included an income tax benefit of
$487 million in 2018 and estimated income tax expense
of $4.40 billion in 2017 related to Tax Legislation.

‰ Corporate

pre-tax

charitable
earnings
contributions that have not been allocated to the firm’s
geographic regions.
‰ Substantially all of

the amounts in Americas were

includes

attributable to the U.S.

‰ Asia includes Australia and New Zealand.

Note 26.
Credit Concentrations

the

and

transactions,

collateralized

The firm’s concentrations of credit risk arise from its
market making, client facilitation, investing, underwriting,
lending
cash
management activities, and may be impacted by changes in
industry or political factors. These activities
economic,
industries and
expose
firm to many different
counterparties, and may also subject
the firm to a
concentration of credit risk to a particular central bank,
including sovereign
counterparty, borrower or issuer,
issuers, or to a particular clearing house or exchange. The
firm seeks to mitigate credit risk by actively monitoring
exposures and obtaining collateral from counterparties as
deemed appropriate.

The firm measures and monitors its credit exposure based
on amounts owed to the firm after taking into account risk
mitigants that management considers when determining
credit risk. Such risk mitigants include netting and collateral
arrangements and economic hedges,
such as credit
derivatives, futures and forward contracts. Netting and
collateral agreements permit the firm to offset receivables
and payables with such counterparties and/or enable the
firm to obtain collateral on an upfront or contingent basis.

178 Goldman Sachs 2018 Form 10-K

The table below presents the credit concentrations in cash
instruments included in financial instruments owned.

$ in millions

U.S. government and agency obligations
% of total assets
Non-U.S. government and agency obligations
% of total assets

As of December

2018

2017

$110,616
11.9%
$ 43,607
4.7%

$76,418
8.3%
$33,956
3.7%

the

In addition,
firm had $90.47 billion as of
December 2018 and $76.13 billion as of December 2017 of
cash deposits held at central banks (included in cash and
cash equivalents), of which $29.20 billion as of
December 2018 and $50.86 billion as of December 2017
was held at the Federal Reserve Bank of New York.

As of both December 2018 and December 2017, the firm
did not have credit exposure to any other counterparty that
exceeded 2% of total assets.

Collateral obtained by the firm related to derivative assets is
principally cash and is held by the firm or a third-party
custodian. Collateral obtained by the firm related to resale
agreements and securities borrowed transactions
is
primarily U.S. government and agency obligations and
non-U.S. government and agency obligations. See Note 10
for further information about collateralized agreements and
financings.

The table below presents U.S. government and agency
and non-U.S.
and agency
obligations
obligations
resale agreements and
collateralize
that
securities borrowed transactions.

government

$ in millions

As of December

2018

2017

U.S. government and agency obligations
Non-U.S. government and agency obligations

$ 78,828
$ 76,745

$96,905
$92,850

In the table above:
‰ Non-U.S. government and agency obligations primarily
consists of securities issued by the governments of Japan,
France, the U.K. and Germany.

‰ Given that the firm’s primary credit exposure on such
transactions is to the counterparty to the transaction, the
firm would be exposed to the collateral issuer only in the
event of counterparty default.

I N C . A N D S U B S I D I A R I E S
T H E G O L D M A N S A C H S G R O U P ,
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 a securities offering and is not being indemnified by a
party that the firm believes will pay the full amount of any
judgment, or (iii) the purchasers are demanding that the
firm repurchase securities, management has estimated the
upper end of the range of reasonably possible loss as being
equal to (a) in the case of (i), the amount of money damages
claimed, (b) in the case of (ii), the difference between the
initial sales price of the securities that the firm sold in such
offering and the estimated lowest subsequent price of such
securities prior to the action being commenced and (c) in
the case of (iii), the price that purchasers paid for the
securities
if any, as of
December 2018 of the relevant securities, in each of cases
(i), (ii) and (iii), taking into account any other factors
believed to be relevant to the particular matter or matters of
that type. As of the date hereof, the firm has estimated the
upper end of the range of reasonably possible aggregate loss
for such matters and for any other matters described below
where management has been able to estimate a range of
reasonably possible aggregate loss to be approximately
$1.9 billion in excess of the aggregate reserves for such
matters.

estimated value,

less

the

Management is generally unable to estimate a range of
reasonably possible loss for matters other than those
included in the estimate above, including where (i) actual or
potential plaintiffs have not claimed an amount of money
damages, except in those instances where management can
otherwise determine an appropriate amount, (ii) matters
are in early stages,
(iii) matters relate to regulatory
investigations or reviews, except in those instances where
management can otherwise determine an appropriate
amount, (iv) there is uncertainty as to the likelihood of a
class being certified or the ultimate size of the class, (v) there
is uncertainty as to the outcome of pending appeals or
motions, (vi) there are significant factual
issues to be
resolved, and/or (vii) there are novel legal issues presented.
For example, the firm’s potential liabilities with respect to
the
investigations and reviews described below in
“Regulatory Investigations and Reviews and Related
Litigation” generally are not included in management’s
estimate
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

further

received subpoenas and requests

1Malaysia Development Berhad (1MDB)-Related
Matters
for
The firm has
documents and information from various governmental
and regulatory bodies and self-regulatory organizations as
part of investigations and reviews relating to financing
involving 1MDB, a
transactions and other matters
sovereign wealth fund in Malaysia. Subsidiaries of the firm
acted as arrangers or purchasers of approximately
$6.5 billion of debt securities of 1MDB.

Goldman Sachs 2018 Form 10-K 179

The firm has received multiple demands, beginning in
November 2018,
from alleged shareholders under
Section 220 of the Delaware General Corporation Law for
books and records relating to, among other things, the
firm’s involvement with 1MDB and the firm’s compliance
procedures.

On February 19, 2019, a purported shareholder derivative
action relating to 1MDB was filed in the U.S. District Court
for the Southern District of New York against Group Inc.
and the current directors and a former chairman and chief
executive officer of the firm. The complaint, which seeks
unspecified damages and disgorgement, alleges breaches of
including in connection with alleged
fiduciary duties,
insider trading by certain current and former directors,
unjust enrichment, gross mismanagement and violations of
the anti-fraud provisions of the Exchange Act, including in
connection with Group Inc.’s common stock repurchases
and solicitation of proxies.

On November 21, 2018, a summons with notice was filed
in the New York Supreme Court, New York County, by
International Petroleum Investment Company, which
guaranteed certain debt securities issued by 1MDB, and its
subsidiary Aabar Investments PJS. The summons with
notice makes unspecified claims relating to 1MDB and
seeks unspecified compensatory and punitive damages and
other relief against Group Inc., GSI, GS Asia, GS Singapore,
Goldman Sachs (Malaysia) SDN BHD, Leissner, Ng, and
an employee of the firm, as well as individuals (who are not
employees of
formerly associated with the
plaintiffs.

the firm)

On December 20, 2018, a putative securities class action
lawsuit was filed in the U.S. District Court for the Southern
District of New York against Group Inc. and certain
current and former officers of the firm alleging violations of
the anti-fraud provisions of the Exchange Act with respect
to Group Inc.’s disclosures concerning 1MDB and seeking
unspecified damages.

The firm is cooperating with the DOJ and all other
governmental and regulatory investigations relating to
1MDB. Proceedings by the DOJ or other governmental or
regulatory authorities could result in the imposition of
significant fines, penalties and other sanctions against the
firm, including restrictions on the firm’s activities.

I N C . A N D S U B S I D I A R I E S
T H E G O L D M A N S A C H S G R O U P ,
Notes to Consolidated Financial Statements

On November 1, 2018, the U.S. Department of Justice
(DOJ) unsealed a criminal information and guilty plea by
Tim Leissner, a former participating managing director of
the firm, and an indictment against Ng Chong Hwa, a
former managing director of the firm, and Low Taek Jho.
Leissner pleaded guilty to a two-count criminal information
charging him with conspiring to launder money and
conspiring to violate the U.S. Foreign Corrupt Practices
Act’s (FCPA) anti-bribery and internal accounting controls
provisions. Low and Ng were charged in a three-count
indictment with conspiring to launder money and
conspiring to violate the FCPA’s anti-bribery provisions.
On August 28, 2018, Leissner’s guilty plea was accepted by
the U.S. District Court for the Eastern District of New York
and Leissner was adjudicated guilty on both counts. Ng was
also charged in this indictment with conspiring to violate
the FCPA’s internal accounting controls provisions. The
charging documents
that
Leissner and Ng participated in a conspiracy to
misappropriate proceeds of
for
themselves and to pay bribes to various government
officials to obtain and retain 1MDB business for the firm.
The plea and charging documents indicate that Leissner and
Ng knowingly and willfully circumvented the firm’s system
of internal accounting controls, in part by repeatedly lying
to control personnel and internal committees that reviewed
these offerings. The indictment of Ng and Low alleges that
the firm’s system of internal accounting controls could be
easily circumvented and that the firm’s business culture,
particularly in Southeast Asia, at
times prioritized
consummation of deals ahead of the proper operation of its
compliance
unnamed
participating managing director of the firm is alleged to
have been aware of the bribery scheme and to have agreed
not to disclose this information to the firm’s compliance
and control personnel. That employee, who was identified
as a co-conspirator, has been put on administrative leave.

the 1MDB offerings

state, among other

functions.

addition,

things,

On December 17, 2018, the Attorney General of Malaysia
issued a press statement
(i) criminal charges in
that
Malaysia had been filed against Goldman Sachs
International (GSI), as the arranger of three offerings of
debt
securities of 1MDB, aggregating approximately
$6.5 billion in principal amount, for alleged disclosure
deficiencies in the offering documents relating to, among
other things, the use of proceeds for the debt securities,
(ii) Goldman Sachs (Asia) LLC (GS Asia), Goldman Sachs
(Singapore) PTE (GS Singapore), Leissner, Low and
Jasmine Loo Ai Swan had been criminally charged in
Malaysia, and Ng would be charged shortly, and
(iii) prosecutors in Malaysia will seek criminal fines against
the accused in excess of $2.7 billion plus the $600 million of
fees received in connection with the debt offerings.

180 Goldman Sachs 2018 Form 10-K

I N C . A N D S U B S I D I A R I E S
T H E G O L D M A N S A C H S G R O U P ,
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 collateralized debt obligation market,
and the firm’s conflict of interest management.

filed

amended

complaint

consolidated

The
on
July 25, 2011, which names as defendants Group Inc. and
certain current and former officers and employees of Group
Inc. and its affiliates, generally alleges violations of Sections
10(b) and 20(a) of the Exchange Act and seeks unspecified
summary
damages. The defendants have moved for
judgment. On December 11, 2018, the Second Circuit
Court of Appeals granted the defendants’ petition for
interlocutory review of the district court’s August 14, 2018
grant of class certification. On January 23, 2019, the
district court stayed proceedings in the district court
pending the appellate court’s decision.

In June 2012, the Board received a demand from a
shareholder that the Board investigate and take action
relating to the firm’s mortgage-related activities and to
stock sales by certain directors and executives of the firm.
On February 15, 2013, this shareholder filed a putative
shareholder derivative action in New York Supreme Court,
New York County, against Group Inc. and certain current
or former directors and employees, based on these activities
includes
and stock sales. The derivative
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.
the Board
informed the shareholder that
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.

complaint

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

institutions

assistance

financial

Beginning on February 15, 2019, two summonses with notice
were filed against Goldman Sachs Mortgage Company and GS
Mortgage Securities Corp. in New York Supreme Court, New
York County, by U.S. Bank National Association, as trustee
for two residential mortgage-backed securitization trusts. The
summonses with notice generally allege that mortgage loans in
the trusts failed to conform to applicable representations and
warranties and seek specific performance or, alternatively,
compensatory damages and other relief.

