THE GOLDMAN SACHS GROUP, INC. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Introduction The Goldman Sachs Group, Inc. (Group Inc. or parent company), aDelaware corporation, together with its consolidated subsidiaries, is a leading global financial institution that delivers a broad range of financial services across investment banking, securities, investment management and consumer banking to a large and diversified client base that includes corporations, financial institutions, governments and individuals. Founded in 1869, we are headquartered inNew York and maintain offices in all major financial centers around the world. We report our activities in four business segments: Investment Banking, Global Markets, Asset Management, and Consumer & Wealth Management. See "Results of Operations" for further information about our business segments. When we use the terms "we," "us" and "our," we meanGroup Inc. and its consolidated subsidiaries. When we use the term "our subsidiaries," we mean the consolidated subsidiaries ofGroup Inc. Group Inc. is a bank holding company (BHC) and a financial holding company regulated by theBoard of Governors of theFederal Reserve System (FRB). This Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our Annual Report on Form 10-K for the year endedDecember 31, 2020 . References to "the 2020 Form 10-K" are to our Annual Report on Form 10-K for the year endedDecember 31, 2020 . References to "this Form 10-Q" are to our Quarterly Report on Form 10-Q for the quarterly period endedSeptember 30, 2021 . All references to "the consolidated financial statements" or "Statistical Disclosures" are to Part I, Item 1 of this Form 10-Q. The consolidated financial statements are unaudited. All references toSeptember 2021 ,June 2021 andSeptember 2020 refer to our periods ended, or the dates, as the context requires,September 30, 2021 ,June 30, 2021 andSeptember 30, 2020 , respectively. All references toDecember 2020 refer to the dateDecember 31, 2020 . Any reference to a future year refers to a year ending onDecember 31 of that year. Certain reclassifications have been made to previously reported amounts to conform to the current presentation. Executive Overview Three Months EndedSeptember 2021 versusSeptember 2020 . We generated net earnings of$5.38 billion for the third quarter of 2021, an increase of 60% compared with$3.37 billion for the third quarter of 2020. Diluted earnings per common share (EPS) was$14.93 for the third quarter of 2021, an increase of 66% compared with$8.98 for the third quarter of 2020. Annualized return on average common shareholders' equity (ROE) was 22.5% for the third quarter of 2021, compared with 16.2% for the third quarter of 2020. Book value per common share was$277.25 as ofSeptember 2021 , 4.7% higher compared withJune 2021 and 17.4% higher compared withDecember 2020 . Net revenues were$13.61 billion for the third quarter of 2021, 26% higher than the third quarter of 2020, due to significantly higher net revenues in Investment Banking, primarily reflecting strong Financial advisory and Underwriting net revenues, in Global Markets, reflecting significantly higher net revenues in Equities, and in Consumer & Wealth Management, reflecting growth in both Wealth management and Consumer banking net revenues. These increases were partially offset by lower net revenues in Asset Management, primarily driven by significantly lower net revenues in Equity investments. Provision for credit losses was$175 million for the third quarter of 2021, compared with$278 million for the third quarter of 2020. The third quarter of 2021 primarily reflected provisions related to portfolio growth (primarily in credit cards), while the third quarter of 2020 reflected reserve increases from individual impairments related to wholesale loans and growth in credit card loans, partially offset by reserve reductions from paydowns on corporate lines of credit and consumer installment loans. Operating expenses were$6.59 billion for the third quarter of 2021, 6% higher than the third quarter of 2020, due to higher technology expenses, professional fees, transaction based expenses and market development expenses, partially offset by significantly lower net provisions for litigation and regulatory proceedings. Our efficiency ratio (total operating expenses divided by total net revenues) for the third quarter of 2021 was 48.4%, compared with 57.5% for the third quarter of 2020.
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Table of Contents THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Management's Discussion and Analysis During the third quarter of 2021, we returned$1.70 billion of capital to common shareholders, including$1.00 billion of common stock repurchases and$700 million of common stock dividends. As ofSeptember 2021 , our Common Equity Tier 1 (CET1) capital ratio was 14.1% under the Standardized Capital Rules and 13.9% under the Advanced Capital Rules. See Note 20 to the consolidated financial statements for further information about our capital ratios. We announced two strategic acquisitions during the quarter, the pending acquisition ofNN Investment Partners in our Asset Management business and the pending acquisition of GreenSky, Inc. (GreenSky) in our Consumer banking business. These acquisitions accelerate our strategy to drive higher, more durable returns, and both acquisitions are expected to close by the end of the first quarter of 2022. Nine Months EndedSeptember 2021 versusSeptember 2020 . We generated net earnings of$17.70 billion for the first nine months of 2021, significantly higher compared with$4.95 billion for the first nine months of 2020. Diluted EPS was$48.59 for the first nine months of 2021, significantly higher compared with$12.65 for the first nine months of 2020. Annualized ROE was 25.7% for the first nine months of 2021, compared with 7.6% for the first nine months of 2020. In the first nine months of 2020, net provisions for litigation and regulatory proceedings reduced diluted EPS by$9.46 and annualized ROE by 5.5 percentage points. Net revenues were$46.70 billion for the first nine months of 2021, 42% higher than the first nine months of 2020, reflecting higher net revenues across all segments. Net revenues were significantly higher in Asset Management, primarily reflecting strong Equity investments and Lending and debt investments net revenues, in Investment Banking, primarily reflecting strong Financial advisory and Underwriting net revenues, and in Consumer & Wealth Management, reflecting growth in both Wealth management and Consumer banking net revenues. Net revenues were higher in Global Markets, reflecting strong net revenues in Equities, partially offset by lower net revenues in Fixed Income, Currency and Commodities (FICC) compared with a strong prior year period. Provision for credit losses was$13 million for the first nine months of 2021, compared with$2.81 billion for the first nine months of 2020. The first nine months of 2021 included provisions related to portfolio growth (primarily in credit cards, including provisions related to the pending acquisition of the General Motors co-branded credit card portfolio), largely offset by reserve reductions on wholesale and consumer loans reflecting continued improvement in the broader economic environment following challenging conditions in the first nine months of 2020 as a result of the coronavirus (COVID-19) pandemic. Operating expenses were$24.67 billion for the first nine months of 2021, 7% higher than the first nine months of 2020, reflecting significantly higher compensation and benefits expenses (reflecting strong performance), partially offset by lower non-compensation expenses. Within non-compensation expenses, net provisions for litigation and regulatory proceedings were significantly lower, partially offset by higher transaction based expenses and higher technology expenses. Our efficiency ratio for the first nine months of 2021 was 52.8%, compared with 70.3% for the first nine months of 2020. In the first nine months of 2020, net provisions for litigation and regulatory proceedings increased our efficiency ratio by 10.3 percentage points. During the first nine months of 2021, we returned$6.29 billion of capital to common shareholders, including$4.70 billion of common stock repurchases and$1.59 billion of common stock dividends. Business Environment In the third quarter of 2021, the global economy continued its recovery amid solid fundamentals in the current operating environment, but there was emerging uncertainty around a number of factors. On the positive side, fiscal and monetary policy remained accommodative and COVID-19 vaccination rates continued to rise around the world. However, inflationary pressures alongside supply chain complications and the lack of progress onU.S. economic policy, including discussions on infrastructure investment, the federal debt ceiling and tax increases, were concerns during the quarter. Within the context of this environment, global equity markets remained stable and near all-time highs, long-term government bond yields were higher and market volatility was generally range-bound. Despite broad improvements in the overall economy since the initial impact of the COVID-19 pandemic, uncertainty remains on the pace of the recovery going forward, reflecting concerns about virus resurgence from the Delta variant and other virus mutations, vaccine distribution and vaccination rates, inflation, supply chain complications, and geopolitical risks. See "Results of Operations - Segment Assets and Operating Results - Segment Operating Results" for further information about the operating environment for each of our business segments.
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Table of Contents THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Management's Discussion and Analysis Critical Accounting Policies Fair Value Fair Value Hierarchy. Trading assets and liabilities, certain investments and loans, and certain other financial assets and liabilities, are included in our consolidated balance sheets 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 liabilities as a portfolio (i.e., based on its net exposure to market and/or credit risks). In determining fair value, the hierarchy underU.S. generally accepted accounting principles (U.S. GAAP) gives (i) the highest priority to unadjusted quoted prices in active markets for identical, unrestricted assets or liabilities (level 1 inputs), (ii) the next priority to inputs other than level 1 inputs that are observable, either directly or indirectly (level 2 inputs), and (iii) the lowest priority to inputs that cannot be observed in market activity (level 3 inputs). In evaluating the significance of a valuation input, we consider, among other factors, a portfolio's net risk exposure to that input. Assets and liabilities are classified in their entirety based on the lowest level of input that is significant to their fair value measurement. The fair values for substantially all of our financial assets and liabilities are based on observable prices and inputs and are classified in levels 1 and 2 of the fair value hierarchy. Certain level 2 and level 3 financial assets and liabilities may require appropriate valuation adjustments that a market participant would require to arrive at fair value for factors, such as counterparty and our credit quality, funding risk, transfer restrictions, liquidity and bid/offer spreads. Instruments classified in level 3 of the fair value hierarchy are those which require one or more significant inputs that are not observable. Level 3 financial assets represented 1.6% as ofSeptember 2021 , 1.8% as ofJune 2021 and 2.3% as ofDecember 2020 , of our total assets. See Notes 4 through 10 to the consolidated financial statements for further information about level 3 financial assets, including changes in level 3 financial assets and related fair value measurements. Absent evidence to the contrary, instruments classified in level 3 of the fair value hierarchy are initially valued at transaction price, which is considered to be the best initial estimate of fair value. Subsequent to the transaction date, we use other methodologies to determine fair value, which vary based on the type of instrument. Estimating the fair value of level 3 financial instruments requires judgments to be made. These judgments include: • Determining the appropriate valuation methodology and/or model for each type
of level 3 financial instrument;
• Determining model inputs based on an evaluation of all relevant empirical
market data, including prices evidenced by market transactions, interest
rates, credit spreads, volatilities and correlations; and
• Determining appropriate valuation adjustments, including those related to
illiquidity or counterparty credit quality.
Regardless of the methodology, valuation inputs and assumptions are only changed when corroborated by substantive evidence. Controls Over Valuation of Financial Instruments. Market makers and investment professionals in our revenue-producing units are responsible for pricing our financial instruments. Our control infrastructure is independent of the revenue-producing units and is fundamental to ensuring that all of our financial 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. 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 significant inputs which cannot be corroborated by external market data are classified in level 3 of the fair value hierarchy. Price verification 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.
• External Price Comparison.
Valuations and prices are compared to pricing data obtained from third parties
(e.g., brokers or dealers, IHS 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.
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Table of Contents THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Management's Discussion and Analysis
• Calibration to Market Comparables.
Market-based transactions are used to corroborate the valuation of positions
with similar characteristics, risks and components.
• 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, market-making desks are instructed to execute trades in
order to provide evidence of market-clearing levels.
• Backtesting.
Valuations are corroborated by comparison to values realized upon sales.
See Note 4 to the consolidated financial statements for further information about fair value measurements. 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), 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 implementation. Models are reviewed 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. Allowance for Credit Losses We estimate and record an allowance for credit losses related to our loans held for investment that are accounted for at amortized cost. To determine the allowance for credit losses, we classify our loans accounted for at amortized cost into wholesale and consumer portfolios. These portfolios represent the level at which we have developed and documented our methodology to determine the allowance for credit losses. The allowance for credit losses is measured on a collective basis for loans that exhibit similar risk characteristics using a modeled approach and asset-specific basis for loans that do not share similar risk characteristics. The allowance for credit losses also includes qualitative components which allow management to reflect the uncertain nature of economic forecasting, capture uncertainty regarding model inputs, and account for model imprecision and concentration risk. The determination of allowance for credit losses entails significant judgment on various risk factors. Risk factors for wholesale loans include internal credit ratings, industry default and loss data, expected life, macroeconomic indicators (e.g., unemployment rates and GDP), the borrower's capacity to meet its financial obligations, the borrower's country of risk and industry, 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 installment and credit card loans include Fair Isaac Corporation (FICO) credit scores, delinquency status, loan vintage and macroeconomic indicators. Our estimate of credit losses entails judgment about collectability at the reporting dates, and there are uncertainties inherent in those judgments. The allowance for credit losses is subject to a governance process that involves review and approval by senior management within our independent risk oversight and control functions. Personnel within our independent risk oversight and control functions are responsible for forecasting the economic variables that underlie the economic scenarios that are used in the modeling of expected credit losses. While we use the best information available to determine this estimate, future adjustments to the allowance may be necessary based on, among other things, changes in the economic environment or variances between actual results and the original assumptions used. Loans are charged off against the allowance for loan losses when deemed to be uncollectible. We also record an allowance for credit losses on lending commitments which are held for investment that are accounted for at amortized cost. Such allowance is determined using the same methodology as the allowance for loan losses, while also taking into consideration the probability of drawdowns or funding, and whether such commitments are cancellable by us. See Note 9 to the consolidated financial statements for further information about the allowance for credit losses.