The firm has received subpoenas or requests for information
from, and is engaged in discussions with, certain regulators
and law enforcement agencies with which it has not entered
into settlement agreements as part of
inquiries or
investigations relating to mortgage-related matters.

without

dismissed

Director Compensation-Related Litigation
On May 9, 2017, Group Inc. and certain of its current and
former directors were named as defendants in a purported
direct and derivative shareholder action in the Court of
Chancery of the State of Delaware (a similar purported
derivative action, filed in June 2015, alleging excessive
director compensation over the period 2012 to 2014 was
voluntarily
in
December 2016). The new complaint alleges that excessive
compensation has been paid to the non-employee director
defendants since 2015, and that certain disclosures in
connection with soliciting shareholder approval of the
stock incentive plans were deficient. The complaint asserts
claims for breaches of fiduciary duties and seeks, among
other things, rescission or in some cases rescissory damages,
disgorgement, and shareholder votes on several matters. On
October 23, 2018, the court declined to approve the
parties’ proposed settlement. The defendants’ July 2017
motion to dismiss is still pending.

prejudice

Currencies-Related Litigation
GS&Co. and Group Inc. are among the defendants named
in putative class actions filed in the U.S. District Court for
the Southern District of New York beginning in
September 2016 on behalf of putative indirect purchasers of
foreign exchange instruments. The consolidated amended
complaint, filed on June 30, 2017, generally alleged a
conspiracy to manipulate the foreign currency exchange
markets and asserted claims under federal and state
antitrust laws and state consumer protection laws. On
March 15, 2018, the Court granted defendants’ motion to
dismiss, and on October 25, 2018, plaintiffs’ motion for
leave to replead was denied as to the claim under federal
antitrust law and granted as to the claims under state
laws. On
antitrust
November 28, 2018,
filed a second
consolidated amended complaint asserting claims under
various state antitrust laws and state consumer protection
laws and seeking treble damages in an unspecified amount.

the plaintiffs

protection

consumer

and

Goldman Sachs 2018 Form 10-K 181

I N C . A N D S U B S I D I A R I E S
T H E G O L D M A N S A C H S G R O U P ,
Notes to Consolidated Financial Statements

GS&Co. and Group Inc. are among the defendants named
in an action filed in the U.S. District Court for the Southern
District of New York on November 7, 2018 by certain
direct purchasers of foreign exchange instruments that
opted out of a class settlement reached with, among others,
GS&Co. and Group Inc. The complaint generally alleges
that
laws in
connection with an alleged conspiracy to manipulate the
foreign currency exchange markets and seeks injunctive
relief, as well as treble damages in an unspecified amount.

the defendants violated federal antitrust

GS&Co. and Group Inc. are among the defendants named
in two putative class actions filed in the district court of the
Central District in Israel on behalf of direct purchasers of
foreign exchange instruments. The complaints, filed on
September 11, 2018 and September 29, 2018, respectively,
generally allege a conspiracy to manipulate prices of foreign
exchange instruments. The second putative class action also
asserts claims based on misuse of the “last look” features of
foreign exchange trading systems.

civil

to various

Financial Advisory Services
Group Inc. and certain of its affiliates are from time to time
parties
litigation and arbitration
proceedings and other disputes with clients and third
parties relating to the firm’s financial advisory activities.
These
things,
claims generally seek, among other
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.

Underwriting Litigation
Firm affiliates are among the defendants in a number of
proceedings in connection with securities offerings. In these
proceedings, including those described below, the plaintiffs
assert class action or individual claims under federal and
state securities laws and in some cases other applicable
laws, allege that the offering documents for the securities
that they purchased contained material misstatements and
omissions, and generally seek compensatory and rescissory
damages
these
proceedings involve additional allegations.

in unspecified amounts. Certain of

Cobalt International Energy. Group Inc., certain former
directors of Cobalt International Energy, Inc. (Cobalt), who
were designated by affiliates of Group Inc., and GS&Co.
are among defendants in a putative securities class action
relating to certain offerings of Cobalt’s securities, and are
among the parties that have reached a settlement. On
February 13, 2019, the court approved a settlement of the
claims against the Goldman Sachs defendants. The firm has
paid its full contribution to the settlement fund.

182 Goldman Sachs 2018 Form 10-K

equity

sponsor. As

offering. GS&Co.

consolidated complaint,

Adeptus Health. GS&Co.
is among the underwriters
named as defendants in several putative securities class
actions, filed beginning in October 2016 and consolidated
in the U.S. District Court for the Eastern District of Texas.
In addition to the underwriters, the defendants include
certain former directors and officers of Adeptus Health Inc.
to the
(Adeptus), as well as Adeptus’
underwriters,
filed on
the
November 21, 2017, relates to the $124 million June 2014
initial public offering,
the $154 million May 2015
secondary equity offering, the $411 million July 2015
secondary equity offering, and the $175 million June 2016
underwrote
secondary
1.69 million shares of common stock in the June 2014
initial public offering representing an aggregate offering
price of approximately $37 million, 962,378 shares of
common stock in the May 2015 offering representing an
aggregate offering price of approximately $61 million,
1.76 million shares of common stock in the July 2015
offering representing an aggregate offering price of
approximately $184 million, and all the shares of common
stock in the June 2016 offering representing an aggregate
offering price of approximately $175 million. On
April 19, 2017, Adeptus filed for Chapter 11 bankruptcy.
On September 12, 2018, the defendants’ motions to dismiss
were granted as to the June 2014 and May 2015 offerings
but denied as to the July 2015 and June 2016 offerings. On
September 26, 2018, plaintiffs
filed an amended
consolidated complaint to remove the dismissed claims. On
December 7, 2018, plaintiffs moved for class certification.

(SunEdison)

SunEdison. GS&Co. is among the underwriters named as
defendants in several putative class actions and individual
actions filed beginning in March 2016 relating to the
August 2015 public offering of $650 million of SunEdison,
Inc.
convertible preferred stock. The
defendants also include certain of SunEdison’s directors
and officers. On April 21, 2016, SunEdison filed for
Chapter 11 bankruptcy. The pending cases were transferred
to the U.S. District Court for the Southern District of New
York and on March 17, 2017, plaintiffs in the putative class
action filed a consolidated amended complaint. GS&Co.,
as underwriter,
sold 138,890 shares of SunEdison
convertible preferred stock in the offering, representing an
aggregate offering price of approximately $139 million. On
March 6, 2018, the defendants’ motion to dismiss in the
class action was granted in part and denied in part. On
February 11, 2019, plaintiffs’ motion for class certification
in the class action was granted. On April 10, 2018 and
April 17, 2018, certain plaintiffs in the individual actions
filed amended complaints. The defendants have reached a
settlement with certain plaintiffs in the individual actions.

I N C . A N D S U B S I D I A R I E S
T H E G O L D M A N S A C H S G R O U P ,
Notes to Consolidated Financial Statements

Inc.

International,

Valeant Pharmaceuticals International. GS&Co. and
Goldman Sachs Canada Inc. (GS Canada) are among the
underwriters and initial purchasers named as defendants in
a putative class action filed on March 2, 2016 in the
Superior Court of Quebec, Canada. In addition to the
underwriters and initial purchasers, the defendants include
Valeant Pharmaceuticals
(Valeant),
certain directors and officers of Valeant and Valeant’s
auditor. As to GS&Co. and GS Canada, the complaint
relates to the June 2013 public offering of $2.3 billion of
common stock, the June 2013 Rule 144A offering of
$3.2 billion principal amount of senior notes, and the
November 2013 Rule 144A offering of $900 million
principal amount of senior notes. The complaint asserts
claims under the Quebec Securities Act and the Civil Code
of Quebec. On August 29, 2017, the court certified a class
that includes only non-U.S. purchasers in the offerings.
Defendants’ motion for leave to appeal the certification was
denied on November 30, 2017.

GS&Co. and GS Canada, as sole underwriters, sold
5,334,897 shares of common stock in the June 2013
offering to non-U.S. purchasers representing an aggregate
offering price of approximately $453 million and, as initial
purchasers, had a proportional share of sales to non-U.S.
purchasers of approximately CAD14.2 million in principal
amount of
June 2013 and
in the
November 2013 Rule 144A offerings.

senior notes

Snap Inc. GS&Co. is among the underwriters named as
defendants in putative securities class actions pending in
California Superior Court, County of Los Angeles and the
U.S. District Court for the Central District of California
beginning in May 2017, relating to Snap Inc.’s $3.91 billion
March 2017 initial public offering. In addition to the
underwriters, the defendants include Snap Inc. and certain
of
its officers and directors. GS&Co. underwrote
57,040,000 shares of common stock representing an
aggregate offering price of approximately $970 million.
including GS&Co., were
The underwriter defendants,
voluntarily dismissed from the
action on
September 18, 2018.

federal

Sea Limited. GS Asia is among the underwriters named as
defendants in a putative securities class action filed on
November 1, 2018 in the Supreme Court of New York,
relating to Sea Limited’s
County of New York,
$989 million October 2017 initial public offering of
American
the
shares.
In
underwriters,
the defendants include Sea Limited and
certain of its officers and directors. GS Asia underwrote
28,026,721 American depository shares representing an
aggregate offering price of approximately $420 million. On
January 25, 2019,
filed an amended
the plaintiffs
complaint.

depository

addition

Investment Management Services
Group Inc. and certain of its affiliates are parties to various
civil
litigation and arbitration proceedings and other
disputes with clients relating to losses allegedly sustained as
a result of the firm’s investment management services.
These claims generally seek, among other things, restitution
or other compensatory damages and,
in some cases,
punitive damages.

Interest Rate Swap Antitrust Litigation
Group Inc., GS&Co., GSI, GS Bank USA and Goldman
Sachs Financial Markets, L.P. (GSFM) are among the
defendants named in a putative antitrust class action
relating to the trading of interest rate swaps, filed in
November 2015 and consolidated in the U.S. District Court
for the Southern District of New York. The same Goldman
Sachs entities also are among the defendants named in two
antitrust actions relating to the trading of interest rate
swaps, commenced in April 2016 and June 2018,
respectively, in the U.S. District Court for the Southern
District of New York by three operators of swap execution
facilities and certain of their affiliates. These actions have
been consolidated for pretrial proceedings. The complaints
generally assert claims under federal antitrust law and state
common law in connection with an alleged conspiracy
among the defendants to preclude exchange trading of
interest rate swaps. The complaints in the individual actions
also assert claims under state antitrust law. The complaints
seek declaratory and injunctive relief, as well as treble
damages in an unspecified amount. Defendants moved to
dismiss the class and the first
individual action on
January 20, 2017. On July 28, 2017, the district court
issued a decision dismissing the state common law claims
asserted by the plaintiffs in the first individual action and
otherwise limiting the state common law claim in the
putative class action and the antitrust claims in both actions
to the period from 2013 to 2016. On May 30, 2018,
in the putative class action filed a third
plaintiffs
consolidated amended complaint, adding allegations as to
the surviving claims. On October 26, 2018, plaintiffs in the
putative class action filed a motion for leave to file a fourth
amended complaint. On November 20, 2018, the court
granted in part and denied in part the defendants’ motion to
dismiss the second individual action, dismissing the state
common law claims for unjust enrichment and tortious
interference but denying dismissal of the federal and state
antitrust claims.

Goldman Sachs 2018 Form 10-K 183

the defendants violated antitrust

U.S. Treasury Securities Litigation
GS&Co. is among the primary dealers named as defendants
in several putative class actions relating to the market for
U.S. Treasury securities, filed beginning in July 2015 and
consolidated in the U.S. District Court for the Southern
District of New York. GS&Co. is also among the primary
dealers named as defendants in a similar individual action
filed in the U.S. District Court for the Southern District of
New York on August 25, 2017. The consolidated class
action complaint, filed on December 29, 2017, generally
alleges that
laws in
connection with an alleged conspiracy to manipulate the
for U.S. Treasury
when-issued market and auctions
securities and that certain defendants, including GS&Co.,
colluded to preclude trading of U.S. Treasury securities on
electronic trading platforms in order to impede competition
in the bidding process. The individual action alleges a
similar conspiracy regarding manipulation of the when-
issued market and auctions, as well as related futures and
options in violation of the Commodity Exchange Act. The
complaints seek declaratory and injunctive relief, treble
damages
in an unspecified amount and restitution.
Defendants moved to dismiss on February 23, 2018.

Employment-Related Matters
On September 15, 2010, a putative class action was filed in
the U.S. District Court for the Southern District of New
York by three female former employees. The complaint, as
subsequently amended, alleges
that Group Inc. and
GS&Co. have systematically discriminated against female
employees in respect of compensation, promotion and
performance evaluations. The complaint alleges a class
consisting of all female employees employed at specified
levels in specified areas by Group Inc. and GS&Co. since
July 2002, and asserts claims under federal and New York
City discrimination laws. The complaint seeks class action
status,
injunctive relief and unspecified amounts of
compensatory, punitive and other damages.

I N C . A N D S U B S I D I A R I E S
T H E G O L D M A N S A C H S G R O U P ,
Notes to Consolidated Financial Statements

Securities Lending Antitrust Litigation
Group Inc. and GS&Co. are among the defendants named
in a putative antitrust class action and two individual
actions relating to securities lending practices filed in the
U.S. District Court for the Southern District of New York
beginning in August 2017. The complaints generally assert
claims under federal antitrust law and state common law in
connection with an alleged conspiracy among the
defendants to preclude the development of electronic
platforms for securities lending transactions. The individual
complaints also assert claims for tortious interference with
business relations and under state trade practices law and,
in the second individual action, unjust enrichment under
state common law. The complaints seek declaratory and
injunctive relief, as well as treble damages and restitution in
unspecified amounts. Group Inc. was voluntarily dismissed
from the putative class action on January 26, 2018.
Defendants moved to dismiss the first individual action on
June 1, 2018 and moved to dismiss the second individual
action on December 21, 2018. Defendants’ motion to
the class action complaint was denied on
dismiss
September 27, 2018.

Credit Default Swap Antitrust Litigation
Group Inc., GS&Co., GSI, GS Bank USA and GSFM are
among the defendants named in an antitrust action relating
to the trading of credit default swaps filed in the U.S.
District Court for the Southern District of New York on
June 8, 2017 by the operator of a swap execution facility
and certain of its affiliates. The complaint generally asserts
claims under federal and state antitrust laws and state
common law in connection with an alleged conspiracy
among the defendants to preclude trading of credit default
swaps on the plaintiffs’ swap execution facility. The
complaint seeks declaratory and injunctive relief, as well as
treble damages in an unspecified amount. Defendants
moved to dismiss on September 11, 2017.

Commodities-Related Litigation
GSI is among the defendants named in putative class
actions relating to trading in platinum and palladium, filed
beginning on November 25, 2014 and most recently
amended on May 15, 2017, in the U.S. District Court for
the Southern District of New York. The amended
complaint generally alleges that the defendants violated
federal antitrust laws and the Commodity Exchange Act in
connection with an alleged conspiracy to manipulate a
benchmark for physical platinum and palladium prices and
seek declaratory and injunctive relief, as well as treble
damages in an unspecified amount. Defendants moved to
dismiss the third consolidated amended complaint on
July 21, 2017.

184 Goldman Sachs 2018 Form 10-K

I N C . A N D S U B S I D I A R I E S
T H E G O L D M A N S A C H S G R O U P ,
Notes to Consolidated Financial Statements

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 March 10, 2015, the magistrate judge to
whom the district judge assigned the remaining plaintiffs’
May 2014 motion for class certification recommended that
the motion be denied in all respects. On August 3, 2015, the
magistrate judge granted the plaintiffs’ motion to intervene
two female individuals, one of whom was employed by the
firm as of September 2010 and the other of whom ceased to
be an employee of the firm subsequent to the magistrate
judge’s decision. On March 30, 2018, the district court
certified a damages class as to the plaintiffs’ disparate
impact and treatment claims. On September 4, 2018, the
Second Circuit Court of Appeals denied defendants’
petition for interlocutory review of the district court’s class
certification decision and subsequently denied defendants’
petition for rehearing. On September 27, 2018, plaintiffs
advised the district court that they would not seek to certify
a class for injunctive and declaratory relief.

various

governmental

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
and information from,
regulatory bodies and self-regulatory organizations and
litigation and shareholder requests relating to various
matters relating to the firm’s businesses and operations,
including:
‰ The 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

‰ Transactions involving government-related financings
and other matters, municipal securities, including wall-
cross procedures and conflict of interest disclosure with
respect to state and municipal clients, the trading and
in
structuring of municipal derivative
connection with municipal
political
contribution rules, municipal advisory services and the
possible impact of credit default swap transactions on
municipal issuers;

instruments

offerings,

and

securities,

government

‰ The offering, auction, sales, trading and clearance of
corporate
currencies,
commodities and other financial products and related
sales and other communications and activities, as well as
the firm’s supervision and controls relating to such
activities, including compliance with applicable short sale
rules, algorithmic, high-frequency and quantitative
trading, the firm’s U.S. alternative trading system (dark
pool),
futures trading, options trading, when-issued
trading, transaction reporting, technology systems and
controls,
trading and
clearance of credit derivative instruments and interest rate
swaps, commodities activities and metals storage, private
placement practices, allocations of and trading in
securities, and trading activities and communications in
connection with the establishment of benchmark rates,
such as currency rates;

lending practices,

securities

‰ Compliance with the FCPA;
‰ The firm’s hiring and compensation practices;
‰ The firm’s system of risk management and controls; and
‰ Insider trading, the potential misuse and dissemination of
material nonpublic information regarding corporate and
governmental developments and the effectiveness of the
firm’s insider trading controls and information barriers.

The firm is cooperating with all such governmental and
regulatory investigations and reviews.

Goldman Sachs 2018 Form 10-K 185

I N C . A N D S U B S I D I A R I E S
T H E G O L D M A N S A C H S G R O U P ,
Notes to Consolidated Financial Statements

Note 28.
Employee Benefit Plans

Note 29.
Employee Incentive 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 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 and frozen for existing participants as of
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
to
substantially
November 1, 2003. As of November 2004, this plan was
closed to new participants and frozen for existing
participants. 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 2018, other assets
included $462 million (related to overfunded pension
plans) and other liabilities included $344 million, related to
these plans. As of December 2017, other assets included
$346 million (related to overfunded pension plans) and
other liabilities included $606 million, related to these
plans.

Defined Contribution Plans
The firm contributes to employer-sponsored U.S. and
non-U.S.
firm’s
contribution to these plans was $240 million for 2018,
$257 million for 2017 and $236 million for 2016.

plans. The

contribution

defined

186 Goldman Sachs 2018 Form 10-K

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. Effective
January 2017, forfeitures are recorded when they occur.
Prior to January 2017, expected forfeitures were estimated
and recorded over the vesting period. See Note 3 for
information about the adoption of ASU No. 2016-09.

Cash dividend equivalents paid on RSUs are charged to
retained earnings. If RSUs that require future service are
forfeited, the related dividend equivalents originally charged
to retained earnings are reclassified to compensation expense
in the period in which forfeiture occurs.

The firm generally issues new shares of common stock upon
delivery of share-based awards. In certain cases, primarily
related to conflicted employment
(as outlined in the
applicable award agreements), the firm may cash settle share-
based compensation awards accounted for as equity
instruments. For these awards, whose terms allow for cash
settlement, additional paid-in capital is adjusted to the extent
of the difference between the value of the award at the time
of cash settlement and the grant-date value of the award.

Stock Incentive Plan
The firm sponsors a stock incentive plan, The Goldman
Sachs Amended and Restated Stock Incentive Plan (2018)
(2018 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 2, 2018, shareholders
approved the 2018 SIP. The 2018 SIP replaced The
Goldman Sachs Amended and Restated Stock Incentive
Plan (2015) (2015 SIP) previously in effect, and applies to
awards granted on or after the date of approval. The 2015
SIP had previously replaced The Goldman Sachs Amended
and Restated Stock Incentive Plan (2013) (2013 SIP).

As of December 2018, 68.2 million shares were available
for grant under the 2018 SIP. If any shares of common
stock underlying awards granted under the 2018 SIP, 2015
SIP or 2013 SIP are not delivered due to forfeiture,
termination or cancellation or are surrendered or withheld,
those shares will become available to be delivered under the
2018 SIP. Shares available for grant are also subject to
adjustment for certain changes in corporate structure as
permitted under the 2018 SIP. The 2018 SIP is scheduled to
terminate on the date of the annual meeting of shareholders
that occurs in 2022.

I N C . A N D S U B S I D I A R I E S
T H E G O L D M A N S A C H S G R O U P ,
Notes to Consolidated Financial Statements

subject

(including RSUs

Restricted Stock Units
The firm grants RSUs
to
performance conditions) to employees, which are generally
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 and delivery
transfer restrictions. RSUs generally vest and underlying
shares of
required
withholding tax) as outlined in the applicable award
agreements. Award 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, which
generally occurs over a three-year period, is conditioned on
the
and other
requirements outlined in the award agreements.

common stock deliver

certain vesting

satisfying

grantees

(net of

The table below presents the 2018 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

Beginning balance 4,123,582
3,887,934
Granted
(423,154)
Forfeited
Delivered
–
(3,826,523)
Vested
3,761,839
Ending balance

14,162,828
$182.50
$220.83
5,342,848
(195,323) $192.16
–
$185.62
$217.85

(9,807,881) $
3,826,523
13,328,995

No Future
Service
Required

$166.30
$216.05
$167.92
$172.40
$185.62
$187.27

In the table above:
‰ The weighted average grant-date fair value of RSUs
granted was $218.06 during 2018, $206.88 during 2017
and $135.92 during 2016. The fair value of the RSUs
granted included a liquidity discount of 11.9% during
2018, 10.7% during 2017 and 10.5% during 2016, to
reflect post-vesting and delivery transfer restrictions,
generally of up to 4 years.

‰ The aggregate fair value of awards that vested was
$1.79 billion during 2018, $2.14 billion during 2017 and
$2.26 billion during 2016.

‰ The ending balance included restricted stock subject to
future service requirements of 1,649 shares as of
December 2018 and 3,298 shares as of December 2017.

‰ The

ending

balance

to
performance conditions and not subject to future service
requirements of 174,579 RSUs as of December 2018 and
62,023 RSUs as of December 2017.

included RSUs

subject

In relation to 2018 year-end, during the first quarter of 2019,
the firm granted to its employees 11.3 million RSUs, of
which 4.0 million RSUs require future service as a condition
of delivery for the related shares of common stock. 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 and delivery
transfer restrictions through January 2024. These grants are
not included in the table above.

As of December 2018, there was $448 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 1.85 years.

Stock Options
Stock options generally vested as outlined in the applicable
stock option agreement. In general, options expired on the
tenth anniversary of the grant date, although they may have
been subject to earlier termination or cancellation under
certain circumstances in accordance with the terms of the
applicable stock option agreement and the SIP in effect at
the time of grant.

There were no options outstanding as of December 2018.
There were 2.10 million options outstanding as of
December 2017, all of which were exercisable. These options
were granted in 2008 with an exercise price of $78.78 and, as
of December 2017, had an aggregate intrinsic value of
$370 million and a remaining life of 1 year.

During 2018, 2.10 million options were exercised with a
weighted average exercise price of $78.78. During 2017,
5.86 million options were exercised with a weighted
average exercise price of $139.35. The total intrinsic value
of options exercised was $288 million during 2018,
$589 million during 2017 and $436 million during 2016.

The table below presents the share-based compensation and
the related excess tax benefit.

$ in millions

Year Ended December

2018

2017

2016

$1,850 $1,812 $2,170
Share-based compensation
Excess net tax benefit for options exercised
79
64 $ 139 $
$
Excess net tax benefit for share-based awards $ 269 $ 719 $ 147

In the table above, excess net tax benefit for share-based
awards includes the net tax benefit on dividend equivalents
paid on RSUs and the delivery of common stock underlying
share-based awards, as well as the excess net tax benefit for
options
exercised. Following the adoption of ASU
No. 2016-09 in January 2017, such amounts were
recognized prospectively in income tax expense. In prior
years, such amounts were recognized in additional paid-in
capital. See Note 3 for further information about this ASU.

Goldman Sachs 2018 Form 10-K 187

I N C . A N D S U B S I D I A R I E S
T H E G O L D M A N S A C H S G R O U P ,
Notes to Consolidated Financial Statements

Note 30.
Parent Company

Group
Earnings

Inc. — Condensed Statements

Group Inc. — Condensed Statements of Financial
Condition

$ in millions

2018

2017

2016

$ in millions

Year Ended December

Revenues
Dividends from subsidiaries and other affiliates:

Bank
Nonbank
Other revenues
Total non-interest revenues
Interest income
Interest expense
Net interest loss
Total net revenues

Operating expenses
Compensation and benefits
Other expenses
Total operating expenses
Pre-tax earnings
Provision/(benefit) for taxes
Undistributed earnings/(loss) of subsidiaries and

other affiliates

Net earnings
Preferred stock dividends
Net earnings applicable to common

102 $

550 $

16,368
(1,376)
15,094
6,617
8,114
(1,497)
13,597

299
1,192
1,491
12,106
(1,173)

(2,820)
10,459
599

11,016
(384)
11,182
4,638
5,978
(1,340)
9,842

53
5,465
155
5,673
4,140
4,543
(403)
5,270

330
428
758
9,084
3,404

343
332
675
4,595
(518)

(1,394)
4,286
601

2,285
7,398
311

shareholders

$ 9,860 $ 3,685 $7,087

Supplemental Disclosures:
In the condensed statements of earnings above, revenues
and expenses included the following with subsidiaries and
other affiliates:
‰ Dividends from bank subsidiaries included cash dividends
of $76 million for 2018, $525 million for 2017 and
$32 million for 2016.

‰ Dividends from nonbank subsidiaries and other affiliates
included cash dividends of $10.78 billion for 2018,
$7.98 billion for 2017 and $3.46 billion for 2016.