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Table of Contents THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Management's Discussion and Analysis Use of EstimatesU.S. GAAP requires us to make certain estimates and assumptions. In addition to the estimates we make in connection with fair value measurements and the allowance for credit losses on loans and lending commitments held for investment and accounted for at amortized cost, the use of estimates and assumptions is also important in determining discretionary compensation accruals, the accounting for goodwill and identifiable intangible assets, provisions for losses that may arise from litigation and regulatory proceedings (including governmental investigations), and provisions for losses that may arise from tax audits. A substantial portion of our compensation and benefits represents discretionary compensation, which is finalized at year-end. We believe the most appropriate way to allocate estimated year-end discretionary compensation among interim periods is in proportion to the net revenues earned in such periods. In addition to the level of net revenues, our overall compensation expense in any given year is also influenced by, among other factors, overall financial performance, prevailing labor markets, business mix, the structure of our share-based compensation programs and the external environment.Goodwill is assessed for impairment annually in the fourth quarter or more frequently if events occur or circumstances change that indicate an impairment may exist. When assessing goodwill for impairment, first, a qualitative assessment can be made to determine whether it is more likely than not that the estimated fair value of a reporting unit is less than its estimated carrying value. If the results of the qualitative assessment are not conclusive, a quantitative goodwill test is performed. Alternatively, a quantitative goodwill test can be performed without performing a qualitative assessment. Estimating the fair value of our reporting units requires judgment. Critical inputs to the fair value estimates include projected earnings and allocated equity. There is inherent uncertainty in the projected earnings. The estimated carrying value of each reporting unit reflects an allocation of total shareholders' equity and represents the estimated amount of total shareholders' equity required to support the activities of the reporting unit under currently applicable regulatory capital requirements. See Note 12 to the consolidated financial statements for further information about goodwill. If we experience a prolonged or severe period of weakness in the business environment, financial markets, our performance or our common stock price, or additional increases in capital requirements, our goodwill could be impaired in the future. Identifiable intangible assets are tested for impairment when events or changes in circumstances suggest that an asset's or asset group's carrying value may not be fully recoverable. Judgment is required to evaluate whether indications of potential impairment have occurred, and to test intangible assets for impairment, if required. An impairment is recognized if the estimated undiscounted cash flows relating to the asset or asset group is less than the corresponding carrying value. See Note 12 to the consolidated financial statements for further information about identifiable intangible assets. We also estimate and provide for potential losses that may arise out of litigation and regulatory proceedings to the extent that such losses are probable and can be reasonably estimated. In addition, we estimate the upper end of the range of reasonably possible aggregate loss in excess of the related reserves for litigation and regulatory proceedings where we believe the risk of loss is more than slight. See Notes 18 and 27 to the consolidated financial statements for information about certain judicial, litigation and regulatory proceedings. Significant judgment is required in making these estimates and our final liabilities may ultimately be materially different. Our total estimated liability in respect of litigation and regulatory proceedings is determined on a case-by-case basis and represents an estimate of probable losses after considering, among other factors, the progress of each case, proceeding or investigation, our experience and the experience of others in similar cases, proceedings or investigations, and the opinions and views of legal counsel. In accounting for income taxes, we recognize tax positions in the financial statements only when it is more likely than not that the position will be sustained on examination by the relevant taxing authority based on the technical merits of the position. See Note 24 to the consolidated financial statements for further information about income taxes. Recent Accounting Developments See Note 3 to the consolidated financial statements for information about Recent Accounting Developments. Results of Operations The composition of our net revenues has varied over time as financial markets and the scope of our operations have changed. The composition of net revenues can also vary over the shorter term due to fluctuations inU.S. and global economic and market conditions. See "Risk Factors" in Part I, Item 1A of the 2020 Form 10-K for further information about the impact of economic and market conditions on our results of operations.
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Table of Contents
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management's Discussion and Analysis
Financial Overview
The table below presents an overview of our financial results and selected
financial ratios.
Three Months Nine Months
Ended September Ended September
$ in millions, except per share amounts 2021 2020
2021 2020
Net revenues $13,608 $10,781 $46,700 $32,819
Pre-tax
earnings $ 6,842 $ 4,299 $22,019 $ 6,938
Net earnings $ 5,378 $ 3,367 $17,700 $ 4,953
Net earnings to common $ 5,284 $ 3,233 $17,342 $ 4,553
Diluted EPS $ 14.93 $ 8.98 $ 48.59 $ 12.65
ROE 22.5% 16.2% 25.7% 7.6%
ROTE 23.8% 17.3% 27.2% 8.1%
Net earnings to average assets 1.5% 1.2% 1.8% 0.6%
Return on average shareholders' equity 20.8% 14.8% 23.7% 7.3%
Average equity to average assets 7.4% 8.0% 7.4% 8.2%
Dividend payout ratio 13.4% 13.9% 9.3% 29.6%
In the table above:
• Net earnings to common represents net earnings applicable to common
shareholders, which is calculated as net earnings less preferred stock
dividends.
• ROE, return on average tangible common shareholders' equity (ROTE), net
earnings to average assets and return on average shareholders' equity are
annualized amounts.
• Average equity to average assets is calculated by dividing average total
shareholders' equity by average total assets.
• Dividend payout ratio is calculated by dividing dividends declared per common
share by diluted EPS.
• Annualized ROE is calculated by dividing annualized net earnings to common by
average monthly common shareholders' equity. Tangible common shareholders'
equity is calculated as total shareholders' equity less preferred stock,
goodwill and identifiable intangible assets. Annualized ROTE is calculated by
dividing annualized net earnings to common by average monthly tangible common
shareholders' equity. We believe that tangible common shareholders' equity is
meaningful because it is a measure that we and investors use to assess capital
adequacy and that ROTE is meaningful because it measures the performance of
businesses consistently, whether they were acquired or developed internally.
Tangible common shareholders' equity and ROTE are
non-GAAP
measures and may not be comparable to similar
non-GAAPmeasures used by other companies. Annualized return on average shareholders'
equity is calculated by dividing annualized net earnings by average monthly
shareholders' equity.
The table below presents our average equity and the reconciliation of average
common shareholders' equity to average tangible common shareholders' equity.
Average for the
Three Months Nine Months
Ended September Ended September
$ in millions 2021 2020 2021 2020
Total shareholders' equity $103,599 $90,942 $99,665 $91,043
Preferred stock (9,766 ) (11,203 ) (9,628 ) (11,203 )
Common shareholders' equity 93,833 79,739 90,037 79,840
Goodwill (4,331 ) (4,230 ) (4,332 ) (4,210 )
Identifiable intangible assets (510 ) (605 ) (558 ) (615 )
Tangible common shareholders' equity $ 88,992 $74,904
Net Revenues
The table below presents our net revenues by line item.
Three Months Nine Months
Ended September Ended September
$ in millions 2021 2020 2021 2020
Investment banking $ 3,548 $ 1,934 $10,564 $ 6,409
Investment management 2,139 1,689 5,840 5,092
Commissions and fees 860 804 2,766 2,699
Market making 3,929 3,327 13,096 12,796
Other principal transactions 1,568 1,943 9,759 2,482
Total non-interest revenues 12,044 9,697 42,025 29,478
Interest income 3,117 2,932 9,110 10,716
Interest expense 1,553 1,848 4,435 7,375
Net interest income 1,564 1,084 4,675 3,341
Total net revenues $13,608 $10,781 $46,700 $32,819
In the table above:
• Investment banking consists of revenues (excluding net interest) from
financial advisory and underwriting assignments. These activities are included
in our Investment Banking segment.
• Investment management consists of revenues (excluding net interest) from
providing asset management services across all major asset classes to a
diverse set of asset management clients (included in our Asset Management
segment), as well as asset management services, wealth advisory services and
certain transaction services for wealth management clients (included in our
Consumer & Wealth Management segment).
• Commissions and fees consists of revenues from executing and clearing client
transactions on major stock, options and futures exchanges worldwide, as well
as
over-the-counter
(OTC) transactions. These activities are included in our Global Markets and
Consumer & Wealth Management segments.
• Market making consists of revenues (excluding net interest) from client
execution activities related to making markets in interest rate products,
credit products, mortgages, currencies, commodities and equity products. These
activities are included in our Global Markets segment.
• Other principal transactions consists of revenues (excluding net interest)
from our equity investing activities, including revenues related to our
consolidated investments (included in our Asset Management segment), and
lending activities (included across our four segments).
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Table of Contents THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Management's Discussion and Analysis Operating Environment. During the third quarter of 2021, continued economic recovery and continued monetary and fiscal support from central banks and governments globally, along with solid fundamentals in the current operating environment, provided a stable backdrop for our business activities. These factors contributed to stable equity markets, strong investment banking activity levels, and solid market-making activity levels. If optimism about the economic outlook declines or the ongoing efforts to mitigate the impact of the COVID-19 pandemic are ineffective (including due to new variants or complications with vaccine distribution), it may lead to a decline in global equity markets, a decline in investment banking activity levels, and a decline in market-making activity levels, and net revenues and the provision for credit losses would likely be negatively impacted. See "Segment Assets and Operating Results - Segment Operating Results" for information about the operating environment and material trends and uncertainties that may impact our results of operations. Three Months EndedSeptember 2021 versusSeptember 2020 . Net revenues in the consolidated statements of earnings were$13.61 billion for the third quarter of 2021, 26% higher than the third quarter of 2020, primarily reflecting significantly higher investment banking revenues, net interest income and investment management revenues, and higher market making revenues, partially offset by lower other principal transactions revenues. Non-Interest Revenues. Investment banking revenues in the consolidated statements of earnings were$3.55 billion for the third quarter of 2021, 83% higher than the third quarter of 2020, due to significantly higher revenues in financial advisory, reflecting an increase in completed mergers and acquisitions volumes, in equity underwriting, primarily driven by private placements, convertible offerings and initial public offerings, and in debt underwriting, reflecting an increase in leveraged finance activity. Investment management revenues in the consolidated statements of earnings were$2.14 billion for the third quarter of 2021, 27% higher than the third quarter of 2020, primarily due to significantly higher incentive fees, driven by harvesting, and higher management and other fees, reflecting the impact of higher average assets under supervision (AUS), partially offset by higher fee waivers on money market funds. Commissions and fees in the consolidated statements of earnings were$860 million for the third quarter of 2021, 7% higher than the third quarter of 2020, primarily reflecting an increase in our listed cash equity volumes inAsia , generally consistent with market volumes in the region. Market making revenues in the consolidated statements of earnings were$3.93 billion for the third quarter of 2021, 18% higher than the third quarter of 2020, primarily due to significantly higher net revenues in equity products and commodities, partially offset by significantly lower net revenues in interest rate products and credit products. Other principal transactions revenues in the consolidated statements of earnings were$1.57 billion for the third quarter of 2021, 19% lower than the third quarter of 2020, primarily reflecting significant net losses from investments in public equities during the quarter compared with net gains in the third quarter of 2020, partially offset by significantly higher net gains from investments in private equities. Net Interest Income. Net interest income in the consolidated statements of earnings was$1.56 billion for the third quarter of 2021, 44% higher than the third quarter of 2020, reflecting a decrease in interest expense and an increase in interest income. The decrease in interest expense primarily related to deposits and long-term borrowings, both reflecting the impact of lower interest rates. The increase in interest income primarily related to loans and other interest-earning assets, both reflecting the impact of higher average balances partially offset by the impact of lower interest rates on collateralized agreements. See "Statistical Disclosures - Distribution of Assets, Liabilities and Shareholders' Equity" for further information about our sources of net interest income. Nine Months EndedSeptember 2021 versusSeptember 2020 . Net revenues in the consolidated statements of earnings were$46.70 billion for the first nine months of 2021, 42% higher than the first nine months of 2020, primarily reflecting significantly higher other principal transactions net revenues, investment banking net revenues and net interest income, and higher investment management net revenues. Non-Interest Revenues. Investment banking revenues in the consolidated statements of earnings were$10.56 billion for the first nine months of 2021, 65% higher than the first nine months of 2020, primarily due to significantly higher revenues in financial advisory, reflecting a significant increase in completed mergers and acquisitions transactions, and in equity underwriting, primarily driven by strong industry-wide initial public offering activity, as well as higher revenues in debt underwriting, reflecting elevated industry-wide leveraged finance volumes. Investment management revenues in the consolidated statements of earnings were$5.84 billion for the first nine months of 2021, 15% higher than the first nine months of 2020, primarily due to higher management and other fees, reflecting the impact of higher average assets under supervision, partially offset by higher fee waivers on money market funds.
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Table of Contents THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Management's Discussion and Analysis Commissions and fees in the consolidated statements of earnings were$2.77 billion for the first nine months of 2021, slightly higher than the first nine months of 2020. Market making revenues in the consolidated statements of earnings were$13.10 billion for the first nine months of 2021, slightly higher than the first nine months of 2020, as significantly higher net revenues in equity products (primarily in derivatives), mortgages and commodities were largely offset by significantly lower net revenues in interest rate products and credit products. Other principal transactions revenues in the consolidated statements of earnings were$9.76 billion for the first nine months of 2021, compared with$2.48 billion for the first nine months of 2020, primarily reflecting significantly higher net gains from investments in private equities and in debt instruments, partially offset by significantly lower net gains from investments in public equities. Net Interest Income. Net interest income in the consolidated statements of earnings was$4.68 billion for the first nine months of 2021, 40% higher than the first nine months of 2020, reflecting a decrease in interest expense related to deposits, other interest-bearing liabilities, long-term borrowings and collateralized financings, each reflecting the impact of lower interest rates, partially offset by the impact of higher average balances in trading liabilities. The decrease in interest expense was partially offset by a decrease in interest income primarily related to collateralized agreements, trading assets and deposits with banks, each reflecting the impact of lower interest rates, partially offset by the impact of higher average balances for loans. 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 and lending commitments held for investment and accounted for at amortized cost. See Note 9 to the consolidated financial statements for further information about the provision for credit losses. The table below presents our provision for credit losses. Three Months Nine Months Ended September Ended September $ in millions 2021 2020 2021 2020 Provision for credit losses$175 $278 $13 $2,805 Three Months EndedSeptember 2021 versusSeptember 2020 . Provision for credit losses in the consolidated statements of earnings was$175 million for the third quarter of 2021, compared with$278 million for the third quarter of 2020. The third quarter of 2021 primarily reflected provisions related to portfolio growth (primarily in credit cards), while the third quarter of 2020 reflected reserve increases from individual impairments related to wholesale loans and growth in credit card loans, partially offset by reserve reductions from paydowns on corporate lines of credit and consumer installment loans. Nine Months EndedSeptember 2021 versusSeptember 2020 . Provision for credit losses in the consolidated statements of earnings was$13 million for the first nine months of 2021, compared with$2.81 billion for the first nine months of 2020. The first nine months of 2021 included provisions related to portfolio growth (primarily in credit cards, including approximately$185 million of provisions related to the pending acquisition of theGeneral Motors co-branded credit card portfolio), largely offset by reserve reductions on wholesale and consumer loans reflecting continued improvement in the broader economic environment following challenging conditions in the first nine months of 2020 as a result of the COVID-19 pandemic. Operating Expenses Our operating expenses are primarily influenced by compensation, headcount and levels of business activity. Compensation and benefits includes salaries, estimated year-end discretionary compensation, amortization of equity awards and other items such as benefits. Discretionary compensation is significantly impacted by, among other factors, the level of net revenues, overall financial performance, prevailing labor markets, business mix, the structure of our share-based compensation programs and the external environment. The table below presents our operating expenses by line item and headcount. Three Months Nine Months Ended September Ended September $ in millions 2021 2020 2021 2020 Compensation and benefits$ 3,167 $ 3,117 $14,473 $10,830 Transaction based 1,139 1,011 3,520 3,055 Market development 165 70 360 312 Communications and technology 397 340 1,143
1,006
Depreciation and amortization 509 468 1,527 1,404 Occupancy 239 235 727 706 Professional fees 433 298 1,137 956 Other expenses 542 665 1,781 4,807 Total operating expenses$ 6,591 $ 6,204 $24,668 $23,076 Headcount at period-end 43,000 40,900 In the table above, brokerage, clearing, exchange and distribution fees was renamed transaction based (beginning in the fourth quarter of 2020) and additionally includes expenses resulting from completed transactions, which are directly related to client revenues. Such expenses were previously reported in other expenses. Previously reported amounts have been conformed to the current presentation.