‰ Other

revenues

included $(1.69) billion for 2018,

$661 million for 2017 and $49 million for 2016.

‰ Interest

income

included $6.33 billion for 2018,

$4.65 billion for 2017 and $4.08 billion in 2016.

‰ Interest expense included $2.39 billion for 2018,

$1.05 billion for 2017 and $201 million for 2016.

‰ Other

expenses

included $159 million for 2018,

$45 million for 2017 and $1 million for 2016.

Group Inc.’s provision for taxes for 2017 included
substantially all of
the firm’s $4.40 billion estimated
income tax expense related to Tax Legislation. During
2018, the firm finalized this estimate to reflect the impact of
updated information, including subsequent guidance issued
by the IRS, resulting in a $487 million income tax benefit,
which was primarily included in Group Inc.’s benefit for
taxes for 2018. See Note 24 for further information about
Tax Legislation.

188 Goldman Sachs 2018 Form 10-K

As of December

2018

2017

103 $

Assets
Cash and cash equivalents
with third-party banks

Loans to and receivables from subsidiaries:

Bank
Nonbank (includes $5,461 and $0 at fair value)

1,019

721
225,471 236,050

Investments in subsidiaries and other affiliates:

Bank
Nonbank

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 (includes $2,615 and $2,484

28,737
61,481
13,541
3,653

26,599
67,279
10,248
5,898
$334,005 $346,833

702 $

1,005

281

254

at fair value)
With subsidiaries

Unsecured long-term borrowings:

With third parties (includes $16,395 and $18,207

at fair value)
With subsidiaries

Other liabilities
Total liabilities

25,060
7,558

31,871
25,699

23,343
3,755

183,121 190,502
11,068
4,191
243,820 264,590

Commitments, contingencies and guarantees

Shareholders’ equity
Preferred stock
Common stock
Share-based awards
Additional paid-in capital
Retained earnings
Accumulated other comprehensive income/(loss)
Stock held in treasury, at cost
Total shareholders’ equity
Total liabilities and shareholders’ equity

11,203
9
2,845
54,005
100,100
693
(78,670)
90,185

11,853
9
2,777
53,357
91,519
(1,880)
(75,392)
82,243
$334,005 $346,833

Supplemental Disclosures:
Goldman Sachs Funding LLC (Funding IHC), a wholly-
owned, direct subsidiary of Group Inc., has provided
Group Inc. with a committed line of credit that allows
Group Inc. to draw sufficient funds to meet its cash needs in
the ordinary course of business.

Financial instruments owned included derivative contracts
with subsidiaries of $683 million as of December 2018 and
$570 million as of December 2017.

Financial instruments sold, but not yet purchased included
derivative contracts with subsidiaries of $280 million as of
December 2018 and $218 million as of December 2017.

As of December 2018, unsecured long-term borrowings
with subsidiaries by maturity date are $22.56 billion in
2020, $91 million in 2021, $74 million in 2022,
$66 million in 2023 and $554 million in 2024-thereafter.

I N C . A N D S U B S I D I A R I E S
T H E G O L D M A N S A C H S G R O U P ,
Notes to Consolidated Financial Statements

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)/loss of

subsidiaries and other affiliates

Depreciation and amortization
Deferred income taxes
Share-based compensation
Loss/(gain) related to extinguishment of

Year Ended December

2018

2017

2016

$ 10,459 $ 4,286 $ 7,398

2,820
51
(2,817)
105

1,394
56
4,358
152

(2,285)
52
134
193

unsecured borrowings

(160)

(114)

Changes in operating assets and liabilities:
Financial instruments owned (excluding

available-for-sale securities)

Financial instruments sold, but not yet

purchased

Other, net

Net cash provided by operating activities
Cash flows from investing activities
Purchase of property, leasehold
improvements and equipment

Repayments/(issuances) of short-term loans

to subsidiaries, net

Issuance of term loans to subsidiaries
Repayments of term loans by subsidiaries
Purchase of investments
Capital distributions from/(contributions to)

(1,597)

(309)

(1,580)

27
1,804
10,692

(521)
(757)
8,545

332
337
4,584

(63)

(66)

(79)

10,829 (14,415)
(30,336) (42,234)
22,039
25,956
(6,491)
(3,140)

(3,994)
(28,498)
32,265
–

subsidiaries, net

1,807

388

(3,265)

Net cash provided by/(used for) investing

activities

5,053 (40,779)

(3,571)

Cash flows from financing activities
Unsecured short-term borrowings, net:

With third parties
With subsidiaries

Proceeds from issuance of long-term

(1,541)

(424)
(998) 23,078

(178)
2,290

borrowings

26,157

43,917

40,708

Repayment of long-term borrowings,

including the current portion

Purchase of APEX, senior guaranteed

securities and trust preferred securities

Preferred stock redemption
Common stock repurchased
Settlement of share-based awards in

(32,429) (27,028)

(33,314)

(35)
(650)
(3,294)

(237)
(850)
(6,772)

(1,171)
–
(6,078)

satisfaction of withholding tax requirements

(1,118)

(2,223)

(1,128)

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

Cash settlement of share-based awards
Net cash provided by/(used for) financing

(1,810)

(1,769)

(1,706)

–

1,495

1,303

38
–

7
(3)

6
–

activities

(15,680) 29,191

732

Net increase/(decrease) in cash and cash

equivalents

Cash and cash equivalents, beginning balance
Cash and cash equivalents, ending balance $

65
38
103 $

(3,043)
3,081

1,745
1,336
38 $ 3,081

Supplemental Disclosures:
Cash payments for interest, net of capitalized interest, were
$9.83 billion for 2018, $6.31 billion for 2017 and
$4.91 billion for 2016, and included $3.05 billion for 2018,
$160 million for 2017 and $187 million for 2016 of
payments to subsidiaries.

Cash payments/(refunds)
for income taxes, net, were
$(98) million for 2018, $297 million for 2017 and
$61 million for 2016.

Cash flows related to common stock repurchased includes
common stock repurchased in the prior period for which
settlement occurred during the current period and excludes
common stock repurchased during the current period for
which settlement occurred in the following period.

Non-cash activities during the year ended December 2018:
‰ Group Inc. restructured funding for Goldman Sachs
Group (UK) Ltd. and Goldman Sachs International, both
wholly-owned subsidiaries of Group Inc., which resulted
in a net increase in loans to subsidiaries of $5.71 billion
and a decrease in equity interest of $5.71 billion.

‰ Group Inc. exchanged $150 million of liabilities and
$46 million of related deferred tax assets for $104 million
of equity interest in GS&Co., a wholly owned subsidiary
of Group Inc.

‰ Group Inc. exchanged $35 million of Trust Preferred
beneficial
for
the Group Inc.’s junior

Securities
and
$35 million of certain of
subordinated debt.

common

interests

Non-cash activities during the year ended December 2017:
‰ Group Inc. exchanged $84.00 billion of certain loans to
and receivables from subsidiaries for an $84.00 billion
unsecured subordinated note
from Funding IHC
(included in loans to and receivables from subsidiaries).
‰ Group Inc. exchanged $750 million of its equity interest
in Goldman Sachs (UK) L.L.C. (GS UK), a wholly-owned
subsidiary of Group Inc., for a $750 million loan to GS
UK.

‰ Group Inc. exchanged $237 million of Trust Preferred
for

Securities
$248 million of Group Inc.’s junior subordinated debt.

beneficial

common

interests

and

Non-cash activities during the year ended December 2016:
‰ Group Inc. exchanged $1.04 billion of APEX for
$1.31 billion of Series E and Series F Preferred Stock. See
Note 19 for further information.

‰ Group Inc. exchanged $127 million of senior guaranteed
trust securities for $124 million of Group Inc.’s junior
subordinated debt.

Goldman Sachs 2018 Form 10-K 189

T H E G O L D M A N S A C H S G R O U P ,
Supplemental Financial Information

I N C . A N D S U B S I D I A R I E S

Quarterly Results (unaudited)

The tables below present the unaudited quarterly results.

$ in millions, except per
share amounts

December
2018

September
2018

June
2018

March
2018

Three Months Ended

Non-interest revenues
Interest income
Interest expense
Net interest income
Total net revenues
Provision for credit losses
Operating expenses
Pre-tax earnings
Provision for taxes
Net earnings
Preferred stock dividends
Net earnings applicable

$ 7,089
5,468
4,477
991
8,080
222
5,150
2,708
170
2,538
216

$7,964 $8,634 $ 9,162
4,230
4,920
3,312
3,918
918
1,002
10,080
9,636
44
234
6,617
6,126
3,419
3,276
587
711
2,832
2,565
95
217

5,061
4,205
856
8,820
174
5,568
3,078
554
2,524
71

to common shareholders

$ 2,322

$2,453 $2,348 $ 2,737

Earnings per common share:

Basic
Diluted

Dividends declared per

common share

$ 6.11
$ 6.04

$ 6.35 $ 6.04 $
$ 6.28 $ 5.98 $

7.02
6.95

$ 0.80

$ 0.80 $ 0.80 $

0.75

‰ Provision for credit losses, previously reported in total net
revenues, is now reported as a separate line item in the
consolidated statements of earnings. Previously reported
amounts
current
have been conformed to the
presentation.

Common Stock Performance

the

firm’s

The graph and table below compare the performance of an
investment
from
December 31, 2013 (the last trading day before the firm’s
2014 fiscal year) through December 31, 2018, with the
S&P 500 Index (S&P 500) and the S&P 500 Financials
Index (S&P 500 Financials).

common

stock

$300

$250

$200

$150

$100

$50

Three Months Ended

Group Inc.

S&P 500

S&P 500 Financials

Dec-13

Dec-14

Dec-15

Dec-16

Dec-17

Dec-18

$ in millions, except per
share amounts

December
2017

September
2017

June
2017

March
2017

$ 7,226
3,736
2,838
898
8,124
290
4,726
3,108
5,036
(1,928)
215

$7,660 $7,314 $ 7,598
2,746
3,220
2,230
2,432
516
788
8,114
8,102
88
215
5,487
5,378
2,539
2,509
284
678
2,255
1,831
93
200

3,411
2,681
730
8,390
64
5,350
2,976
848
2,128
93

$(2,143)

$2,035 $1,631 $ 2,162

Earnings/(loss) per common share:

Basic
Diluted

Dividends declared per

common share

$ (5.51)
$ (5.51)

$ 5.09 $ 4.00 $
$ 5.02 $ 3.95 $

5.23
5.15

$ 0.75

$ 0.75 $ 0.75 $

0.65

As of December

2013

2014

2015

2016

2017

2018

$100.00 $110.78 $104.37 $140.80 $151.70 $100.85
Group Inc.
S&P 500
$100.00 $113.68 $115.24 $129.01 $157.16 $150.26
S&P 500 Financials $100.00 $115.18 $113.38 $139.18 $169.99 $147.82

The graph and table above assume $100 was invested on
December 31, 2013 in each of the firm’s common stock, the
S&P 500 and the S&P 500 Financials, 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.