105 Goldman Sachs
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Table of Contents THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Management's Discussion and Analysis Three Months EndedSeptember 2021 versusSeptember 2020 . Operating expenses in the consolidated statements of earnings were$6.59 billion for the third quarter of 2021, 6% higher than the third quarter of 2020. Our efficiency ratio for the third quarter of 2021 was 48.4%, compared with 57.5% for the third quarter of 2020. The increase in operating expenses compared with the third quarter of 2020 was due to higher technology expenses (included in communications and technology and depreciation and amortization), professional fees, transaction based expenses and market development expenses. These increases were partially offset by significantly lower net provisions for litigation and regulatory proceedings. Compensation and benefits expenses were slightly higher. Net provisions for litigation and regulatory proceedings for the third quarter of 2021 were$52 million compared with$256 million for the third quarter of 2020. As ofSeptember 2021 , headcount increased 5% compared withJune 2021 , primarily reflecting the timing of campus hires. Nine Months EndedSeptember 2021 versusSeptember 2020 . Operating expenses in the consolidated statements of earnings were$24.67 billion for the first nine months of 2021, 7% higher than the first nine months of 2020. Our efficiency ratio for the first nine months of 2021 was 52.8%, compared with 70.3% for the first nine months of 2020. In the first nine months of 2020, net provisions for litigation and regulatory proceedings increased our efficiency ratio by 10.3 percentage points. The increase in operating expenses compared with the first nine months of 2020 reflected significantly higher compensation and benefits expenses (reflecting strong performance), partially offset by lower non-compensation expenses. Within non-compensation expenses, net provisions for litigation and regulatory proceedings were significantly lower, partially offset by higher transaction based expenses and higher technology expenses (included in communications and technology and depreciation and amortization). Net provisions for litigation and regulatory proceedings for the first nine months of 2021 were$352 million compared with$3.40 billion for the first nine months of 2020. As ofSeptember 2021 , headcount increased 6% compared withDecember 2020 , reflecting investments in new business initiatives and an increase in technology professionals. Provision for Taxes The effective income tax rate for the first nine months of 2021 was 19.6%, down from the full year income tax rate of 24.2% for 2020, primarily due to a decrease in provisions for non-deductible litigation in the first nine months of 2021 compared with 2020. The increase compared with 18.8% for the first half of 2021 was primarily due to a decrease in the impact of tax benefits on the settlement of share-based awards and remeasurement ofU.K. deferred tax assets in the first nine months of 2021 compared with the first half of 2021. InMarch 2021 , the American Rescue Plan Act of 2021 (Rescue Plan) was signed into law. The Rescue Plan is a$1.9 trillion stimulus package enacted to help address the economic and health impacts of the COVID-19 pandemic. The Rescue Plan includes a repeal of a provision under whichU.S. affiliated groups could elect a worldwide allocation of interest expense for foreign tax credit limitation purposes for one year beginning inJanuary 2021 . Additionally, beginning in 2027, the limitation on corporate tax deductions for compensation payable to the CEO, CFO and the top three highest paid employees will be expanded to include the next five highest paid employees. The legislation is not expected to have a material impact on our 2021 annual effective tax rate. InApril 2021 , theNew York State (NYS) FY 2022 budget was enacted. The legislation temporarily increased the NYS corporate income tax rate from 6.5% to 7.25% for calendar years 2021 through 2023. The legislation is not expected to have a material impact on our 2021 annual effective tax rate. TheU.K. Finance Act 2021 was enacted inJune 2021 and includes a six percent increase in the corporate income tax rate effective fromApril 2023 . During the first nine months of 2021,U.K. deferred tax assets and liabilities were remeasured and a deferred tax benefit of approximately$100 million was recognized. InOctober 2021 , a five percent reduction in theU.K. bank surcharge tax rate, effective fromApril 2023 , was announced in the secondU.K. budget of 2021. The reduction to the bank surcharge is expected to be legislated as Finance Bill 2022. The bank surcharge is currently applicable to certain of ourU.K. subsidiaries and branches, including Goldman Sachs International (GSI) andGoldman Sachs International Bank (GSIB). Following Royal Assent, the associated impact of any change to the bank surcharge onU.K. deferred tax assets and liabilities could have a material impact on our effective tax rate, depending on the operating results for the quarter during which this legislation is enacted. We expect our tax rate for 2021 to be between 20% and 21%, excluding the impact of any potential changes in current income tax rates.
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Table of Contents
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management's Discussion and Analysis
Segment Assets and Operating Results
Segment Assets.
The table below presents assets by segment.
As of
September December
$ in millions 2021 2020
Investment Banking $
141,580 $ 116,242
Global Markets 1,077,437 844,606
Asset Management 94,063 95,751
Consumer & Wealth Management 130,150 106,429
Total $1,443,230 $1,163,028
The allocation process for segment assets is based on the activities of these
segments. The allocation of assets includes allocation of global core liquid
assets (GCLA) (which consists of unencumbered, highly liquid securities and
cash), which is generally included within cash and cash equivalents,
collateralized agreements and trading assets on our balance sheet. Due to the
integrated nature of these segments, estimates and judgments are made in
allocating these assets. See "Risk Management - Liquidity Risk Management" for
further information about our GCLA.
Segment Operating Results.
The table below presents our segment operating results.
Three Months Nine Months
Ended September Ended September
$ in millions 2021 2020 2021 2020
Investment Banking
Net revenues $ 3,700 $ 1,969 $11,080 $ 6,810
Provision for credit losses 41 171 (229 ) 1,612
Operating expenses 1,343 1,067 5,161 4,940
Pre-tax
earnings $ 2,316 $ 731 $ 6,148 $ 258
Net earnings to common $ 1,818 $ 452 $ 4,890 $ 133
Average common equity $10,346 $11,271 $10,201 $11,251
Return on average common equity 70.3% 16.0% 63.9% 1.6%
Global Markets
Net revenues $ 5,611 $ 4,553 $18,092 $16,892
Provision for credit losses (24 ) (15 ) (30 ) 236
Operating expenses 2,794 2,542 10,352 10,568
Pre-tax
earnings $ 2,841 $ 2,026 $ 7,770 $ 6,088
Net earnings to common $ 2,190 $ 1,816 $ 6,041 $ 4,085
Average common equity $46,959 $39,960 $44,067 $40,542
Return on average common equity 18.7% 18.2% 18.3% 13.4%
Asset Management
Net revenues $ 2,279 $ 2,768 $12,025 $ 4,773
Provision for credit losses 10 70 (2 ) 420
Operating expenses 823 1,358 4,656 3,888
Pre-tax
earnings $ 1,446 $ 1,340 $ 7,371 $ 465
Net earnings to common $ 1,096 $ 839 $ 5,853 $ 273
Average common equity $25,788 $19,989 $25,294 $20,332
Return on average common equity 17.0% 16.8% 30.9% 1.8%
Consumer & Wealth Management
Net revenues $ 2,018 $ 1,491 $ 5,503 $ 4,344
Provision for credit losses 148 52 274 537
Operating expenses 1,631 1,237 4,499 3,680
Pre-tax $ $
earnings
239 $ 202 730 $ 127
Net earnings to common $ $
180 $ 126 558 $ 62
Average common equity $10,740 $ 8,519 $10,475 $ 7,715
Return on average common equity 6.7% 5.9% 7.1% 1.1%
Total net revenues $13,608 $10,781 $46,700 $32,819
Total provision for credit losses 175 278 13 2,805
Total operating expenses 6,591 6,204 24,668 23,076
Total
pre-tax
earnings $ 6,842 $ 4,299 $22,019 $ 6,938
Net earnings to common $ 5,284 $ 3,233 $17,342 $ 4,553
Average common equity $93,833 $79,739 $90,037 $79,840
Return on average common equity 22.5% 16.2% 25.7% 7.6%
Net revenues in our segments include allocations of interest income and expense
to specific positions in relation to the cash generated by, or funding
requirements of, such positions. See Note 25 to the consolidated financial
statements for further information about our business segments.
The allocation of common shareholders' equity and preferred stock dividends to
each segment is based on the estimated amount of equity required to support the
activities of the segment under relevant regulatory capital requirements. Net
earnings for each segment is calculated by applying the firmwide tax rate to
each segment's
pre-tax
earnings.
The allocation of common equity among our segments for the three and nine months
ended September 2021 reflects updates to our attributed equity framework
(effective January 1, 2021 ) to incorporate the impact of the stress capital
buffer (SCB) rule and our SCB of 6.6%, which became effective on October 1, 2020
under the Standardized Approach. See "Capital Management and Regulatory
Capital - Capital Management" for information about the impact of these updates
on the allocation of attributed equity among our segments as of the beginning of
the first quarter of 2021. The average common equity balances above incorporate
such impact, as well as the changes in the size and composition of assets held
in each of our segments that occurred during the three and nine months ended
September 2021 . See "Capital Management and Regulatory Capital - Capital
Management" for information about our updated SCB, which became effective on
October 1, 2021 .
Compensation and benefits expenses within our segments reflect, among other
factors, our overall performance, as well as the performance of individual
businesses. Consequently,
pre-tax
margins in one segment of our business may be significantly affected by the
performance of our other business segments. A description of segment operating
results follows.
Investment Banking
Investment Banking generates revenues from the following:
• Financial advisory.
Includes strategic advisory assignments with respect to mergers and
acquisitions, divestitures, corporate defense activities, restructurings and
spin-offs.
• 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.
• Corporate lending.
Includes lending to corporate clients, including through relationship lending,
middle-market lending and acquisition financing. We also provide transaction
banking services to certain of our corporate clients.
107 Goldman SachsSeptember 2021 Form 10-Q
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Table of Contents THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Management's Discussion and Analysis
The table below presents our Investment Banking assets.
As of
September December
$ in millions 2021 2020
Cash and cash equivalents $ 54,044 $ 34,730
Collateralized agreements 25,343 20,242
Customer and other receivables 8,879 2,465
Trading assets 23,453 29,493
Investments 1,446 1,078
Loans 26,428 26,544
Other assets 1,987 1,690
Total $141,580 $116,242 The table below presents our Investment Banking operating results.
Three Months Nine Months
Ended September Ended September
$ in millions 2021 2020 2021 2020
Financial advisory $ 1,648 $ 507 $ 4,022 $ 1,974
Equity underwriting 1,174 856 3,986 2,291
Debt underwriting 726 571 2,556 2,144
Underwriting 1,900 1,427 6,542 4,435
Corporate lending 152 35 516 401
Net revenues 3,700 1,969 11,080 6,810
Provision for credit losses 41 171 (229 ) 1,612
Operating expenses 1,343 1,067 5,161 4,940
Pre-tax
earnings 2,316 731 6,148 258
Provision for taxes 485 262 1,206 74
Net earnings 1,831 469 4,942 184
Preferred stock dividends 13 17 52 51
Net earnings to common $
$ 1,818 $ 452 $ 4,890 133
Average common equity $10,346 $11,271 $10,201 $11,251
Return on average common equity 70.3% 16.0% 63.9% 1.6%
The table below presents our financial advisory and underwriting transaction
volumes.
Three Months Nine Months
Ended September Ended September
$ in billions 2021 2020 2021 2020
Announced mergers and acquisitions $ $
454 $ 332 $ 1,405 578
Completed mergers and acquisitions $ $
402 $ 203 $ 1,036 814
Equity and equity-related offerings $ $ $
25 $ 29 111 81
Debt offerings $ $ $
78 $ 83 265 292
In the table above:
• Volumes are per Dealogic. • Announced and completed mergers and acquisitions volumes are based on full
credit to each of the advisors in a transaction. Equity and equity-related
offerings and debt offerings are based on full credit for single book managers
and equal credit for joint book managers. Transaction volumes may not be
indicative of net revenues in a given period. In addition, transaction volumes
for prior periods may vary from amounts previously reported due to the
subsequent withdrawal or a change in the value of a transaction.
• Equity and equity-related offerings includes Rule 144A and public common stock
offerings, convertible offerings and rights offerings.
• Debt offerings includes
non-convertible
preferred stock, mortgage-backed securities, asset-backed securities and
taxable municipal debt. Includes publicly registered and Rule 144A issues and
excludes leveraged loans.
Operating Environment.
During the third quarter of 2021, Investment Banking operated in an environment
characterized by strong industry-wide activity. In mergers and acquisitions,
industry-wide completed and announced volumes remained at high levels,
reflecting supportive market conditions and CEO confidence. In underwriting,
both industry-wide equity and debt volumes were solid, but were lower following
elevated levels in the second quarter of 2021.