In the table above:
‰ These quarterly results were prepared in accordance with
U.S. GAAP and reflect all adjustments that are, in the
opinion of management, necessary for a fair statement of
the results. These adjustments are of a normal, recurring
nature. The timing and magnitude of changes in the firm’s
discretionary
in
operating expenses) can have a significant effect on results
in a given quarter.

compensation

(included

accruals

190 Goldman Sachs 2018 Form 10-K

T H E G O L D M A N S A C H S G R O U P ,
Supplemental Financial Information

I N C . A N D S U B S I D I A R I E S

Selected Financial Data

Statistical Disclosures

Year Ended or as of December

2018

2017

2016

2015

2014

Income statement data ($ in millions)
Non-interest revenues $ 32,849 $ 29,798 $ 28,203 $ 31,045 $ 30,602
9,604
Interest income
5,557
Interest expense
4,047
Net interest income
Total net revenues
34,649
Provision for credit

13,113
10,181
2,932
32,730

19,679
15,912
3,767
36,616

9,691
7,104
2,587
30,790

8,452
5,388
3,064
34,109

losses

Operating expenses
Pre-tax earnings
Balance sheet data ($ in millions)
Total assets
Deposits
Other secured financings

674
23,461

121
22,171
$ 12,481 $ 11,132 $ 10,304 $ 8,778 $ 12,357

289
25,042

657
20,941

182
20,304

$931,796 $916,776 $860,165 $861,395 $855,842
$158,257 $138,604 $124,098 $ 97,519 $ 82,880

(long-term)

Unsecured long-term

borrowings
Total liabilities
Total shareholders’

$ 11,878 $ 9,892 $ 8,405 $ 10,520 $ 7,249

$224,149 $217,687 $189,086 $175,422 $167,302
$841,611 $834,533 $773,272 $774,667 $773,045

equity

$ 90,185 $ 82,243 $ 86,893 $ 86,728 $ 82,797

Common share data (in millions, except per share amounts)
Earnings per common share:

Basic
Diluted

$ 25.53 $
$ 25.27 $

9.12 $ 16.53 $ 12.35 $ 17.55
9.01 $ 16.29 $ 12.14 $ 17.07

Dividends declared per

common share

Book value per

common share

Basic shares
Average common shares:

3.15 $

2.90 $

2.60 $

2.55 $

2.25

$ 207.36 $ 181.00 $ 182.47 $ 171.03 $ 163.01
451.5

441.6

388.9

414.8

380.9

Basic
Diluted

385.4
390.2

401.6
409.1

427.4
435.1

448.9
458.6

458.9
473.2

13.3%

19,700
16,900
36,600

Selected data (unaudited)
ROE
Headcount:
Americas
Non-Americas
Total headcount
AUS by asset class ($ in billions)
Alternative investments $
Equity
Fixed income
Long-term AUS
Liquidity products
Total AUS

4.9%

9.4%

7.4% 11.2%

18,100
15,500
33,600

17,400
15,000
32,400

18,000
16,000
34,000

16,600
15,000
31,600

167 $
301
677
1,145
397

143
236
516
895
283
$ 1,542 $ 1,494 $ 1,379 $ 1,252 $ 1,178

168 $
321
660
1,149
345

154 $
266
601
1,021
358

148 $
252
546
946
306

In the table above:
‰ Provision for credit losses, previously reported in total net
revenues, is now reported as a separate line item in the
consolidated statements of earnings. Previously reported
amounts have been conformed to the current presentation.
‰ The impact of adopting ASU No. 2015-03 was a
reduction to both total assets and liabilities of
$398 million as of December 2014. See Note 3 to the
consolidated financial statements in Part II, Item 8 of the
firm’s Annual Report on Form 10-K for the year ended
December 31, 2015 for further information.

‰ Basic shares represent common shares outstanding and
restricted stock units granted to employees with no future
service requirements.

‰ Headcount

consists of

and excludes
consultants and temporary staff previously reported as
total staff.

employees,

Distribution of Assets, Liabilities and Shareholders’
Equity
The tables below present
balances, interest and average interest rates.

information about average

$ in millions

2018

2017

2016

Average Balance for the
Year Ended December

Assets
U.S.
Non-U.S.
Total deposits with banks
U.S.
Non-U.S.
Total collateralized agreements
U.S.
Non-U.S.
Total financial instruments owned
U.S.
Non-U.S.
Total loans receivable
U.S.
Non-U.S.
Total other interest-earning assets
Total interest-earning assets
Cash and due from banks
Other non-interest-earning assets
Total assets

Liabilities
U.S.
Non-U.S.
Total interest-bearing deposits
U.S.
Non-U.S.
Total collateralized financings
U.S.
Non-U.S.
Total financial instruments sold,

but not yet purchased

52,773
118,661
161,783
140,411
302,194
168,253
119,602
287,855
67,418
6,494
73,912
44,201
43,261
87,462
870,084
11,380
86,117

$ 65,888 $ 66,838 $ 72,132
33,342
105,474
177,930
129,150
307,080
147,862
102,387
250,249
43,367
4,609
47,976
37,525
32,732
70,257
781,036
13,985
91,875
$967,581 $909,604 $886,896

42,353
109,191
159,829
133,156
292,985
163,344
112,299
275,643
50,742
4,767
55,509
40,642
40,314
80,956
814,284
11,056
84,264

$117,121 $101,109 $ 97,255
17,605
114,860
52,388
31,936
84,324
36,273
35,797

30,071
147,192
59,129
45,747
104,876
33,193
49,295

24,356
125,465
56,614
39,029
95,643
34,422
41,507

82,488
40,360
16,909
57,269
212,200
24,173
236,373
124,657
63,428
188,085
816,283
4,273
61,787
882,343

U.S.
Non-U.S.
Total short-term borrowings
U.S.
Non-U.S.
Total long-term borrowings
U.S.
Non-U.S.
Total other interest-bearing liabilities
Total interest-bearing liabilities
Non-interest-bearing deposits
Other non-interest-bearing liabilities
Total liabilities
Shareholders’ equity
11,304
Preferred stock
75,354
Common stock
Total shareholders’ equity
86,658
Total liabilities and shareholders’ equity $967,581 $909,604 $886,896

75,929
38,615
13,318
51,933
199,569
15,000
214,569
135,804
60,986
196,790
760,329
3,630
59,686
823,645

72,070
43,684
13,656
57,340
182,808
10,488
193,296
147,177
59,852
207,029
728,919
2,996
68,323
800,238

11,253
73,985
85,238

11,238
74,721
85,959

Percentage of interest-earning assets and interest-bearing liabilities

attributable to non-U.S. operations

Assets
Liabilities

41.67% 40.88% 38.69%
28.13% 25.54% 23.23%

Goldman Sachs 2018 Form 10-K 191

T H E G O L D M A N S A C H S G R O U P ,
Supplemental Financial Information

I N C . A N D S U B S I D I A R I E S

$ in millions

Liabilities
U.S.
Non-U.S.
Total interest-bearing deposits
U.S.
Non-U.S.
Total collateralized financings
U.S.
Non-U.S.
Total financial instruments sold,

but not yet purchased

Interest for the
Year Ended December

2018

2017

2016

$ 1,247
171
1,418
3,340
512
3,852
4,432
2,462
6,894
3,734
414
4,148
2,389
978
3,367
$19,679

$ 2,317
289
2,606
1,760
291
2,051
803
751

1,554
672
23
695
5,474
81
5,555
3,245
206
3,451
$15,912

760
59
819
1,335
326
1,661
3,958
1,946
5,904
2,386
292
2,678
1,523
528
2,051
$13,113

$ 1,205
175
1,380
735
128
863
682
706

1,388
660
38
698
4,539
60
4,599
991
262
1,253
$10,181

$ 382
70
452
361
330
691
3,762
1,682
5,444
1,620
223
1,843
914
347
1,261
$9,691

$ 780
98
878
325
117
442
607
644

1,251
401
45
446
4,175
67
4,242
(658)
503
(155)
$7,104

871
2,896
$ 3,767

$ 1,150
1,782
$ 2,932

$1,409
1,178
$2,587

192 Goldman Sachs 2018 Form 10-K

Assets
U.S.
Non-U.S.
Total deposits with banks
U.S.
Non-U.S.
Total collateralized agreements
U.S.
Non-U.S.
Total financial instruments owned
U.S.
Non-U.S.
Total loans receivable
U.S.
Non-U.S.
Total other interest-earning assets
Total interest-earning assets
Liabilities
U.S.
Non-U.S.
Total interest-bearing deposits
U.S.
Non-U.S.
Total collateralized financings
U.S.
Non-U.S.
Total financial instruments sold,

but not yet purchased

Average Rate for the
Year Ended December

2018

2017

2016

1.89% 1.14% 0.53%
0.32% 0.14% 0.21%
1.20% 0.75% 0.43%
2.06% 0.84% 0.20%
0.36% 0.24% 0.26%
1.27% 0.57% 0.23%
2.63% 2.42% 2.54%
2.06% 1.73% 1.64%
2.39% 2.14% 2.18%
5.54% 4.70% 3.74%
6.38% 6.13% 4.84%
5.61% 4.82% 3.84%
5.40% 3.75% 2.44%
2.26% 1.31% 1.06%
3.85% 2.53% 1.79%
2.26% 1.61% 1.24%

1.98% 1.19% 0.80%
0.96% 0.72% 0.56%
1.77% 1.10% 0.76%
2.98% 1.30% 0.62%
0.64% 0.33% 0.37%
1.96% 0.90% 0.52%
2.42% 1.98% 1.67%
1.52% 1.70% 1.80%

1.88% 1.83% 1.74%
1.67% 1.71% 0.92%
0.14% 0.29% 0.33%
1.21% 1.34% 0.78%
2.58% 2.27% 2.28%
0.34% 0.40% 0.64%
2.35% 2.14% 2.19%
2.60% 0.73% (0.45)%
0.32% 0.43% 0.84%
1.83% 0.64% (0.07)%
1.95% 1.34% 0.97%
0.31% 0.27% 0.27%
0.17% 0.24% 0.29%
0.80% 0.54% 0.39%
0.43% 0.36% 0.33%

In the tables above:
‰ Assets, liabilities and interest are classified as U.S. and
non-U.S. based on the location of the entity in which the
assets and liabilities are held.

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

‰ Total other interest-earning assets primarily consists of
certain receivables from customers and counterparties.

‰ Collateralized

financings

consists

repurchase

agreements and securities loaned.

‰ Substantially all of

the total other interest-bearing
liabilities consists of certain payables to customers and
counterparties.

‰ Interest rates for borrowings include the effects of interest

rate swaps accounted for as hedges.

T H E G O L D M A N S A C H S G R O U P ,
Supplemental Financial Information

I N C . A N D S U B S I D I A R I E S

Changes in Net Interest Income, Volume and Rate
Analysis
The tables below present 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.

$ in millions

Interest-earning assets
U.S.
Non-U.S.
Total deposits with banks
U.S.
Non-U.S.
Total collateralized agreements
U.S.
Non-U.S.
Total financial instruments owned
U.S.
Non-U.S.
Total loans receivable
U.S.
Non-U.S.
Total other interest-earning assets
Change in interest income
Interest-bearing liabilities
U.S.
Non-U.S.
Total interest-bearing deposits
U.S.
Non-U.S.
Total collateralized financings
U.S.
Non-U.S.
Total financial instruments sold,

but not yet purchased

U.S.
Non-U.S.
Total short-term borrowings
U.S.
Non-U.S.
Total long-term borrowings
U.S.
Non-U.S.
Total other interest-bearing liabilities
Change in interest expense
Change in net interest income

Year Ended December 2018
versus December 2017

Increase (decrease)
due to change in:

Volume

Rate

Net
Change

$ (18)
34
16
40
26
66
129
150
279
924
110
1,034
192
67
259
1,654

317
55
372
75
43
118
(30)
119

89
29
5
34
326
31
357
(290)
8
(282)
688
$ 966

$ 505
78
583
1,965
160
2,125
345
366
711
424
12
436
674
383
1,057
4,912

795
59
854
950
120
1,070
151
(74)

$ 487
112
599
2,005
186
2,191
474
516
990
1,348
122
1,470
866
450
1,316
6,566

1,112
114
1,226
1,025
163
1,188
121
45

77
(17)
(20)
(37)
609
(10)
599
2,544
(64)
2,480
5,043

166
12
(15)
(3)
935
21
956
2,254
(56)
2,198
5,731
$ (131) $ 835

Year Ended December 2017
versus December 2016

Increase (decrease)
due to change in:

$ in millions

Volume

Rate

but not yet purchased

U.S.
Non-U.S.
Total short-term borrowings
U.S.
Non-U.S.
Total long-term borrowings
U.S.
Non-U.S.
Total other interest-bearing liabilities
Change in interest expense
Change in net interest income

$ (60)
13
(47)
(151)
10
(141)
375
172
547
347
10
357
117
99
216
932

46
49
95
55
23
78
(37)
97

60
(87)
(1)
(88)
381
18
399
(83)
5
(78)
466
$ 466

$ 438
(24)
414
1,125
(14)
1,111
(179)
92
(87)
419
59
478
492
82
574
2,490

379
28
407
355
(12)
343
112
(35)

77
346
(6)
340
(17)
(25)
(42)
1,732
(246)
1,486
2,611
$ (121)

Net
Change

$ 378
(11)
367
974
(4)
970
196
264
460
766
69
835
609
181
790
3,422

425
77
502
410
11
421
75
62

137
259
(7)
252
364
(7)
357
1,649
(241)
1,408
3,077
$ 345

Deposits
The table below presents information about
bearing deposits.

interest-

$ in millions

Average balances
U.S.
Savings and demand
Time
Total U.S.
Non-U.S.
Demand
Time
Total non-U.S.
Total
Average interest rates
U.S.
Savings and demand
Time
Total U.S.
Non-U.S.
Demand
Time
Total non-U.S.
Total

Year Ended December

2018

2017

2016

$ 76,428 $ 68,819 $ 59,357
37,898
97,255

40,693
117,121

32,290
101,109

9,579
20,492
30,071

8,041
9,564
17,605
$147,192 $125,465 $114,860

8,443
15,913
24,356

1.85%
2.21%
1.98%

1.29%
0.81%
0.96%
1.77%

0.98%
1.64%
1.19%

0.68%
0.75%
0.72%
1.10%

0.56%
1.18%
0.80%

0.29%
0.78%
0.56%
0.76%

Goldman Sachs 2018 Form 10-K 193

T H E G O L D M A N S A C H S G R O U P ,
Supplemental Financial Information

I N C . A N D S U B S I D I A R I E S

In the table above, deposits are classified as U.S. and
non-U.S. based on the location of the entity in which such
deposits are held.