In the future, if market and economic conditions deteriorate, and industry-wide
mergers and acquisitions volumes decline, or if industry-wide equity and debt
underwriting volumes continue to decline, or credit spreads related to hedges on
our relationship lending portfolio tighten, net revenues in Investment Banking
would likely be negatively impacted. In addition, a deterioration in the
creditworthiness of borrowers would negatively impact the provision for credit
losses.
Three Months Ended September 2021 versus September 2020 .
Net revenues in Investment Banking were $3.70 billion for the third quarter of
2021, 88% higher than the third quarter of 2020, reflecting significantly higher
net revenues in Financial advisory, Underwriting and Corporate lending.
The increase in Financial advisory net revenues reflected an increase in
completed mergers and acquisitions volumes. The increase in Underwriting net
revenues was due to significantly higher net revenues in both Equity
underwriting, primarily driven by private placements, convertible offerings and
initial public offerings, and Debt underwriting, reflecting an increase in
leveraged finance activity. The increase in Corporate lending net revenues
primarily reflected net gains related to middle-market lending activities.
Provision for credit losses was $41 million for the third quarter of 2021, 76%
lower than the third quarter of 2020, primarily reflecting lower individual
impairments, while the prior year period was positively impacted by reserve
reductions from paydowns on corporate lines of credit.
Operating expenses were $1.34 billion for the third quarter of 2021, 26% higher
than the third quarter of 2020, due to significantly higher compensation and
benefits expenses (reflecting strong performance), partially offset by lower net
provisions for litigation and regulatory proceedings.
Pre-tax
earnings were $2.32 billion for the third quarter of 2021, compared with
$731 million for the third quarter of 2020.
Goldman Sachs
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Table of Contents THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Management's Discussion and Analysis As ofSeptember 2021 , our investment banking transaction backlog remained elevated, but decreased compared withJune 2021 , due to lower estimated net revenues from potential financial advisory transactions and potential equity underwriting transactions (particularly from private placements and initial public offerings), partially offset by higher estimated net revenues in debt underwriting transactions (primarily from leveraged finance transactions). Our backlog represents an estimate of our net revenues from future transactions where we believe that future revenue realization is more likely than not. We believe changes in our 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. In addition, our 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, including underwriting transactions for which the time frame from discussion to completion has shortened in the current environment. Nine Months EndedSeptember 2021 versusSeptember 2020 . Net revenues in Investment Banking were$11.08 billion for the first nine months of 2021, 63% higher than the first nine months of 2020, primarily reflecting significantly higher net revenues in Underwriting and Financial advisory. The increase in Underwriting net revenues was due to significantly higher net revenues in Equity underwriting, primarily driven by strong industry-wide initial public offerings activity, and higher net revenues in Debt underwriting, reflecting elevated industry-wide leveraged finance volumes. The increase in Financial advisory net revenues reflected a significant increase in completed mergers and acquisitions transactions. The increase in Corporate lending net revenues reflected significantly higher net interest income, primarily from middle-market lending activities. Provision for credit losses was a net benefit of$229 million for the first nine months of 2021, compared with net provisions of$1.61 billion for the first nine months of 2020, primarily due to reserve reductions in the current year period reflecting continued improvement in the broader economic environment following challenging conditions in the first nine months of 2020 resulting from the COVID-19 pandemic. Operating expenses were$5.16 billion for the first nine months of 2021, 4% higher than the first nine months of 2020, due to significantly higher compensation and benefits expenses (reflecting strong performance), partially offset by significantly lower net provisions for litigation and regulatory proceedings. Pre-tax earnings were$6.15 billion for the first nine months of 2021, compared with$258 million for the first nine months of 2020. Annualized ROE was 63.9% for the first nine months of 2021, compared with 1.6% for the first nine months of 2020 (which included the impact of net provisions for litigation and regulatory proceedings that reduced annualized ROE by 15.7 percentage points). As ofSeptember 2021 , our investment banking transaction backlog increased significantly compared withDecember 2020 , due to significantly higher estimated net revenues from potential financial advisory transactions and potential debt underwriting transactions (particularly from leveraged finance and investment-grade transactions), and higher estimated net revenues from equity underwriting transactions (primarily from initial public offerings). Global Markets Our Global Markets segment consists of: FICC. FICC generates revenues from intermediation and financing activities.
• FICC intermediation.
Includes client execution activities related to making markets in both cash
and derivative instruments, as detailed below.
Interest Rate Products. Government bonds (including inflation-linked securities) across maturities, other government-backed securities, and interest rate swaps, options and other derivatives. Credit Products. Investment-grade and high-yield corporate securities, credit derivatives, exchange-traded funds (ETFs), bank and bridge loans, municipal securities, emerging market and distressed debt, and trade claims. Mortgages. Commercial mortgage-related securities, loans and derivatives, residential mortgage-related securities, loans and derivatives (includingU.S. government agency-issued collateralized mortgage obligations and other securities and loans), and other asset-backed securities, loans and derivatives. Currencies. Currency options, spot/forwards and other derivatives on G-10 currencies and emerging-market products.
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Table of Contents THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Management's Discussion and Analysis
Commodities.
Commodity derivatives and, to a lesser extent, physical commodities, involving crude oil and petroleum products, natural gas, base, precious and other metals, electricity, coal, agricultural and other commodity products. For further information about market-making activities, see "Market-Making Activities" below.
• FICC financing.
Includes providing financing to our clients through securities purchased under
agreements to resell (resale agreements), and through structured credit,
warehouse lending (including residential and commercial mortgage lending) and
asset-backed lending, which are typically longer term in nature.
Equities.
Equities generates revenues from intermediation and financing activities.
• Equities intermediation.
We make markets in equity securities and equity-related products, including
ETFs, convertible securities, options, futures and OTC derivative instruments.
We also structure and make markets in derivatives on indices, industry
sectors, financial measures and individual company stocks. Our exchange-based
market-making activities include making markets in stocks and ETFs, futures
and options on major exchanges worldwide. In addition, we generate commissions
and fees from executing and clearing institutional client transactions on
major stock, options and futures exchanges worldwide, as well as OTC
transactions. For further information about market-making activities, see
"Market-Making Activities" below.
• Equities financing.
Includes prime brokerage and other equities financing activities, including
securities lending, margin lending and swaps. We earn fees by providing
clearing, settlement and custody services globally. 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 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. We provide
financing to our clients for their securities trading activities through
margin loans that are collateralized by securities, cash or other acceptable
collateral. In addition, we execute swap transactions to provide our clients
with exposure to securities and indices.
Market-Making Activities As a market maker, we facilitate transactions in both liquid and less liquid markets, primarily for institutional clients, such as corporations, financial institutions, investment funds and governments, to assist clients in meeting their investment objectives and in managing their risks. In this role, we seek to earn the difference between the price at which a market participant is willing to sell an instrument to us and the price at which another market participant is willing to buy it from us, and vice versa (i.e., bid/offer spread). In addition, we maintain (i) market-making positions, typically for a short period of time, in response to, or in anticipation of, client demand, and (ii) positions to actively manage our risk exposures that arise from these market-making activities (collectively, inventory). Our inventory is recorded in trading assets (long positions) or trading liabilities (short positions) in our consolidated balance sheets. Our results are influenced by a combination of interconnected drivers, including (i) client activity levels and transactional bid/offer spreads (collectively, client activity), and (ii) changes in the fair value of our inventory and interest income and interest expense related to the holding, hedging and funding of our inventory (collectively, market-making inventory changes). Due to the integrated nature of our market-making activities, disaggregation of net revenues into client activity and market-making inventory changes is judgmental and has inherent complexities and limitations. The amount and composition of our net revenues vary over time as these drivers are impacted by multiple interrelated factors affecting economic and market conditions, including volatility and liquidity in the market, changes in interest rates, currency exchange rates, credit spreads, equity prices and commodity prices, investor confidence, and other macroeconomic concerns and uncertainties. In general, assuming all other market-making conditions remain constant, increases in client activity levels or bid/offer spreads tend to result in increases in net revenues, and decreases tend to have the opposite effect. However, changes in market-making conditions can materially impact client activity levels and bid/offer spreads, as well as the fair value of our inventory. For example, a decrease in liquidity in the market could have the impact of (i) increasing our bid/offer spread, (ii) decreasing investor confidence and thereby decreasing client activity levels, and (iii) widening of credit spreads on our inventory positions.
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Table of Contents THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Management's Discussion and Analysis
The table below presents our Global Markets assets.
As of
September
December
$ in millions 2021 2020
Cash and cash equivalents $
107,808 $ 86,663
Collateralized agreements 353,698 212,711
Customer and other receivables 151,242 110,473
Trading assets 350,660 339,349
Investments 51,525 52,929
Loans 51,167 33,214
Other assets 11,337 9,267
Total $1,077,437 $844,606 The table below presents our Global Markets operating results.
Three Months Nine Months
Ended September Ended September
$ in millions 2021 2020 2021 2020
FICC intermediation $ 1,995 $ 2,170 $ 7,343 $ 8,493
FICC financing 513 332 1,378 1,213
FICC 2,508 2,502 8,721 9,706
Equities intermediation 1,920 1,466 6,271 5,193
Equities financing 1,183 585 3,100 1,993
Equities 3,103 2,051 9,371 7,186
Net revenues 5,611 4,553 18,092 16,892
Provision for credit losses (24 ) (15 ) (30 ) 236
Operating expenses 2,794 2,542 10,352 10,568
Pre-tax
earnings 2,841 2,026 7,770 6,088
Provision for taxes 597 122 1,524 1,742
Net earnings 2,244 1,904 6,246 4,346
Preferred stock dividends 54 88 205 261
Net earnings to common $ 2,190 $ 1,816 $ 6,041 $ 4,085
Average common equity $46,959 $39,960 $44,067 $40,542
Return on average common equity 18.7% 18.2% 18.3% 13.4%
The table below presents our Global Markets net revenues by line item in the consolidated statements of earnings.
Global
$ in millions FICC Equities Markets
Three Months Ended September 2021
Market making $1,716 $2,213 $ 3,929
Commissions and fees - 842 842
Other principal transactions 122 50 172
Net interest income 670 (2 ) 668
Total $2,508 $3,103 $ 5,611
Three Months Ended September 2020
Market making $1,903 $1,424 $ 3,327
Commissions and fees - 734 734
Other principal transactions 39 (7 ) 32
Net interest income 560 (100 ) 460
Total $2,502 $2,051 $ 4,553
Nine Months Ended September 2021
Market making $6,474 $6,622 $13,096
Commissions and fees - 2,670 2,670
Other principal transactions 306 49 355
Net interest income 1,941 30 1,971
Total $8,721 $9,371 $18,092
Nine Months Ended September 2020
Market making $7,803 $4,993 $12,796
Commissions and fees - 2,522 2,522
Other principal transactions (26 ) - (26 )
Net interest income 1,929 (329 ) 1,600
Total $9,706 $7,186 $16,892
In the table above:
• The difference between commissions and fees and those in the consolidated
statements of earnings represents commissions and fees included in our
Consumer & Wealth Management segment.
• See "Net Revenues" for further information about market making revenues,
commissions and fees, other principal transactions revenues and net interest
income. See Note 25 to the consolidated financial statements for net interest
income by business segment.
• The primary driver of net revenues for FICC intermediation was client
activity.
Operating Environment. During the third quarter of 2021, Global Markets operated in an environment generally characterized by continued economic recovery and continued monetary and fiscal support from central banks and governments globally, which contributed to solid client activity levels. Market volatility was generally range-bound during the quarter, with the average daily VIX index up 2%, the average daily MOVE index up 5% and the average daily CVIX index down 5%, although volatility in commodities was heightened in oil, natural gas and power. Equity markets remained stable and at near-record levels, as the S&P 500 Index was roughly flat and the MSCI World Index decreased by 1% during the quarter. In the same time period, the yield on 10-yearU.K. Gilts increased by approximately 30 basis points and the yield on 10-yearU.S. Treasury securities increased by approximately 10 basis points. If macroeconomic conditions lead to a decline in activity levels or volatility, net revenues in Global Markets would likely be negatively impacted. Three Months EndedSeptember 2021 versusSeptember 2020 . Net revenues in Global Markets were$5.61 billion for the third quarter of 2021, 23% higher than the third quarter of 2020. Net revenues in FICC were$2.51 billion , essentially unchanged compared with the third quarter of 2020. Net revenues in FICC financing were significantly higher, primarily from mortgage lending. Net revenues in FICC intermediation were lower, reflecting significantly lower net revenues in interest rate products, credit products and mortgages, partially offset by significantly higher net revenues in commodities and higher net revenues in currencies.
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Table of Contents THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Management's Discussion and Analysis The decrease in FICC intermediation net revenues reflected the impact of less favorable market-making conditions on our inventory. The following provides information about our FICC intermediation net revenues by business, compared with results in the third quarter of 2020:
• Net revenues in interest rates products and mortgages reflected the impact of
less favorable market-making conditions on our inventory.
• Net revenues in credit products primarily reflected lower client activity.
• Net revenues in commodities and currencies primarily reflected the impact of
improved market-making conditions on our inventory.