Loan Portfolio
The
receivable.

table below presents

information about

loans

As of December 2018, deposits in U.S. offices included
$6.79 billion and non-U.S. offices included $17.12 billion
of time deposits that were greater than $100,000.

The table below presents maturities of these time deposits
held in U.S. offices.

$ in millions

3 months or less
3 to 6 months
6 to 12 months
Greater than 12 months
Total

As of
December 2018

$1,137
1,306
3,047
1,302
$6,792

Short-Term and Other Borrowed Funds
The table below presents information about securities
loaned and repurchase agreements, and short-term
borrowings.

$ in millions

2018

2017

2016

As of December

Securities loaned and repurchase agreements
$ 90,531
Amounts outstanding at year-end
Average outstanding during the year $104,876
Maximum month-end outstanding
$123,805
Weighted average interest rate
During the year
At year-end
Short-term borrowings
Amounts outstanding at year-end
$ 50,057
Average outstanding during the year $ 57,269
Maximum month-end outstanding
$ 63,743
Weighted average interest rate
During the year
At year-end

1.96%
3.31%

1.21%
1.30%

$ 99,511
$ 95,643
$103,359

$79,340
$84,324
$89,142

0.90% 0.52%
1.16% 0.44%

$ 61,818
$ 51,933
$ 61,818

$52,383
$57,340
$61,840

1.34% 0.78%
1.22% 0.94%

In the table above:
‰ 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.

year-end for

‰ Amounts outstanding

short-term
borrowings included short-term secured financings of
$9.56 billion as of December 2018, $14.90 billion as of
December 2017 and $13.12 billion as of December 2016.
‰ The weighted average interest rates for these borrowings

include the effect of hedging activities.

194 Goldman Sachs 2018 Form 10-K

$ in millions

2018

2017

2016

2015

2014

As of December

U.S.
Corporate loans
PWM loans
Commercial real estate loans
Residential real estate loans
Consumer loans
Other loans
Total U.S.
Non-U.S.
Corporate loans
PWM loans
Commercial real estate loans
Residential real estate loans
Other loans
Total non-U.S.
Total loans receivable,

$34,256 $28,622 $23,821 $19,909 $14,020
15,100 14,489 12,386 12,824 10,989
1,876
2,813
311
3,777
208
–
821
2,664
74,228 60,582 45,669 41,601 28,017

9,476
7,244
4,536
3,616

6,150
6,176
1,912
3,233

3,186
2,187
–
3,495

3,027
2,119
1,965
40
277
7,428

2,127
2,102
1,837
58
30
6,154

1,016
1,442
1,948
88
18
4,512

831
1,137
2,085
129
38
4,220

290
300
549
10
–
1,149

gross

81,656 66,736 50,181 45,821 29,166

Allowance for loan losses
U.S.
Non-U.S.
Total allowance for loan

losses

Total loans receivable

848
218

604
199

476
33

381
33

205
23

1,066

228
$80,590 $65,933 $49,672 $45,407 $28,938

509

414

803

In the table above, loans receivable are classified as U.S. and
non-U.S. based on the location of the entity in which such
loans are held.

Allowance for Loan Losses
The table below presents changes in the allowance for loan
losses.

Year Ended December

$ in millions

2018

2017

2016

2015

2014

Beginning balance
Net charge-offs
Provision
Other
Ending balance

$ 803
(337)
654
(54)
$1,066

$ 509
(203)
574
(77)
$ 803

$414
(8)
138
(35)
$509

$228
(1)
187
–
$414

$139
(3)
92
–
$228

In the table above:
‰ Allowance for loan losses as of 2018 primarily related to
corporate loans and consumer loans that were held in
entities located in the U.S.

‰ Allowance for loan losses as of 2017 and earlier primarily
related to corporate loans and loans extended to PWM
clients that were held in entities located in the U.S.

‰ Net charge-offs for 2018 were primarily related to
consumer loans held in entities located in the U.S. and
commercial real estate PCI loans held in entities located
outside of the U.S.

‰ Net charge-offs for 2017 and earlier were primarily related

to corporate loans held in entities located in the U.S.

T H E G O L D M A N S A C H S G R O U P ,
Supplemental Financial Information

I N C . A N D S U B S I D I A R I E S

Maturities and Sensitivity to Changes in Interest
Rates
The table below presents gross loans receivable by tenor
and a distribution of such loans receivable between fixed
and floating interest rates.

The table below presents 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.

$ in millions

Banks Governments

Other

Total Commitments

$ in millions

Maturities and Sensitivity to Changes
in Interest Rates as of December 2018

Less
than
1 year

1 - 5
years

Greater
than 5
years

Total

2,910
7,368
1,972
4,059
2,403
43,619

12,172
1,458
2,249
51
435
20,606

$ 4,241 $24,907 $ 5,108 $34,256
15,100
9,476
7,244
4,536
3,616
74,228

U.S.
Corporate loans
PWM loans
Commercial real estate loans
Residential real estate loans
Consumer loans
Other loans
Total U.S.
Non-U.S.
3,027
Corporate loans
2,119
PWM loans
1,965
Commercial real estate loans
40
Residential real estate loans
277
Other loans
Total non-U.S.
7,428
Total loans receivable, gross $23,445 $47,653 $10,558 $81,656

18
650
3,023
426
778
10,003

2,236
37
1,476
30
255
4,034

263
2,082
483
9
2
2,839

528
–
6
1
20
555

Loans at fixed interest rates
Loans at variable interest rates 23,205
Total

240 $ 4,769 $ 3,030 $ 8,039
73,617
$23,445 $47,653 $10,558 $81,656

42,884

7,528

Cross-border Outstandings
Cross-border outstandings are based on the Federal
(FFIEC)
Institutions Examination Council’s
Financial
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
including unfavorable economic and political
events,
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 table below
does not include all the effects of such risk mitigants and
does not represent the firm’s credit exposure.

As of December 2018

Germany
Cayman Islands $
France
Japan
Ireland
Canada
Luxembourg
U.K.
China
South Korea

$2,028
27
$1,193
$9,106
$ 146
$2,383
$
22
$1,101
$1,952
$ 162

As of December 2017

Cayman Islands $
Germany
France
Canada
Japan
Ireland
China
Italy
U.K.
Singapore
Luxembourg

6
$4,241
$3,569
$2,562
$8,827
$ 143
$2,550
$2,306
$1,300
$ 372
59
$

As of December 2016

Cayman Islands $
France
Germany
Japan
Italy
Canada
China
Singapore
South Korea

3
$6,333
$3,183
$9,860
$3,220
$ 814
$1,189
$ 190
$ 107

$43,730 $ 4,755 $50,513
$
2 $47,595 $47,624
$ 5,094 $11,549 $17,836
$ 1,686 $ 6,146 $16,938
$
55 $12,390 $12,591
470 $ 7,845 $10,698
$
41 $ 9,799 $ 9,862
$
77 $ 8,458 $ 9,636
$
$
66 $ 6,882 $ 8,900
$ 2,935 $ 3,989 $ 7,086

– $34,624 $34,630
$
$22,765 $ 6,916 $33,922
$ 1,574 $19,048 $24,191
311 $17,358 $20,231
$
69 $ 7,220 $16,116
$
$
65 $11,490 $11,698
687 $ 7,838 $11,075
$
$ 3,986 $ 2,586 $ 8,878
$
– $ 7,480 $ 8,780
$ 5,462 $ 1,873 $ 7,707
324 $ 7,320 $ 7,703
$

$
– $34,756 $34,759
$ 1,858 $18,576 $26,767
$14,061 $ 9,250 $26,494
$
721 $ 6,310 $16,891
$ 3,211 $ 1,608 $ 8,039
333 $ 6,164 $ 7,311
$
158 $ 5,662 $ 7,009
$
$ 6,165 $
505 $ 6,860
$ 3,563 $ 2,847 $ 6,517

$ 3,834
$ 4,207
$10,307
$12,553
$
822
$ 1,513
$ 2,838
$20,336
271
$
10
$

$ 4,940
$ 7,015
$14,549
$ 2,388
$18,079
895
$
–
$
$ 1,649
$14,966
$
48
$ 2,438

$ 2,519
$ 9,598
$ 7,281
$ 7,476
$ 1,228
$ 1,279
–
$
97
$
4
$

In the table above:
‰ Cross-border outstandings includes cash, receivables,
collateralized agreements and cash financial instruments,
but exclude derivative instruments.

‰ Collateralized agreements 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 consists of commitments
to extend credit and forward starting collateralized
agreements.

Goldman Sachs 2018 Form 10-K 195

T H E G O L D M A N S A C H S G R O U P ,

I N C . A N D S U B S I D I A R I E S

Item 9. Changes in and Disagreements
with Accountants on Accounting and
Financial Disclosure

in or disagreements with
There were no changes
accountants on accounting and financial disclosure during
the last two years.

Item 11. Executive Compensation

Information relating to our executive officer and director
compensation and the compensation committee of the
Board will be in the 2019 Proxy Statement and is
incorporated in this Form 10-K by reference.

Item 12. Security Ownership of Certain
Beneficial Owners and Management
and Related Stockholder Matters

Information relating to security ownership of certain
beneficial owners of our common stock and information
relating to the security ownership of our management will
be in the 2019 Proxy Statement and is incorporated in this
Form 10-K by reference.

table

below presents

The
of
December 31, 2018 regarding securities to be issued
pursuant to outstanding restricted stock units (RSUs) and
securities remaining available for issuance under our equity
compensation plans that were in effect during 2018.

information

Securities
to be Issued
Upon
Exercise of
Outstanding
Options and
Rights (a)

Weighted
Average
Exercise
Price of
Outstanding
Options (b)

Securities
Available
For Future
Issuance
Under Equity
Compensation
Plans (c)

Plan Category

Equity compensation plans

approved by security holders 17,176,475

N/A

68,211,649

Equity compensation plans not
approved by security holders

Total

–
17,176,475

–

–
68,211,649

In the table above:
‰ Securities to be Issued Upon Exercise of Outstanding
Options and Rights includes 17,176,475 shares that may
be issued pursuant to outstanding RSUs. These awards
are subject to vesting and other conditions to the extent
set forth in the respective award agreements, and the
underlying shares will be delivered net of any required tax
withholding. As of December 31, 2018, there were no
outstanding options.

‰ Shares underlying RSUs are deliverable without

the
payment of any consideration, and therefore these awards
have not been taken into account in calculating the
weighted average exercise price.

Item 9A. Controls and Procedures

out

carried

by Goldman

As of the end of the period covered by this report, an
evaluation was
Sachs’
management, with the participation of our Chief Executive
Officer and Chief Financial Officer, of the effectiveness of
our disclosure controls and procedures (as defined in
Rule 13a-15(e) under the Exchange Act). Based upon that
evaluation, our Chief Executive Officer and Chief Financial
Officer concluded that
these disclosure controls and
procedures were effective as of the end of the period
covered by this report. In addition, no change in our
internal control over financial reporting (as defined in
Rule 13a-15(f) under the Exchange Act) occurred during
the fourth quarter of our year ended December 31, 2018
that has materially affected, or is reasonably likely to
financial
materially affect, our
reporting.

internal control over

Management’s Report on Internal Control over Financial
Reporting and the Report of Independent Registered Public
Accounting Firm are set forth in Part II, Item 8 of this
Form 10-K.

Item 9B. Other Information

Not applicable.

PART III
Item 10. Directors, Executive Officers
and Corporate Governance

Information relating to our executive officers is included on
page 20 of this Form 10-K. Information relating to our
directors,
including our audit committee and audit
committee financial experts and the procedures by which
shareholders can recommend director nominees, and our
executive officers will be in our definitive Proxy Statement
for our 2019 Annual Meeting of Shareholders, which will
be filed within 120 days of the end of 2018 (2019 Proxy
Statement) and is incorporated in this Form 10-K by
reference. Information relating to our Code of Business
Conduct and Ethics, which applies to our senior financial
officers, is included in “Business — Available Information”
in Part I, Item 1 of this Form 10-K.