Net revenues in Equities were$3.10 billion , 51% higher than the third quarter of 2020, due to significantly higher net revenues in both Equities financing, reflecting increased client activity (including higher average client balances), and Equities intermediation, reflecting significantly higher net revenues in both derivatives and cash products. Provision for credit losses was a net benefit of$24 million for the third quarter of 2021, compared with a net benefit of$15 million for the third quarter of 2020. Operating expenses were$2.79 billion for the third quarter of 2021, 10% higher than the third quarter of 2020, primarily reflecting higher transaction based expenses. Pre-tax earnings were$2.84 billion for the third quarter of 2021, 40% higher than the third quarter of 2020. Nine Months EndedSeptember 2021 versusSeptember 2020 . Net revenues in Global Markets were$18.09 billion for the first nine months of 2021, 7% higher than the first nine months of 2020. Net revenues in FICC were$8.72 billion for the first nine months of 2021, 10% lower than the first nine months of 2020, due to lower net revenues in FICC intermediation, reflecting significantly lower net revenues in interest rate products, credit products and currencies, partially offset by significantly higher net revenues in mortgages and higher net revenues in commodities. Net revenues in FICC financing were higher, reflecting significantly higher net revenues from mortgage lending, partially offset by significantly lower net revenues from resale agreements. The decrease in FICC intermediation net revenues reflected solid but significantly lower client activity compared with strong activity levels in the prior year period due to high volatility amid the COVID-19 pandemic. This was partially offset by the impact of improved market-making conditions on our inventory compared with challenging conditions in the prior year period. The following provides information about our FICC intermediation net revenues by business, compared with results in the first nine months of 2020:
• Net revenues in interest rate products, credit products and currencies
reflected lower client activity, partially offset by the impact of improved
market-making conditions on our inventory.
• Net revenues in mortgages and commodities reflected the impact of improved
market-making conditions on our inventory.
Net revenues in Equities were$9.37 billion , 30% higher than the first nine months of 2020, due to significantly higher net revenues in both Equities financing, primarily reflecting increased activity (including higher average client balances), and Equities intermediation, reflecting significantly higher net revenues in both derivatives and cash products. Provision for credit losses was a net benefit of$30 million for the first nine months of 2021, compared with net provisions of$236 million for the first nine months of 2020, primarily reflecting reserve reductions in the current year period reflecting continued improvement in the broader economic environment following challenging conditions in the first nine months of 2020 resulting from the COVID-19 pandemic. Operating expenses were$10.35 billion for the first nine months of 2021, 2% lower than the first nine months of 2020, reflecting significantly lower net provisions for litigation and regulatory proceedings, partially offset by higher compensation and benefits expenses (reflecting strong performance) and higher transaction based expenses. Pre-tax earnings were$7.77 billion for the first nine months of 2021, 28% higher than the first nine months of 2020. Annualized ROE was 18.3% for the first nine months of 2021, compared with 13.4% for the first nine months of 2020 (which included the impact of net provisions for litigation and regulatory proceedings that reduced annualized ROE by 6.1 percentage points).
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Table of Contents THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Management's Discussion and Analysis Asset Management We manage client assets across a broad range of investment strategies and asset classes for a diverse set of institutional clients and a network of third-party distributors around the world, including equity, fixed income and alternative investments. We provide investment solutions including those managed on a fiduciary basis by our portfolio managers, as well as those managed by a variety of third-party managers. We offer our investment solutions in a variety of structures, including separately managed accounts, mutual funds, private partnerships and other comingled vehicles. These solutions begin with identifying clients' objectives and continue through portfolio construction, ongoing asset allocation and risk management and investment realization. In addition to managing client assets, we invest in alternative investments across a range of asset classes that seek to deliver long-term accretive risk-adjusted returns. Our investing activities, which are typically longer term, include investments in corporate equity, credit, real estate and infrastructure assets. Asset Management generates revenues from the following:
• Management and other fees.
The majority of revenues in management and other fees consists
of asset-based fees on client assets that we manage. For further information
about AUS, see "Assets Under Supervision" below. The fees that we charge vary
by asset class, distribution channel and the types of services provided, and
are affected by investment performance, as well as asset inflows and
redemptions.
• Incentive fees.
In certain circumstances, we also receive incentive fees based on a percentage
of a fund's or a separately managed account's return, or when the return
exceeds a specified benchmark or other performance targets. 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.
• Equity investments.
Our alternative investing activities relate to public and private equity
investments in corporate, real estate and infrastructure assets. We also make
investments through consolidated investment entities (CIEs), substantially all
of which are engaged in real estate investment activities.
• Lending and debt investments.
We invest in corporate debt and provide financing for real estate and other
assets. These activities include investments in mezzanine debt, senior debt
and distressed debt securities.
The table below presents our Asset Management asset
s
.
As of
September
December
$ in millions 2021 2020
Cash and cash equivalents $12,905 $ 8,635
Collateralized agreements 5,565 4,749
Customer and other receivables 1,012 1,261
Trading assets 5,127 6,819
Investments 33,678 34,386
Loans 15,792 16,558
Other assets 19,984 23,343
Total $94,063 $95,751 The table below presents our Asset Management operating results.
Three Months Nine Months
Ended September Ended September
$ in millions 2021 2020 2021 2020
Management and other fees $
724 $ 728 $ 2,144 $ 2,052
Incentive fees 100 28 220 216
Equity investments 935 1,423 7,772 2,325
Lending and debt investments 520 589 1,889 180
Net revenues 2,279 2,768 12,025 4,773
Provision for credit losses 10 70 (2 ) 420
Operating expenses 823 1,358 4,656 3,888
Pre-tax
earnings 1,446 1,340 7,371 465
Provision for taxes 331 482 1,446 133
Net earnings 1,115 858 5,925 332
Preferred stock dividends 19 19 72 59
Net earnings to common $ 1,096 $ 839 $ 5,853 $ 273
Average common equity $25,788 $19,989 $25,294 $20,332
Return on average common equity 17.0% 16.8% 30.9% 1.8%
The table below presents our Equity investments net revenues by equity type and
asset class.
Three Months Nine Months
Ended September Ended September
$ in millions 2021 2020 2021 2020
Equity Type
Private equity $1,753 $ 642 $7,350 $1,392
Public equity (818 ) 781 422 933
Total $
935 $1,423 $7,772 $2,325
Asset Class
Real estate $
677 $ 221 $1,649 $1,259
Corporate 258 1,202 6,123 1,066
Total $
935 $1,423 $7,772 $2,325
The table below presents details about our Lending and debt investments net
revenues.
Three Months Nine Months
Ended September Ended September
$ in millions 2021 2020 2021 2020
Fair value net gains/(losses) $ $
214 $ 313 951 $ (545 )
Net interest income 306 276 938 725
Total $
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Table of Contents THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Management's Discussion and Analysis Operating Environment. During the third quarter of 2021, the operating environment for Asset Management reflected relatively stable equity prices and credit spreads compared with the second quarter of 2021, amid continued economic recovery and continued monetary and fiscal support from central banks and governments globally. If optimism about the economic outlook declines or the ongoing efforts to mitigate the impact of the COVID-19 pandemic are ineffective, it may lead to a decline in asset prices, widening of credit spreads, and investors transitioning to asset classes that typically generate lower fees or investors withdrawing their assets, and net revenues in Asset Management would likely be negatively impacted. Three Months EndedSeptember 2021 versusSeptember 2020 . Net revenues in Asset Management were$2.28 billion for the third quarter of 2021, 18% lower than the third quarter of 2020, primarily driven by significantly lower net revenues in Equity investments. In addition, net revenues in Lending and debt investments were lower, while Incentive fees were higher. The decrease in Equity investments net revenues reflected significant net losses from investments in public equities during the quarter compared with net gains in the third quarter of 2020, partially offset by significantly higher net gains from investments in private equities, driven by company-specific events, primarily sales. The decrease in Lending and debt investments net revenues reflected lower net gains from investments in debt instruments. Management and other fees were essentially unchanged, primarily reflecting higher fee waivers on money market funds, offset by the impact of higher average assets under supervision. The increase in Incentive fees was due to harvesting. Provision for credit losses was$10 million for the third quarter of 2021, compared with$70 million for the third quarter of 2020. Operating expenses were$823 million for the third quarter of 2021, 39% lower than the third quarter of 2020, reflecting significantly lower compensation and benefits expenses. Pre-tax earnings were$1.45 billion for the third quarter of 2021, 8% higher than the third quarter of 2020. Nine Months EndedSeptember 2021 versusSeptember 2020 . Net revenues in Asset Management were$12.03 billion for the first nine months of 2021, compared with$4.77 billion for the first nine months of 2020, primarily reflecting significantly higher net revenues in Equity investments and Lending and debt investments. The increase in Equity investments net revenues reflected significantly higher net gains from investments in private equities, driven by company-specific events, including sales and capital raises, and improved corporate performance versus a challenging first nine months of 2020. This increase was partially offset by significantly lower net gains from investments in public equities. The increase in Lending and debt investments net revenues reflected net gains from investments in debt instruments compared with net losses in the prior year period, and significantly higher net interest income. The increase in Management and other fees reflected the impact of higher average assets under supervision and higher other fees, partially offset by higher fee waivers on money market funds. Incentive fees were essentially unchanged. Provision for credit losses was a net benefit of$2 million for the first nine months of 2021, compared with net provisions of$420 million for the first nine months of 2020, primarily due to reserve reductions in the current year period reflecting continued improvement in the broader economic environment following challenging conditions in the first nine months of 2020 resulting from the COVID-19 pandemic. Operating expenses were$4.66 billion for the first nine months of 2021, 20% higher than the first nine months of 2020, primarily reflecting significantly higher compensation and benefits expenses (reflecting strong performance). Pre-tax earnings were$7.37 billion for the first nine months of 2021, compared with$465 million for the first nine months of 2020. Consumer & Wealth Management Consumer & Wealth Management helps clients achieve their individual financial goals by providing a broad range of wealth advisory and banking services, including financial planning, investment management, deposit taking, and lending. Services are offered through our global network of advisors and via our digital platforms. Wealth Management. Wealth management provides tailored wealth advisory services to clients across the wealth spectrum. We operate globally serving individuals, families, family offices, and foundations and endowments. Our relationships are established directly or introduced through corporations that sponsor financial wellness programs for their employees.
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Table of Contents THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Management's Discussion and Analysis We offer personalized financial planning inclusive of income and liability management, compensation and benefits analysis, trust and estate structuring, tax optimization, philanthropic giving, and asset protection. We also provide customized investment advisory solutions, and offer structuring and execution capabilities in security and derivative products across all major global markets. We leverage a broad, open-architecture investment platform and our global execution capabilities to help clients achieve their investment goals. In addition, we offer clients a full range of private banking services, including a variety of deposit alternatives and loans that our clients use to finance investments in both financial and nonfinancial assets, bridge cash flow timing gaps or provide liquidity and flexibility for other needs. Wealth management generates revenues from the following:
• Management and other fees.
Includes fees related to managing assets, providing investing and wealth
advisory solutions, providing financial planning and counseling services via
Ayco Personal Finance Management, and executing brokerage transactions for
wealth management clients.
• Incentive fees.
In certain circumstances, we also receive incentive fees from wealth
management clients based on a percentage of a fund'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.
• Private banking and lending.
Includes net interest income allocated to deposit-taking and net interest
income earned on lending activities for wealth management clients.
Consumer Banking. Our Consumer banking business issues unsecured loans, through our digital platform, Marcus by Goldman Sachs (Marcus), and credit cards, to finance the purchases of goods or services. We also accept deposits through Marcus, inGoldman Sachs Bank USA (GS Bank USA ) and GSIB. These deposits include savings and time deposits which provide us with a diversified source of funding. Additionally, we provide investing services through Marcus Invest , currently offered in theU.S. Consumer banking revenues consist of net interest income earned on unsecured loans issued to consumers through Marcus and credit card lending activities, and net interest income allocated to consumer deposits. The table below presents our Consumer & Wealth Management assets. As of September December $ in millions 2021 2020 Cash and cash equivalents$ 37,073 $ 25,814 Collateralized agreements 15,127 12,518 Customer and other receivables 10,647 7,132 Trading assets 13,758 17,969 Investments 59 52 Loans 50,237 39,799 Other assets 3,249 3,145 Total$130,150 $106,429 The table below presents our Consumer & Wealth Management operating results. Three Months Nine Months Ended September Ended September $ in millions 2021 2020 2021 2020 Management and other fees$ 1,223 $ 957 $ 3,409 $2,854 Incentive fees 121 7 162 86 Private banking and lending 292 201 816 538 Wealth management 1,636 1,165 4,387 3,478 Consumer banking 382 326 1,116 866 Net revenues 2,018 1,491 5,503 4,344 Provision for credit losses 148 52 274 537 Operating expenses 1,631 1,237 4,499 3,680 Pre-tax earnings 239 202 730 127 Provision for taxes 51 66 143 36 Net earnings 188 136 587 91 Preferred stock dividends 8 10 29 29 Net earnings to common $ $ 180$ 126 558$ 62 Average common equity$10,740 $8,519 $10,475 $7,715 Return on average common equity 6.7% 5.9%
7.1% 1.1%
Operating Environment. During the third quarter of 2021, market and economic conditions contributed to a favorable backdrop for consumer banking and wealth management activities. Global equity prices remained stable and, in theU.S. , unemployment decreased and consumer spending increased compared with the end of the second quarter of 2021, aided by continued economic recovery and continued support from central banks and governments globally. If optimism about the economic outlook declines or the ongoing efforts to mitigate the impact of the COVID-19 pandemic are ineffective, it may lead to a decline in asset prices, investors favoring asset classes that typically generate lower fees, investors withdrawing their assets and consumers withdrawing their deposits or deterioration in consumer credit, net revenues and the provision for credit losses in Consumer & Wealth Management would likely be negatively impacted. Three Months EndedSeptember 2021 versusSeptember 2020 . Net revenues in Consumer & Wealth Management were$2.02 billion for the third quarter of 2021, 35% higher than the third quarter of 2020.