196 Goldman Sachs 2018 Form 10-K

T H E G O L D M A N S A C H S G R O U P ,

I N C . A N D S U B S I D I A R I E S

‰ Securities Available For Future Issuance Under Equity
Compensation Plans represents shares remaining to be
issued under our current stock incentive plan (SIP),
excluding shares reflected in column (a). If any shares of
common stock underlying awards granted under our
current SIP, our SIP adopted in 2015 or our SIP adopted
in 2013 are not delivered due to forfeiture, termination or
cancellation or are surrendered or withheld, those shares
will again become available to be delivered under our
current SIP. Shares available for grant are also subject to
adjustment for certain changes in corporate structure as
permitted under our current SIP.

Item 13. Certain Relationships and
Related Transactions, and Director
Independence

Information regarding certain relationships and related
transactions and director independence will be in the 2019
Proxy Statement and is incorporated in this Form 10-K by
reference.

Item 14. Principal Accounting Fees
and Services

Information regarding principal accounting fees and
services will be in the 2019 Proxy Statement and is
incorporated in this Form 10-K by reference.

PART IV
Item 15. Exhibits, Financial Statement
Schedules

(a) Documents filed as part of this Report:

1. Consolidated Financial Statements

1.3

2.1

3.1

3.2

4.1

4.2

Form of Underwriting Agreement for preferred
stock and depositary shares of The Goldman
Sachs Group, Inc.

Plan of Incorporation (incorporated by reference
to Exhibit 2.1 to the Registrant’s Registration
Statement on Form S-1 (No. 333-74449)).

Restated Certificate of Incorporation of The
Goldman Sachs Group, Inc., amended as of
January 24, 2018 (incorporated by reference to
Exhibit 3.1 to the Registrant’s Annual Report
on Form 10-K for
the fiscal year ended
December 31, 2017).

Amended and Restated By-Laws of The
Goldman Sachs Group, Inc., amended as of
February 18, 2016 (incorporated by reference
to Exhibit 3.2 to the Registrant’s Annual
Report on Form 10-K for the fiscal year ended
December 31, 2015).

Indenture, dated as of May 19, 1999, between
The Goldman Sachs Group, Inc. and The Bank
of New York, as
trustee (incorporated by
reference to Exhibit 6 to the Registrant’s
Registration Statement on Form 8-A, filed on
June 29, 1999).

Subordinated Debt
Indenture, dated as of
February 20, 2004, between The Goldman
Sachs Group, Inc. and The Bank of New York,
to
(incorporated by
as
Exhibit 4.2 to the Registrant’s Annual Report
on Form 10-K for
the fiscal year ended
November 28, 2003).

reference

trustee

4.3 Warrant

dated

Indenture,

of
February 14, 2006, between The Goldman
Sachs Group, Inc. and The Bank of New York,
as
to
(incorporated by
Exhibit 4.34 to the Registrant’s Post-Effective
Amendment No. 3 to Form S-3,
filed on
March 1, 2006).

reference

trustee

The consolidated financial statements required to be filed in
this Form 10-K are included in Part II, Item 8 hereof.

4.4

2. Exhibits

1.1

1.2

Second Amended and Restated Distribution
Agreement, dated as of December 28, 2018, for
Medium-Term Notes, Series N of The Goldman
Sachs Group, Inc.

Agreement

Underwriting

Form of
for
Subordinated Debt Securities of The Goldman
Sachs Group
the
Subordinated Debt
Indenture, dated as of
February 20, 2004, between The Goldman
Sachs Group, Inc., and The Bank of New York
Mellon, as trustee.

issued

under

Inc.,

dated

Senior Debt
of
Indenture,
December 4, 2007, among GS Finance Corp., as
issuer, The Goldman Sachs Group,
Inc., as
guarantor, and The Bank of New York, as
trustee
to
Exhibit 4.69 to the Registrant’s Post-Effective
Amendment No. 10 to Form S-3,
filed on
December 4, 2007).

(incorporated

reference

Goldman Sachs 2018 Form 10-K 197

T H E G O L D M A N S A C H S G R O U P ,

I N C . A N D S U B S I D I A R I E S

4.5

4.6

4.7

4.8

4.9

dated

of
Indenture,
Senior Debt
July 16, 2008, between The Goldman Sachs
Group,
Inc. and The Bank of New York
Mellon, as trustee (incorporated by reference to
Exhibit 4.82 to the Registrant’s Post-Effective
Amendment No. 11 to Form S-3 (No. 333-
130074), filed on July 17, 2008).

Fourth Supplemental
Indenture, dated as of
December 31, 2016, between The Goldman
Sachs Group, Inc. and The Bank of New York
Mellon, as trustee, with respect to the Senior
Debt
Indenture, dated as of July 16, 2008
(incorporated by reference to Exhibit 4.1 to the
Registrant’s Current Report on Form 8-K, filed
on January 6, 2017).

dated

Senior Debt
of
Indenture,
October 10, 2008, among GS Finance Corp., as
Inc., as
issuer, The Goldman Sachs Group,
guarantor, and The Bank of New York Mellon,
as
to
Exhibit 4.70 to the Registrant’s Registration
Statement on Form S-3 (No. 333-154173), filed
on October 10, 2008).

(incorporated

reference

trustee

First Supplemental
Indenture, dated as of
February 20, 2015, among GS Finance Corp.,
as issuer, The Goldman Sachs Group, Inc., as
guarantor, and The Bank of New York Mellon,
as trustee, with respect
to the Senior Debt
Indenture, dated as of October 10, 2008
(incorporated by reference to Exhibit 4.7 to the
Registrant’s Annual Report on Form 10-K for
the fiscal year ended December 31, 2014).

Fourth Supplemental
Indenture, dated as of
August 21, 2018, among GS Finance Corp., as
issuer, The Goldman Sachs Group,
Inc., as
guarantor, and The Bank of New York Mellon
(incorporated by reference to Exhibit 4.1 to the
Registrant’s Quarterly Report on Form 10-Q
for the period ended September 30, 2018).

4.10 Ninth

Supplemental

Subordinated Debt
Indenture, dated as of May 20, 2015, between
The Goldman Sachs Group, Inc. and The Bank
of New York Mellon, as trustee, with respect to
the Subordinated Debt Indenture, dated as of
February 20, 2004 (incorporated by reference
to Exhibit 4.1 to the Registrant’s Current
Report on Form 8-K, filed on May 22, 2015).

4.11 Tenth

Supplemental

Subordinated Debt
Indenture, dated as of July 7, 2017, between
The Goldman Sachs Group, Inc. and The Bank
of New York Mellon, as trustee, with respect to
the Subordinated Debt Indenture, dated as of
February 20, 2004 (incorporated by reference
to Exhibit 4.89 to the Registrant’s Registration
Statement on Form S-3 (No. 333-219206), filed
on July 10, 2017).

198 Goldman Sachs 2018 Form 10-K

long-term debt securities of

Certain instruments defining the rights of
holders of
the
subsidiaries are omitted
Registrant and its
of
pursuant
601(b)(4)(iii)
hereby
Regulation
undertakes to furnish to the SEC, upon request,
copies of any such instruments.

The Registrant

to
S-K.

Item

The Goldman Sachs Amended and Restated
Stock Incentive Plan (2018). †

Partner

The Goldman Sachs Amended and Restated
Restricted
Plan
(incorporated by reference to Exhibit 10.1 to
Registrant’s Quarterly
on
the
Form
ended
for
10-Q
February 24, 2006). †

Compensation

Report

period

the

Agreement

Employment

Form of
for
Participating Managing Directors (applicable to
executive officers) (incorporated by reference to
Exhibit 10.19 to the Registrant’s Registration
Statement on Form S-1 (No. 333-75213)). †

Agreement
and

to
Form
Noncompetition
Covenants
(incorporated by reference to Exhibit 10.20 to
the Registrant’s Registration Statement on
Form S-1 (No. 333-75213)). †

Relating

Other

Tax Indemnification Agreement, dated as of
May 7, 1999, by and among The Goldman
Sachs Group,
parties
(incorporated by reference to Exhibit 10.25 to
the Registrant’s Registration Statement on
Form S-1 (No. 333-75213)).

various

and

Inc.

and

Restated

Shareholders’
Amended
Agreement, effective as of January 15, 2015,
among The Goldman Sachs Group, Inc. and
various parties (incorporated by reference to
Exhibit 10.6 to the Registrant’s Annual Report
the fiscal year ended
on Form 10-K for
December 31, 2014).

Instrument of Indemnification (incorporated by
reference to Exhibit 10.27 to the Registrant’s
Registration
S-1
(No. 333-75213)).

Statement

Form

Form
Agreement
Indemnification
(incorporated by reference to Exhibit 10.28 to
the Registrant’s Annual Report on Form 10-K
for the fiscal year ended November 26, 1999).

Form
Agreement
Indemnification
(incorporated by reference to Exhibit 10.44
to the Registrant’s Annual Report on Form 10-K
for the fiscal year ended November 26, 1999).

10.1

10.2

10.3

10.4

10.5

10.6

10.7

10.8

10.9

T H E G O L D M A N S A C H S G R O U P ,

I N C . A N D S U B S I D I A R I E S

10.10 Form of Indemnification Agreement, dated as of
July 5, 2000 (incorporated by reference to
Exhibit 10.1 to the Registrant’s Quarterly
Report on Form 10-Q for the period ended
August 25, 2000).

10.11 Amendment

No.

dated

of
1,
September 5, 2000, to the Tax Indemnification
Agreement,
1999
as
(incorporated by reference to Exhibit 10.3
to the Registrant’s Quarterly Report on
Form
ended
August 25, 2000).

of May

period

10-Q

the

for

10.12 Letter, dated February 6, 2001,

from The
Goldman Sachs Group, Inc. to Mr. James A.
Johnson
to
Exhibit 10.65 to the Registrant’s Annual Report
on Form 10-K for
the fiscal year ended
November 24, 2000). †

(incorporated

reference

10.13 Letter, dated December 18, 2002, from The
Goldman Sachs Group, Inc. to Mr. William W.
George
to
Exhibit 10.39 to the Registrant’s Annual Report
on Form 10-K for
the fiscal year ended
November 29, 2002). †

(incorporated

reference

10.14 Letter, dated December 19, 2018, from The
Goldman Sachs Group, Inc. to Mr. Lloyd C.
Blankfein
to
Exhibit 10.1 to the Registrant’s Current Report
on Form 8-K, filed on December 21, 2018). †

(incorporated

reference

dated May

10.15 Form of Amendment, dated November 27, 2004,
to Agreement Relating to Noncompetition and
Other Covenants,
1999
(incorporated by reference to Exhibit 10.32 to
the Registrant’s Annual Report on Form 10-K for
the fiscal year ended November 26, 2004). †
10.16 The Goldman Sachs Group, Inc. Non-Qualified
Deferred
U.S.
Compensation
Participating Managing Directors (terminated
as of December 15, 2008) (incorporated by
reference to Exhibit 10.36 to the Registrant’s
Annual Report on Form 10-K for the fiscal year
ended November 30, 2007). †

Plan

for

10.17 Form of Year-End Option Award Agreement
(incorporated by reference to Exhibit 10.36 to
the Registrant’s Annual Report on Form 10-K
for the fiscal year ended November 28, 2008). †
10.18 Form of Non-Employee Director Option Award
Agreement
to
(incorporated
Exhibit 10.34 to the Registrant’s Annual Report
on Form 10-K for
the fiscal year ended
December 31, 2009). †

reference

10.19 Form of Non-Employee Director RSU Award
Agreement
by
(pre-2015)
reference to Exhibit 10.21 to the Registrant’s
Annual Report on Form 10-K for the fiscal year
ended December 31, 2014). †

(incorporated

10.20 Ground Lease, dated August 23, 2005, between
Battery Park City Authority d/b/a/ Hugh L.
Carey Battery Park City Authority, as Landlord,
and Goldman Sachs Headquarters LLC, as
to
Tenant
Exhibit 10.1 to the Registrant’s Current Report
on Form 8-K, filed on August 26, 2005).

(incorporated

reference

10.21 General

Guarantee

Agreement,

dated
January 30, 2006, made by The Goldman Sachs
Group, Inc. relating to certain obligations of
Goldman Sachs & Co. LLC (incorporated by
reference to Exhibit 10.45 to the Registrant’s
Annual Report on Form 10-K for the fiscal year
ended November 25, 2005).