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Table of Contents THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Management's Discussion and Analysis Net revenues in Wealth management were$1.64 billion , 40% higher than the third quarter of 2020. Management and other fees were significantly higher, primarily reflecting the impact of higher average assets under supervision. Incentive fees were significantly higher, due to harvesting, and net revenues in Private banking and lending were higher, primarily reflecting higher loan balances. Net revenues in Consumer banking were$382 million , 17% higher than the third quarter of 2020, reflecting higher credit card and deposit balances. Provision for credit losses was$148 million for the third quarter of 2021, compared with$52 million for the third quarter of 2020, primarily reflecting increased portfolio growth in credit cards, while the prior year period was positively impacted by reserve reductions from paydowns on consumer installment loans. Operating expenses were$1.63 billion for the third quarter of 2021, 32% higher than the third quarter of 2020, primarily reflecting significantly higher compensation and benefits expenses (reflecting strong performance). Pre-tax earnings were$239 million for the third quarter of 2021, 18% higher than the third quarter of 2020. Nine Months EndedSeptember 2021 versusSeptember 2020 . Net revenues in Consumer & Wealth Management were$5.50 billion for the first nine months of 2021, 27% higher than the first nine months of 2020. Net revenues in Wealth management were$4.39 billion , 26% higher than the first nine months of 2020, due to higher Management and other fees, primarily reflecting the impact of higher average assets under supervision, and significantly higher net revenues in Private banking and lending, primarily reflecting higher loan balances. In addition, Incentive fees were higher, due to harvesting. Net revenues in Consumer banking were$1.12 billion , 29% higher than the first nine months of 2020, reflecting higher deposit and credit card balances. Provision for credit losses was$274 million for the first nine months of 2021, 49% lower than the first nine months of 2020, primarily due to reserve reductions in the current year period reflecting continued improvement in the broader economic environment following challenging conditions in the first nine months of 2020 resulting from the COVID-19 pandemic, partially offset by increased portfolio growth in credit cards, including approximately$185 million of provisions related to the pending acquisition of the General Motors co-branded portfolio. Operating expenses were$4.50 billion for the first nine months of 2021, 22% higher than the first nine months of 2020, primarily reflecting significantly higher compensation and benefits expenses (reflecting strong performance). Pre-tax earnings were$730 million for the first nine months of 2021, compared with$127 million for the first nine months of 2020. Assets Under Supervision AUS includes our institutional clients' assets and assets sourced through third-party distributors (both included in our Asset Management segment), as well as high-net-worth clients' assets (included in our Consumer & Wealth Management segment), where we earn a fee for managing assets on a discretionary basis. This includes net assets in our mutual funds, hedge funds, credit funds, private equity funds, real estate funds, and separately managed accounts for institutional and individual investors. AUS also includes client assets invested with third-party managers, private bank deposits and advisory relationships where we earn a fee for advisory and other services, but do not have investment discretion. AUS does not include the self-directed brokerage assets of our clients. The table below presents information about our firmwide period-end AUS by segment, asset class, distribution channel, region and vehicle. As of September $ in billions 2021 2020 Segment Asset Management$1,678 $1,461 Consumer & Wealth Management 694 575 Total AUS$2,372 $2,036 Asset Class Alternative investments $ $ 224 182 Equity 569 421 Fixed income 940 856 Total long-term AUS 1,733 1,459 Liquidity products 639 577 Total AUS$2,372 $2,036 Distribution Channel Institutional $ $ 812 725 Wealth management 694 575 Third-party distributed 866 736 Total AUS$2,372 $2,036 Region Americas$1,853 $1,563 EMEA 339 305 Asia 180 168 Total AUS$2,372 $2,036 Vehicle Separate accounts$1,300 $1,120 Public funds 776 673 Private funds and other 296 243 Total AUS$2,372 $2,036 In the table above:
• Liquidity products includes money market funds and private bank deposits.
• EMEA representsEurope ,Middle East andAfrica .
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Table of Contents THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Management's Discussion and Analysis Asset classes, such as alternative investment and equity assets, typically generate higher fees relative to fixed income and liquidity product assets. The average effective management fee (which excludes non-asset-based fees) we earned on our firmwide AUS was 29 basis points for each of the three and nine months endedSeptember 2021 andSeptember 2020 . We earn management fees on client assets that we manage and also receive incentive fees based on a percentage of a fund's or a separately managed account's return, or when the return exceeds a specified benchmark or other performance targets. These incentive fees are recognized when it is probable that a significant reversal of such fees will not occur. Our estimated unrecognized incentive fees were$2.93 billion as ofSeptember 2021 and$1.79 billion as ofDecember 2020 . Such amounts are based on the completion of the funds' financial statements, which is generally one quarter in arrears. These fees will be recognized, assuming no decline in fair value, if and when it is probable that a significant reversal of such fees will not occur, which is generally when such fees are no longer subject to fluctuations in the market value of the assets. The table below presents changes in our AUS. Three Months Nine Months Ended September Ended September $ in billions 2021 2020 2021 2020 Asset Management Beginning balance$1,633 $1,499 $1,530 $1,298 Net inflows/(outflows): Alternative investments 3 (3 ) 9 (6 ) Equity 3 (5 ) 1 - Fixed income 27 22 55 35 Total long-term AUS net inflows/(outflows) 33 14 65 29 Liquidity products 11 (86 ) 56 101 Total AUS net inflows/(outflows) 44 (72 ) 121 130 Net market appreciation/(depreciation) 1 34 27 33 Ending balance$1,678 $1,461 $1,678 $1,461 Consumer & Wealth Management Beginning balance $ $ 672$ 558 615$ 561 Net inflows/(outflows): Alternative investments 6 2 13 2 Equity 9 - 28 - Fixed income 1 2 2 (6 ) Total long-term AUS net inflows/(outflows) 16 4 43 (4 ) Liquidity products 6 (4 ) - 14
Total AUS net inflows/(outflows)
22 - 43 10
Net market appreciation/(depreciation) - 17 36 4
Ending balance $ $
694 $ 575 694 $ 575
Firmwide
Beginning balance $2,305 $2,057 $2,145 $1,859
Net inflows/(outflows):
Alternative investments 9 (1 ) 22 (4 )
Equity 12 (5 ) 29 -
Fixed income 28 24 57 29
Total long-term AUS net inflows/(outflows) 49 18 108 25
Liquidity products 17 (90 ) 56 115
Total AUS net inflows/(outflows)
66 (72 ) 164 140
Net market appreciation/(depreciation) 1 51 63 37
Ending balance $2,372 $2,036 $2,372 $2,036
The table below presents information about our average monthly firmwide AUS by
segment and asset class.
Average for the
Three Months Nine Months
Ended September Ended September
$ in billions 2021 2020 2021 2020
Segment
Asset Management $1,663 $1,512 $1,602 $1,412
Consumer & Wealth Management 688 571 656 555
Total AUS $2,351 $2,083 $2,258 $1,967
Asset Class
Alternative investments $ $
217 $ 181 205 $ 182
Equity 569 418 532 398
Fixed income 932 844 911 815
Total long-term AUS 1,718 1,443 1,648 1,395
Liquidity products 633 640 610 572
Total AUS $2,351 $2,083 $2,258 $1,967
In addition to our AUS, we have discretion over alternative investments where we
currently do not earn management fees
(non-fee-earning
alternative assets).
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Table of Contents THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Management's Discussion and Analysis
The table below presents information about our AUS for alternative assets, non-fee-earning alternative assets and total alternative assets.
Total
Non-fee-earning alternative
$ in billions AUS alternative assets assets
As of September 2021
Corporate equity $ 92 $ 74 $166
Credit 23 70 93
Real estate 19 45 64
Hedge funds and multi-asset 90 2 92
Other - 1 1
Total $224 $192 $416
As of September 2020
Corporate equity $ 79 $ 42 $121
Credit 18 61 79
Real estate 16 44 60
Hedge funds and multi-asset 69 1 70
Other - 1 1
Total $182 $149 $331
In the table above:
• Corporate equity primarily includes private equity. • Total alternative assets included uncalled capital that is available for
future investing of
September 2020 .
• Non-fee-earning
alternative assets primarily includes investments that we hold on our balance
sheet, our unfunded commitments, unfunded commitments of our clients (where we
do not charge fees on commitments), credit facilities collateralized by fund
assets and employee funds. Our calculation of
non-fee-earning
alternative assets may not be comparable to similar calculations used by other
companies.
In the beginning of 2020, we announced a strategic objective of growing our third-party alternatives business, and established targets of achieving net inflows of$100 billion and gross inflows of$150 billion for alternative assets over five years. The table below presents information about third-party commitments raised in our alternatives business during 2020 and through the third quarter of 2021. As of $ in billions September 2021 Included in AUS$50 Included in non-fee-earning alternative assets 40 Third-party commitments raised$90 In the table above, commitments included in non-fee-earning alternative assets included approximately$27 billion which will begin to earn fees (and become AUS), if and when the commitments are drawn and assets are invested. The table below presents information about alternative investments in our Asset Management segment that we hold on our balance sheet. CIE Debt Equity investments $ in billions Loans securities securities and other Total As ofSeptember 2021 Corporate equity $ $ $ - -$16 -$16 Credit 8 11 - - 19 Real estate 8 2 4 17 31 Other - - - 1 1 Total$16 $13 $20 $18 $67 As of September 2020 Corporate equity $ $ $ - -$16 -$16 Credit 8 11 - - 19 Real estate 9 2 3 20 34 Other - - - 1 1 Total$17 $13 $19 $21 $70 Loans and Debt Securities . The table below presents the concentration of loans and debt securities within our alternative investments by accounting classification, region and industry. As of September $ in billions 2021 2020 Loans$16 $17 Debt securities 13 13 Total$29 $30 Accounting Classification Debt securities at fair value 45% 43% Loans at amortized cost 43% 44% Loans at fair value 12% 13% Total 100% 100% Region Americas 47% 46% EMEA 34% 33% Asia 19% 21% Total 100% 100% Industry Consumers 4% 4% Financial Institutions 8% 8% Healthcare 9% 8% Industrials 15% 16% Natural Resources & Utilities 3% 4% Real Estate 36% 35% Technology, Media & Telecommunications 14% 13% Other 11% 12% Total 100% 100%
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Table of Contents THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Management's Discussion and Analysis
Equity.
The table below presents the concentration of equity securities within our alternative investments by region and industry.
As of September
$ in billions 2021 2020
Equity securities $20 $19
Region
Americas 57% 52%
EMEA 23% 16%
Asia 20% 32%
Total 100% 100%
Industry
Financial Institutions 14% 23%
Healthcare 10% 8%
Industrials 7% 5%
Natural Resources & Utilities 8% 7%
Real Estate 21% 18%
Technology, Media & Telecommunications 32% 33%
Other 8% 6%
Total 100% 100%
In the table above:
• Equity securities included
private equity upon the initial public offerings of the underlying companies.
• The concentrations for real estate equity securities as of
4% for multifamily (2% as of
real estate equity securities (7% as of September 2020).
The table below presents the concentration of equity securities within our alternative investments by vintage.
Vintage
As of September 2021
2014 or earlier 25%
2015 - 2017 34%
2018 - thereafter 41%
Total 100%
As of September 2020
2013 or earlier 32%
2014 - 2016 35%
2017 - thereafter 33%
Total 100%
As we continue to grow our third-party alternatives business, we remain focused
on our strategic objective, announced in January 2020 , to reduce the capital
intensity of the Asset Management segment by reducing our
on-balance
sheet equity investments.
The table below presents the rollforward of our equity securities from the
beginning of 2020 through the third quarter of 2021.
$ in billions Total Equity
Beginning balance $ 22
Additions 5
Dispositions (16 )
Mark-ups 9
Ending balance $ 20
CIE Investments and Other.
CIE investments and other included assets held by CIEs of $17 billion as of
September 2021 and $21 billion as of September 2020 , which were funded with
liabilities of approximately $9 billion as of September 2021 and $12 billion as
of September 2020 . Substantially all such liabilities were nonrecourse, thereby
reducing our equity at risk.
The table below presents the concentration of CIE assets, net of financings,
within our alternative investments by region and asset class.
As of September
$ in billions 2021 2020
CIE assets, net of financings $8 $9
Region
Americas 63% 62%
EMEA 25% 21%
Asia 12% 17%
Total 100% 100%
Asset Class
Hospitality 4% 4%
Industrials 11% 8%
Multifamily 24% 24%
Office 26% 30%
Retail 5% 6%
Senior Housing 14% 12%
Student Housing 6% 7%
Other 10% 9%
Total 100% 100%
The table below presents the concentration of CIE assets, net of financings, within our alternative investments by vintage.
Vintage
As of September 2021
2014 or earlier 2%
2015 - 2017 27%
2018 - thereafter 71%
Total 100%
As of September 2020
2013 or earlier 1%
2014 - 2016 18%
2017 - thereafter 81%
Total 100%
Geographic Data
See Note 25 to the consolidated financial statements for a summary of our total
net revenues and
pre-tax
earnings by geographic region.
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Table of Contents THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Management's Discussion and Analysis Balance Sheet and Funding Sources Balance Sheet Management One of our risk management disciplines is our ability to manage the size and composition of our balance sheet. While our asset base changes due to client activity, market fluctuations and business opportunities, the size and composition of our balance sheet also reflects factors, including (i) our overall risk tolerance, (ii) the amount of capital we hold and (iii) our funding profile, among other factors. See "Capital Management andRegulatory Capital - Capital Management" for information about our 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
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 capital levels, and key metrics; and
• To inform the target amount, tenor and type of funding to raise, based on our
projected assets and contractual maturities.
Treasury and our independent risk oversight and control functions, along with our revenue-producing units, review current and prior period information and expectations for the year to prepare our balance sheet plan. The specific information reviewed includes asset and liability size and composition, limit utilization, risk and performance measures, and capital usage. Our consolidated balance sheet plan, including our balance sheets by business, funding projections and projected key metrics, is reviewed and approved by the Firmwide Asset Liability Committee and the Risk Governance Committee. See "Risk Management - Overview and Structure of Risk Management" for an overview of our risk management structure. Balance Sheet Limits. The Firmwide Asset Liability Committee and the Risk Governance Committee have the responsibility to review and approve 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. 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 andTreasury , as well as our independent risk oversight and control functions. 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) andU.S. Dodd-Frank Wall Street Reform and Consumer Protection Act Stress Tests (DFAST), as well as our resolution and recovery planning. See "Capital Management andRegulatory Capital - Capital Management" for further information about these scenario analyses. These scenarios cover short- and long-term time horizons using various macroeconomic and firm-specific assumptions, based on a range of economic scenarios. We use these analyses to assist us in developing our longer-term balance sheet management strategy, including the level and composition of assets, funding and 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.
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Table of Contents THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Management's Discussion and Analysis Balance Sheet Analysis and Metrics As ofSeptember 2021 , total assets in our consolidated balance sheets were$1.44 trillion , an increase of$280.20 billion fromDecember 2020 , primarily reflecting increases in collateralized agreements of$149.51 billion (primarily reflecting the impact of our and our clients' activities), cash and cash equivalents of$55.99 billion (primarily reflecting our activity), customer and other receivables of$50.45 billion (primarily reflecting client activity), and loans of$27.51 billion (primarily reflecting increases in wealth management, residential real estate and corporate loans). As ofSeptember 2021 , total liabilities in our consolidated balance sheets were$1.34 trillion , an increase of$269.84 billion fromDecember 2020 , primarily reflecting increases in deposits of$73.08 billion (primarily reflecting increases in institutional, transaction banking, private bank, consumer, and deposit sweep programs deposits), customer and other payables of$61.46 billion (primarily reflecting client activity), collateralized financings of$54.61 billion (primarily reflecting the impact of our and our clients' activities), trading liabilities of$50.54 billion (primarily reflecting the impact of our and our clients' activities in government obligations and equities, partially offset by the impact of interest rates and currency movements on derivative instruments), and unsecured borrowings of$25.42 billion (primarily driven by new issuances partially offset by maturities). Our total securities sold under agreements to repurchase (repurchase agreements), accounted for as collateralized financings, were$167.34 billion as ofSeptember 2021 and$126.57 billion as ofDecember 2020 , which were 7% higher as ofSeptember 2021 and 24% higher as ofDecember 2020 than the average daily amount of repurchase agreements over the respective quarters. As ofSeptember 2021 , the increase in our repurchase agreements relative to the average daily amount of repurchase agreements during the quarter resulted from higher levels of our and our clients' activities 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 certain government and agency obligations, through collateralized financing activities. The table below presents information about our balance sheet and leverage ratios. As of September December $ in millions 2021 2020 Total assets$1,443,230 $1,163,028 Unsecured long-term borrowings $ 242,780$ 213,481 Total shareholders' equity $ 106,297$ 95,932 Leverage ratio 13.6x 12.1x Debt-to-equity ratio 2.3x 2.2x In the table above:
• The leverage ratio equals total assets divided by total shareholders' equity
and measures the proportion of equity and debt we use to finance assets. This
ratio is different from the leverage ratios included in Note 20 to the
consolidated financial statements.
• The
debt-to-equity
ratio equals unsecured long-term borrowings divided by total shareholders'
equity.
The table below presents information about our shareholders' equity and book
value per common share, including the reconciliation of common shareholders'
equity to tangible common shareholders' equity.
As of
September December
$ in millions, except per share amounts 2021 2020
Total shareholders' equity $106,297 $ 95,932
Preferred stock (9,953 ) (11,203 )
Common shareholders' equity 96,344 84,729
Goodwill (4,326 ) (4,332 )
Identifiable intangible assets (497 ) (630 )
Tangible common shareholders' equity
Book value per common share$ 277.25 $ 236.15
Tangible book value per common share
In the table above:
• Tangible common shareholders' equity is calculated as total shareholders'
equity less preferred stock, goodwill and identifiable intangible assets. We
believe that tangible common shareholders' equity is meaningful because it is
a measure that we and investors use to assess capital adequacy. Tangible
common shareholders' equity is a
non-GAAP
measure and may not be comparable to 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 and not subject to performance conditions
(collectively, basic shares) of 347.5 million as of
358.8 million as of
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.
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Table of Contents
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management's Discussion and Analysis
Funding Sources
Our primary sources of funding are deposits, collateralized financings,
unsecured short- and long-term borrowings, and shareholders' equity. We seek to
maintain broad and diversified funding sources globally across products,
programs, markets, currencies and creditors to avoid funding concentrations.
The table below presents information about our funding sources.
As of
$ in millions September 2021 December 2020
Deposits $333,038 35% $259,962 33%
Collateralized financings 228,558 24% 173,947 22%Unsecured short-term borrowings 48,990 5% 52,870
6%
Unsecured long-term borrowings 242,780 25% 213,481
27% Total shareholders' equity 106,297 11% 95,932 12% Total$959,663 100%$796,192 100% Our funding is primarily raised inU.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 theAmericas ,Europe andAsia . 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. We raise deposits, including savings, demand and time deposits, from private bank clients, consumers, transaction banking clients, other institutional clients, and through internal and third-party broker-dealers. Substantially all of our deposits are raised throughGS Bank USA and GSIB. See Note 13 to the consolidated financial statements for further information about our deposits. Secured Funding. We fund a significant amount of inventory and a portion of investments on a secured basis. Secured funding includes collateralized financings in the consolidated balance sheets. We may also pledge our inventory and investments as collateral for securities borrowed under a securities lending agreement. We also use our own inventory and investments 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 analyze the refinancing risk of our secured funding activities, taking into account trade tenors, maturity profiles, counterparty concentrations, collateral eligibility and counterparty rollover probabilities. We seek to mitigate our refinancing risk by executing term trades with staggered maturities, diversifying counterparties, raising excess secured funding and pre-funding residual risk through our GCLA. We seek to raise secured funding with a term appropriate for the liquidity of the assets that are being financed, and we seek longer maturities for secured funding collateralized by asset classes that may be harder to fund on a secured basis, especially during times of market stress. Our secured funding, excluding funding collateralized by liquid government and agency obligations, is primarily executed for tenors of one month or greater and is primarily executed through term repurchase agreements and securities loaned contracts. The weighted average maturity of our secured funding included in collateralized financings in the consolidated balance sheets, excluding funding that can only be collateralized by liquid government and agency obligations, exceeded 120 days as ofSeptember 2021 . Assets that may be harder to fund on a secured basis during times of market stress include certain financial instruments in the following categories: mortgage and other asset-backed loans and securities, non-investment-grade corporate debt securities, equity securities and emerging market securities. Assets that are classified in level 3 of the fair value hierarchy are generally funded on an unsecured basis. See Notes 4 through 10 to the consolidated financial statements for further information about the classification of financial instruments in the fair value hierarchy and "Unsecured Long-Term Borrowings" below for further information about the use of unsecured long-term borrowings as a source of funding. We also raise financing through other types of collateralized financings, such as secured loans and notes.GS Bank USA has access to funding from theFederal Home Loan Bank . Our outstanding borrowings against theFederal Home Loan Bank were$100 million as ofSeptember 2021 and we had no outstanding borrowings as ofDecember 2020 . Additionally, we have access to funding through theFederal Reserve discount window. However, we do not rely on this funding in our liquidity planning and stress testing. 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, includingU.S. and non-U.S. hybrid financial instruments and commercial paper, to finance liquid assets and for other cash management purposes. In accordance with regulatory requirements,Group Inc. does not issue debt with an original maturity of less than one year, other than to its subsidiaries. See Note 14 to the consolidated financial statements for further information about our unsecured short-term borrowings.
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Table of Contents THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Management's Discussion and Analysis Unsecured Long-Term Borrowings. Unsecured long-term borrowings, including structured notes, are raised through syndicatedU.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 our quarterly unsecured long-term borrowings maturity profile. First Second Third Fourth $ in millions Quarter Quarter Quarter Quarter Total As ofSeptember 2021 2022 $ - $ - $ -$7,767 $ 7,767 2023$14,396 $7,018 $9,084 $7,820 38,318 2024$ 8,629 $9,092 $8,939 $3,580 30,240 2025$ 6,868 $9,831 $5,719 $5,588 28,006 2026$ 6,231 $3,729 $6,584 $6,061 22,605 2027 - thereafter 115,844 Total$242,780 The weighted average maturity of our unsecured long-term borrowings as ofSeptember 2021 was approximately seven years. To mitigate refinancing risk, we seek to limit the principal amount of debt maturing over the course of any monthly, quarterly or annual time horizon. We enter into interest rate swaps to convert a portion of our unsecured long-term borrowings into floating-rate obligations to manage our exposure to interest rates. See Note 14 to the consolidated financial statements for further information about our unsecured long-term borrowings. Shareholders' Equity. Shareholders' equity is a stable and perpetual source of funding. See Note 19 to the consolidated financial statements for further information about our shareholders' equity.Capital Management andRegulatory 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. Capital Management We determine the appropriate amount and composition of our capital by considering multiple factors, including our current and future regulatory capital requirements, the results of our capital planning and stress testing process, the results of resolution capital models and other factors, such as rating agency guidelines, subsidiary capital requirements, the business environment and conditions in the financial markets. We manage our capital requirements and the levels of our capital usage principally by setting limits on the balance sheet and/or limits on risk, in each case at both the firmwide and business levels. We principally manage the level and composition of our capital through issuances and repurchases of our common stock. We may issue, redeem 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 such redemptions or repurchases, we must receive approval from the FRB. See Notes 14 and 19 to the consolidated financial statements for further information about our preferred stock, junior subordinated debt issued to trusts and other subordinated debt. Capital Planning and Stress Testing Process. 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. Our capital planning process incorporates an internal capital adequacy assessment with the objective of ensuring that we are appropriately capitalized relative to the risks in our businesses. We incorporate stress scenarios into our capital planning process with a goal of holding sufficient capital to ensure we remain adequately capitalized after experiencing a severe stress event. Our assessment of capital adequacy is viewed in tandem with our assessment of liquidity adequacy and is integrated into our overall risk management structure, governance and policy framework. Our stress tests incorporate our internally designed stress scenarios, including our internally developed severely adverse scenario, and those required by the FRB, and are designed to capture our specific vulnerabilities and risks. We provide further information about our stress test processes and a summary of the results on our website as described in "Available Information." As required by the FRB's CCAR rules, we submit an annual capital plan for review by the FRB. The purpose of the FRB's review is to ensure that we have a robust, forward-looking capital planning process that accounts for our unique risks and that permits continued operation during times of economic and financial stress.
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Table of Contents THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Management's Discussion and Analysis The FRB evaluates us based, in part, on whether we have the capital necessary to continue operating under the baseline and severely adverse scenarios provided by the FRB and those developed internally. This evaluation also takes into account our process for identifying risk, our controls and governance for capital planning, and our guidelines for making capital planning decisions. In addition, the FRB evaluates our plan to make capital distributions (i.e., dividend payments and repurchases or redemptions of stock, subordinated debt or other capital securities) and issue capital, across the range of macroeconomic scenarios and firm-specific assumptions. The FRB determines the SCB applicable to us based on its own annual stress test. The SCB under the Standardized approach is calculated as (i) the difference between our starting and minimum projected CET1 capital ratios under the supervisory severely adverse scenario and (ii) our planned common stock dividends for each of the fourth through seventh quarters of the planning horizon, expressed as a percentage of risk-weighted assets (RWAs). We submitted our 2021 CCAR capital plan inApril 2021 and published a summary of our annual DFAST results inJune 2021 . See "Available Information." Based on our 2021 CCAR submission, the FRB reduced our SCB from 6.6% to 6.4%, resulting in a Standardized CET1 capital ratio requirement of 13.4%, which is effective for the period fromOctober 1, 2021 throughSeptember 30, 2022 . See "Share Repurchase Program" for further information about common stock repurchases and dividends.GS Bank USA has its own capital planning process and, starting in 2022, will be required to submit its annual stress test results to the FRB. GSI, GSIB andGoldman Sachs Bank Europe SE (GSBE) also have their own capital planning and stress testing process, which incorporates internally designed stress tests developed in accordance with the guidelines of their respective regulators. 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 actual capital deficiency, including, but not limited to, identification of drivers of a capital deficiency, as well as mitigants and potential actions. It outlines the appropriate communication procedures to follow during a crisis period, including internal dissemination of information, as well as timely communication with external stakeholders. Capital Attribution. We assess each of our businesses' capital usage based on our internal assessment of risks, which incorporates an attribution 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, which includes the Standardized risk-based capital and leverage ratios. We review and make any necessary adjustments to our attributed equity framework each year, in January, to reflect our final CCAR results from the prior year. OnJanuary 1, 2021 , we adjusted our attributed equity framework to reflect the results of our 2020 CCAR submission. The adjusted attributed equity framework places greater emphasis on activities that generate significant stress losses and higher Standardized risk weights. As a result of this adjustment, relative to the allocation as ofDecember 2020 , the allocation of attributed equity among our segments at the start of this year changed as follows: attributed equity increased by approximately$3.7 billion for Asset Management and approximately$0.7 billion for Consumer & Wealth Management, while attributed equity decreased by approximately$2.3 billion for Global Markets and approximately$2.1 billion for Investment Banking. See "Segment Assets and Operating Results - Segment Operating Results" for information about our average quarterly attributed equity by segment. 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 and accelerated share repurchases), the amounts and timing of which are determined primarily by our current and projected capital position and our capital plan submitted to the FRB as part of CCAR. The amounts and timing of the repurchases may also be influenced by general market conditions and the prevailing price and trading volumes of our common stock. In the third quarter of 2021, the Board of Directors ofGroup Inc. (Board) approved an increase in our common stock dividend from$1.25 to$2.00 per share. During the third quarter of 2021, we returned a total of$1.70 billion to shareholders, including common stock repurchases of$1.00 billion and$700 million in common stock dividends. Consistent with our capital management philosophy, we will continue prioritizing deployment of capital for our clients where returns are attractive and return any excess capital to shareholders through share repurchases and dividends.