10.22 Goldman Sachs & Co. LLC Executive Life
Insurance
Policy
and
Certificate with
Insurance Company for
Metropolitan Life
Participating Managing Directors (incorporated
by reference to Exhibit 10.1 to the Registrant’s
Quarterly Report on Form 10-Q for the period
ended August 25, 2006). †

10.23 Form of Goldman Sachs & Co. LLC Executive
Life Insurance Policy with Pacific Life &
Annuity Company for Participating Managing
including policy specifications and
Directors,
form of restriction on Policy Owner’s Rights
(incorporated by reference to Exhibit 10.2 to
on
the
ended
Form
August 25, 2006). †

Registrant’s Quarterly
for

Report

period

10-Q

the

10.24 Form

Second

Amendment,

dated
November 25, 2006, to Agreement Relating to
Noncompetition and Other Covenants, dated
May
effective
as
November 27, 2004 (incorporated by reference
to Exhibit 10.51 to the Registrant’s Annual
Report on Form 10-K for the fiscal year ended
November 24, 2006). †

amended

1999,

10.25 Description of PMD Retiree Medical Program. †

10.26 Letter, dated June 28, 2008, from The Goldman
Sachs Group, Inc. to Mr. Lakshmi N. Mittal
(incorporated by reference to Exhibit 99.1 to
the Registrant’s Current Report on Form 8-K,
filed on June 30, 2008). †

10.27 General

Guarantee

Agreement,

dated
December 1, 2008, made by The Goldman
Sachs Group, Inc. relating to certain obligations
of Goldman Sachs Bank USA (incorporated by
reference to Exhibit 4.80 to the Registrant’s
Post-Effective Amendment No. 2 to Form S-3,
filed on March 19, 2009).

Goldman Sachs 2018 Form 10-K 199

T H E G O L D M A N S A C H S G R O U P ,

I N C . A N D S U B S I D I A R I E S

10.28 Form of One-Time RSU Award Agreement (pre-
2015)
to
Exhibit 10.32 to the Registrant’s Annual Report
on Form 10-K for
the fiscal year ended
December 31, 2014). †

(incorporated

reference

10.38 Form of Performance-Based Restricted Stock
Unit
(pre-2015)
(incorporated by reference to Exhibit 10.2 to
the Registrant’s Current Report on Form 8-K,
filed on December 23, 2010). †

Agreement

Award

10.29 Amendments

to
Equity

Certain Non-Employee
Director
Agreements
(incorporated by reference to Exhibit 10.69 to
the Registrant’s Annual Report on Form 10-K
for the fiscal year ended November 28, 2008). †

Award

vested)

10.30 Form of Year-End RSU Award Agreement (not
(incorporated by
fully
reference to Exhibit 10.36 to the Registrant’s
Annual Report on Form 10-K for the fiscal year
ended December 31, 2014). †

(pre-2015)

10.31 Form of Year-End RSU Award Agreement (fully
vested) (pre-2015) (incorporated by reference to
Exhibit 10.37 to the Registrant’s Annual Report
on Form 10-K for
the fiscal year ended
December 31, 2014). †

10.32 Form of Year-End RSU Award Agreement (Base
and/or Supplemental) (pre-2015) (incorporated
by reference to Exhibit 10.38 to the Registrant’s
Annual Report on Form 10-K for the fiscal year
ended December 31, 2014). †

10.33 Form of Year-End Restricted Stock Award
Agreement
(pre-2015)
(incorporated by reference to Exhibit 10.41 to
the Registrant’s Annual Report on Form 10-K
for the fiscal year ended December 31, 2013). †

vested)

(fully

10.34 Form of Year-End Restricted Stock Award
(pre-
Agreement
2015)
to
Exhibit 10.41 to the Registrant’s Annual Report
on Form 10-K for
the fiscal year ended
December 31, 2014). †

(Base and/or Supplemental)
reference

(incorporated

Fixed Allowance RSU Award
10.35 Form of
Agreement
by
reference to Exhibit 10.43 to the Registrant’s
Annual Report on Form 10-K for the fiscal year
ended December 31, 2014). †

(incorporated

(pre-2015)

10.36 Form of Deed of Gift (incorporated by reference
to Exhibit 10.1 to the Registrant’s Quarterly
Report on Form 10-Q for the period ended
June 30, 2010). †

10.37 The Goldman Sachs Long-Term Performance
Incentive Plan, dated December 17, 2010
(incorporated by reference to Exhibit 10.1 to
the Registrant’s Current Report on Form 8-K,
filed on December 23, 2010). †

200 Goldman Sachs 2018 Form 10-K

10.39 Form of Performance-Based Option Award
Agreement
to
(incorporated
Exhibit 10.3 to the Registrant’s Current Report
on Form 8-K, filed on December 23, 2010). †

reference

10.40 Form

Performance-Based

Cash
Compensation Award Agreement
(pre-2015)
(incorporated by reference to Exhibit 10.4 to
the Registrant’s Current Report on Form 8-K,
filed on December 23, 2010). †

10.41 Amended and Restated General Guarantee
Agreement, dated November 21, 2011, made by
The Goldman Sachs Group, Inc. relating to
certain obligations of Goldman Sachs Bank
USA (incorporated by reference to Exhibit 4.1
to
on
the Registrant’s Current Report
Form 8-K, filed on November 21, 2011).

10.42 Form of Aircraft Time Sharing Agreement
(incorporated by reference to Exhibit 10.61 to
the Registrant’s Annual Report on Form 10-K
for the fiscal year ended December 31, 2011). †

10.43 Description of Compensation Arrangements
with Executive Officer
by
reference to Exhibit 10.1 to the Registrant’s
Quarterly Report on Form 10-Q for the period
ended June 30, 2012). †

(incorporated

10.44 The Goldman Sachs Group,

effective

Inc. Clawback
January 1, 2015
Policy,
(incorporated by reference to Exhibit 10.53 to
the Registrant’s Annual Report on Form 10-K
for the fiscal year ended December 31, 2014).

as of

10.45 Form of Non-Employee Director RSU Award

Agreement. †

10.46 Form of One-Time RSU Award Agreement. †

10.47 Form of Year-End RSU Award Agreement (not

fully vested). †

10.48 Form of Year-End RSU Award Agreement (fully

vested). †

10.49 Form of Year-End RSU Award Agreement (Base
(not fully vested) and/or Supplemental). †

10.50 Form of Year-End Short-Term RSU Award

Agreement. †

10.51 Form of Year-End Restricted Stock Award
Agreement (not fully vested) (incorporated by
reference to Exhibit 10.52 to the Registrant’s
Annual Report on Form 10-K for the fiscal year
ended December 31, 2017). †

T H E G O L D M A N S A C H S G R O U P ,

I N C . A N D S U B S I D I A R I E S

10.52 Form of Year-End Restricted Stock Award
Agreement
(incorporated by
vested)
reference to Exhibit 10.53 to the Registrant’s
Annual Report on Form 10-K for the fiscal year
ended December 31, 2017). †

(fully

10.53 Form of Year-End Short-Term Restricted Stock
Award Agreement (incorporated by reference to
Exhibit 10.57 to the Registrant’s Annual Report
the fiscal year ended
on Form 10-K for
December 31, 2015). †

Limited

Street
Street

Partners
(Nominee) Limited,

10.62 Lease, dated August 17, 2018, between
and
Farringdon
Farringdon
as
Landlord, and Goldman Sachs International, as
to
Tenant
Exhibit 10.3 to the Registrant’s Quarterly
Report on Form 10-Q for the period ended
September 30, 2018).

(incorporated

reference

21.1

List of significant subsidiaries of The Goldman
Sachs Group, Inc.

10.54 Form of

Fixed Allowance RSU Award

23.1

Agreement. †

10.55 Form of Fixed Allowance Restricted Stock

Award Agreement. †

10.56 Form of Fixed Allowance Deferred Cash Award
to
Agreement
(incorporated
Exhibit 10.59 to the Registrant’s Annual Report
on Form 10-K for
the fiscal year ended
December 31, 2015). †

reference

10.57 Form of Performance-Based Restricted Stock

Unit Award Agreement. †

10.58 Form of Performance-Based Cash Compensation
Award Agreement (incorporated by reference to
Exhibit 10.61 to the Registrant’s Annual Report
on Form 10-K for
ended
December 31, 2015). †

fiscal year

the

10.59 Form of Signature Card for Equity Awards. †

10.60 Amended and Restated General Guarantee
Agreement, dated September 28, 2018, made by
The Goldman Sachs Group, Inc. relating to
certain obligations of Goldman Sachs Bank
USA (incorporated by reference to Exhibit 4.1
to
on
the Registrant’s Current Report
Form 8-K, filed on September 28, 2018).

10.61 Amended and Restated General Guarantee
Agreement, dated September 28, 2018, made by
The Goldman Sachs Group, Inc. relating to
certain obligations of Goldman Sachs & Co.
LLC (incorporated by reference to Exhibit 99.1
to
on
the Registrant’s Current Report
Form 8-K, filed on September 28, 2018).

Consent of
Accounting Firm.

Independent Registered Public

Rule 13a-14(a) Certifications.

Section 1350 Certifications (This information is
furnished and not
filed for purposes of
Sections 11 and 12 of the Securities Act of 1933
and Section 18 of the Securities Exchange Act
of 1934).

Report
Accounting Firm on Selected Financial Data.

Independent Registered

Public

31.1

32.1

99.1

99.2 Debt and trust

securities

registered under

Section 12(b) of the Exchange Act.

101

(ii)

for

the

31,

years

ended

Earnings

Interactive data files pursuant to Rule 405 of
Regulation S-T: (i) the Consolidated Statements
of
ended
December 31, 2018, December 31, 2017 and
the Consolidated
December 31, 2016,
Statements of Comprehensive Income for the
years
2018,
December
December 31, 2017 and December 31, 2016,
(iii) the Consolidated Statements of Financial
Condition as of December 31, 2018 and
December 31, 2017,
the Consolidated
Statements of Changes in Shareholders’ Equity
the years ended December 31, 2018,
for
December 31, 2017 and December 31, 2016,
(v) the Consolidated Statements of Cash Flows
for
the years ended December 31, 2018,
December 31, 2017 and December 31, 2016,
and (vi) the notes to the Consolidated Financial
Statements.

(iv)

† This exhibit is a management contract or a compensatory plan or

arrangement.

Goldman Sachs 2018 Form 10-K 201

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

THE GOLDMAN SACHS GROUP, INC.

By:
Name:
Title:
Date:

/s/

Stephen M. Scherr
Stephen M. Scherr
Chief Financial Officer
February 25, 2019

Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following
persons on behalf of the Registrant and in the capacities and
on the dates indicated.

By:
Name:
Capacity:

Date:

By:
Name:
Capacity:
Date:

/s/ David M. Solomon
David M. Solomon
Director, Chairman and Chief Executive
Officer (Principal Executive Officer)
February 25, 2019

/s/ M. Michele Burns
M. Michele Burns
Director
February 25, 2019

/s/ Drew G. Faust
Drew G. Faust
Director
February 25, 2019

/s/ Mark A. Flaherty
Mark A. Flaherty
Director
February 25, 2019

/s/ William W. George
William W. George
Director
February 25, 2019

/s/

James A. Johnson
James A. Johnson
Director
February 25, 2019

202 Goldman Sachs 2018 Form 10-K

By:
Name:
Capacity:
Date:

By:
Name:
Capacity:

Date:

By:
Name:
Capacity:
Date:

/s/

Ellen J. Kullman
Ellen J. Kullman
Director
February 25, 2019

Lakshmi N. Mittal
Lakshmi N. Mittal
Director
February 25, 2019

/s/ Adebayo O. Ogunlesi
Adebayo O. Ogunlesi
Director
February 25, 2019

/s/

Peter Oppenheimer
Peter Oppenheimer
Director
February 25, 2019

Jan E. Tighe
Jan E. Tighe
Director
February 25, 2019

/s/ David A. Viniar
David A. Viniar
Director
February 25, 2019

/s/ Mark O. Winkelman
Mark O. Winkelman
Director
February 25, 2019

/s/

Stephen M. Scherr
Stephen M. Scherr
Chief Financial Officer
(Principal Financial Officer)
February 25, 2019

Brian J. Lee
Brian J. Lee
Principal Accounting Officer
February 25, 2019

Shareholder Information

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.

2018 Annual Report on Form 10-K

Copies of the firm’s 2018 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@gs.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
(by regular mail or phone) to:

Computershare
P.O. Box 505000
Louisville, KY 40233-5000
U.S. and Canada: 1-800-419-2595
International: 1-201-680-6541
www.computershare.com

Independent Registered Public Accounting Firm

PricewaterhouseCoopers LLP
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.

4350-18-102

goldmansachs.com