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Table of Contents THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Management's Discussion and Analysis As ofSeptember 2021 , the remaining share authorization under our existing repurchase program was 35.6 million shares. See "Unregistered Sales ofEquity Securities and Use of Proceeds" in Part II, Item 2 of this Form 10-Q and Note 19 to the consolidated financial statements for further information about our share repurchase program, and see above for information about our capital planning and stress testing process. Resolution Capital Models. In connection with our resolution planning efforts, we have established a 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, GSBE,Goldman Sachs Japan Co., Ltd. (GSJCL),Goldman Sachs Asset Management, L.P. andGoldman Sachs Asset Management International ) have access 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 aGroup Inc. bankruptcy filing in accordance with our preferred resolution strategy. 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 forGroup Inc. Rating Agency Guidelines The credit rating agencies assign credit ratings to the obligations ofGroup 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 , GSIB and GSBE 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 ofGroup Inc. The level and composition of our capital are among the many factors considered in determining our credit ratings. Each agency has its own definition of eligible capital and methodology for evaluating capital adequacy, and assessments are generally based on a combination of factors rather than a single calculation. See "Risk Management - Liquidity Risk Management - Credit Ratings" for further information about credit ratings ofGroup Inc. ,GS Bank USA , GSIB, GSBE, GS&Co. and GSI.Consolidated Regulatory Capital We are subject to consolidated regulatory capital requirements which are calculated in accordance with the regulations of the FRB (Capital Framework). Under the Capital Framework, we are an "Advanced approach" banking organization and have been designated as a global systemically important bank (G-SIB). The capital requirements calculated under the Capital Framework include the capital conservation buffer requirements, which are comprised of a 2.5% buffer (under the Advanced Capital Rules), the SCB (under theStandardized Capital Rules), a countercyclical capital buffer (under both Capital Rules) and the G-SIB surcharge (under both Capital Rules). Our G-SIB surcharge is 2.5% for 2021 and 2022. We expect that our G-SIB surcharge will be 3.0% beginning in 2023. Based on financial data for the nine months endedSeptember 2021 , our current estimate is that we are above the threshold for the 3.5% G-SIB surcharge. The earliest this surcharge could be effective isJanuary 2024 . The G-SIB surcharge and countercyclical capital buffer in the future may differ due to additional guidance from our regulators and/or positional changes, and our SCB is likely to change from year to year based on the results of the annual supervisory stress tests. Our target Standardized CET1 capital ratio remains in a range between 13.0% and 13.5% (including management buffers) based upon the execution of our previously announced strategic initiatives and achievement of capital efficiencies. However, in light of our most recent SCB based on our 2021 CCAR submission, achieving this target by year-end 2022 will be challenging. See Note 20 to the consolidated financial statements for further information about our risk-based capital ratios and leverage ratios, and the Capital Framework. Total Loss-Absorbing Capacity (TLAC) We are also subject to the FRB's TLAC and related requirements. Failure to comply with the TLAC and related requirements could result in restrictions being imposed by the FRB and could limit our ability to repurchase shares, pay dividends and make certain discretionary compensation payments. The table below presents TLAC and external long-term debt requirements. As of September December 2021 2020 TLAC to RWAs 21.5% 22.0% TLAC to leverage exposure 9.5% 9.5% External long-term debt to RWAs 8.5% 8.5% External long-term debt to leverage exposure 4.5% 4.5%
In the table above:
• As of both
included (i) the 18% minimum, (ii) the 2.5% buffer, (iii) the countercyclical
capital buffer, which the FRB has set to zero percent and (iv) the
G-SIB
surcharge (Method 1). The
G-SIB
surcharge (Method 1) was 1.0% as of September 2021 and 1.5% as of
December 2020 .
• The TLAC to leverage exposure requirement includes (i) the 7.5% minimum and
(ii) the 2.0% leverage exposure buffer.
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Table of Contents THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Management's Discussion and Analysis
• The external long-term debt to RWAs requirement includes (i) the 6% minimum
and (ii) the 2.5%
G-SIB
surcharge (Method 2).
• The external long-term debt to total leverage exposure is the 4.5% minimum.
The table below presents information about our TLAC and external long-term debt
ratios.
For the Three Months
Ended or as of
September December
$ in millions 2021 2020
TLAC $
283,881 $ 242,730
External long-term debt $
166,200 $ 139,200
RWAs $
672,061 $ 609,750
Leverage exposure $1,844,274 $1,332,937
TLAC to RWAs 42.2% 39.8%
TLAC to leverage exposure 15.4% 18.2%
External long-term debt to RWAs 24.7% 22.8%
External long-term debt to leverage exposure 9.0% 10.4% In the table above:
• TLAC includes common and preferred stock, and eligible long-term debt issued
by
remaining maturity of at least one year and satisfies additional requirements.
• External long-term debt consists of eligible long-term debt subject to a
haircut if it is due to be paid between one and two years.
• RWAs represent Advanced RWAs as of both
accordance with the TLAC rules, the higher of Advanced or Standardized RWAs
are used in the calculation of TLAC and external long-term debt ratios and
applicable requirements.
• Leverage exposure consists of average adjusted total assets and certain
off-balance
sheet exposures. Leverage exposure for the three months ended
excluded average holdings of
the
as permitted by the FRB under a temporary amendment. This temporary amendment
had the effect of increasing the TLAC to leverage exposure ratio and the
external long-term debt to leverage ratio. The impact of this temporary
amendment was an increase to the TLAC to leverage exposure ratio of
2.4 percentage points and the external long-term debt to leverage exposure
ratio of 1.3 percentage points for the three months ended
amendment permitting this exclusion expired on
See "Business - Regulation" in Part I, Item 1 of the 2020 Form 10-K for further information about TLAC. 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 primaryU.S. banking subsidiary and GSIB and GSBE are our primary non-U.S. banking subsidiaries. These entities are subject to regulatory capital requirements. See Note 20 to the consolidated financial statements for further information about the regulatory capital requirements of our bank subsidiaries.U.S. Regulated Broker-Dealer Subsidiaries. GS&Co. is our primaryU.S. regulated broker-dealer subsidiary and is subject to regulatory capital requirements, including those imposed by theSEC and theFinancial Industry Regulatory Authority, Inc. In addition, GS&Co. is a registered futures commission merchant and is subject to regulatory capital requirements imposed by the CFTC, theChicago Mercantile Exchange and theNational Futures Association . Rule 15c3-1 of theSEC 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$19.67 billion as ofSeptember 2021 and$22.38 billion as ofDecember 2020 , which exceeded the amount required by$15.52 billion as ofSeptember 2021 and$18.45 billion as ofDecember 2020 . 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 theSEC in the event that its tentative net capital is less than$5 billion . As of bothSeptember 2021 andDecember 2020 , 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.
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Table of Contents THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Management's Discussion and Analysis GSI, ourU.K. broker-dealer, is regulated by thePrudential Regulation Authority (PRA) and theFinancial Conduct Authority (FCA). GSI is subject to theU.K. capital framework, which is predominantly aligned with the E.U. capital framework prescribed in the amendedE.U. Capital Requirements Directive (CRD) and the E.U. Capital Requirements Regulation (CRR). These capital regulations are largely based on theBasel Committee on Banking Supervision's (Basel Committee) capital framework for strengthening international capital standards (Basel III). The table below presents GSI's risk-based capital requirements. As of September December 2021 2020 Risk-based capital requirements CET1 capital ratio 8.1% 8.1% Tier 1 capital ratio 9.9% 10.0% Total capital ratio 12.3% 12.5%
In the table above, the risk-based capital requirements incorporate capital guidance received from the PRA and could change in the future. The table below presents information about GSI's risk-based capital ratios.
As of
September December
$ in millions 2021 2020
Risk-based capital and risk-weighted assets
CET1 capital $ 28,345 $ 26,962
Tier 1 capital $ 36,645 $ 35,262
Tier 2 capital $ 5,377 $ 5,377
Total capital $ 42,022 $ 40,639
RWAs $278,483 $252,355
Risk-based capital ratios
CET1 capital ratio 10.2% 10.7%
Tier 1 capital ratio 13.2% 14.0%
Total capital ratio 15.1% 16.1%
In the table above, CET1 capital, Tier 1 capital and Total capital as of
September 2021 include GSI's profits after foreseeable charges for the three
months ended September 2021 (which will be finalized upon verification by GSI's
external auditors and approval by the PRA for inclusion in risk-based capital).
These profits contributed approximately 25 basis points to the risk-based
capital ratios.
GSI will become subject to a
PRA-required
leverage ratio that is expected to become effective in January 2022 and is
similar to the E.U. capital framework's minimum 3% leverage ratio requirement.
GSI had a leverage ratio of 4.0% as of September 2021 and 4.7% as of
December 2020 . Tier 1 capital as of September 2021 included GSI's profits after
foreseeable charges for the three months ended September 2021 (which will be
finalized upon verification by GSI's external auditors and approval by the PRA
for inclusion in risk-based capital). These profits contributed approximately
7 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 the U.K. leverage ratio framework
with GSI's regulators.
GSI is also subject to a minimum requirement for own funds and eligible
liabilities issued to affiliates. This requirement is subject to a transitional
period which began to phase in from January 2019 and will become fully effective
beginning in January 2022 . As of both September 2021 and December 2020 , GSI was
in compliance with this requirement.
GSJCL, our Japanese broker-dealer, is regulated by Japan's Financial Services
Agency . GSJCL and certain other
non-U.S.
subsidiaries are also subject to capital requirements promulgated by authorities
of the countries in which they operate. As of both September 2021 and
December 2020 , these subsidiaries were in compliance with their local capital
requirements.
Regulatory and Other Matters
Regulatory Matters
Our businesses are subject to extensive regulation and supervision worldwide.
Regulations have been adopted or are being considered by regulators and policy
makers worldwide. Given that many of the new and proposed rules are highly
complex, the full impact of regulatory reform will not be known until the rules
are implemented and market practices develop under the final regulations.
In October 2021 , rules issued by the CFTC establishing capital and financial
reporting requirements for swap dealers, as well as rules issued by the SEC
establishing capital, margin and segregation requirements for security-based
swap dealers became effective. Our subsidiaries subject to these rules were
compliant with the relevant requirements as of the effective date.
See "Business - Regulation" in Part I, Item 1 of the 2020
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.
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Table of Contents THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Management's Discussion and Analysis Other Matters Replacement of Interbank Offered Rates (IBORs), including LIBOR. Central banks and regulators in a number of major jurisdictions (for example,U.S. ,U.K. , E.U.,Switzerland andJapan ) have convened working groups to find and implement the transition to suitable replacements for IBORs. InMarch 2021 , theFCA and theIntercontinental Exchange Benchmark Authority announced that the publication of all EUR and CHF LIBOR settings along with certain JPY, GBP and USD LIBOR settings will cease afterDecember 31, 2021 and the publication of the most commonly used USD LIBOR settings will cease afterJune 30, 2023 . TheFCA continues to consult the market on publishing synthetic rates for certain GBP and JPY LIBOR settings for a limited time. InApril 2021 , theState of New York approved legislation which minimizes legal and economic uncertainty for contracts that are governed byNew York law and have no fallback provisions or have fallback provisions that are based on LIBOR by providing a statutory framework to replace LIBOR with a benchmark rate based on the Secured Overnight Financing Rate (SOFR). TheU.S. federal banking agencies have also issued guidance strongly encouraging banking organizations to cease using USD LIBOR as a reference rate in new contracts as soon as practicable and in any event byDecember 31, 2021 .The International Swaps and Derivatives Association (ISDA) 2020 IBOR Fallbacks Protocol (IBOR Protocol), which became effective inJanuary 2021 , provides derivatives market participants with amended fallbacks for legacy and new derivatives contracts to mitigate legal or economic uncertainty. Both counterparties will have to adhere to the IBOR Protocol or engage in bilateral amendments for the terms to be effective for derivative contracts. ISDA confirmed that theFCA's formal announcement inMarch 2021 fixed the spread adjustment for all LIBOR rates and that fallbacks will automatically occur for outstanding derivatives contracts that incorporate the relevant terms. We have a program in place that focuses on achieving an orderly transition from IBORs to alternative risk-free reference rates for us and our clients, and continue to make progress on our transition program. As part of this transition, we continue to actively engage with our regulators and clients, as well as participate in central bank and sector working groups. The majority of our LIBOR risk exposure is to USD LIBOR, which is primarily in connection with our derivative contracts and to a lesser extent our unsecured debt, preferred stock and loan portfolio. For non-USD LIBOR, substantially all of our risk exposure is in connection with derivative contracts. Our derivative contracts are primarily with counterparties under bilateral agreements which adhere to the IBOR Protocol or with central clearing counterparties which have incorporated fallbacks consistent with the IBOR Protocol in their rule books and have announced that they plan, and have begun, to convert all LIBOR contracts to alternative risk-free reference rates before LIBOR cessation. We continue to monitor the potential legislative developments as they relate to unsecured debt and preferred stock and will take actions designed to facilitate an orderly transition. We are also engaged with our clients in order to remediate our loan agreements through bilateral amendments. We have also issued debt and deposits linked to SOFR and Sterling Overnight Index Average (SONIA) and executed SOFR- and SONIA-based derivative contracts to make markets and facilitate client activities. When appropriate, we continue to execute transactions in the market to reduce our LIBOR exposures arising from hedges to our fixed-rate debt issuances and replace them with alternative risk-free reference rate exposures. See "Regulatory and Other Matters - Other Matters" in Part II, Item 7 of the 2020 Form 10-K for further information about our transition program. Impact of COVID-19 Pandemic. During the third quarter of 2021, the spike in infections from the spread of the Delta variant put heightened focus on efforts to increase vaccination rates in order to make further progress against the virus. Although the global recovery continued to progress, the rising number of infections had the effect of tempering the pace of economic growth.
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Table of Contents THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Management's Discussion and Analysis We have continued to successfully execute on our Business Continuity Planning (BCP) strategy since initially activating it in the first quarter of 2020 in response to the emergence of the COVID-19 pandemic. Our priority has been to safeguard our employees and to seek to ensure continuity of business operations on behalf of our clients. Our business continuity response to the COVID-19 pandemic is managed by a central team, which is led by our chief administrative officer and chief medical officer, and includes senior management within Risk and the chief operating officers across all regions and businesses. We remain focused on facilitating the safe return of our employees to our offices, as circumstances permit, and employees in a number of our locations around the world have returned to the office to varying degrees, including a majority of employees in theU.S. Given that the situation regarding COVID-19 varies geographically, our approach to transitioning back to the office is tailored to each location, and it evolves as the specific conditions and requirements of each location change. Our systems and infrastructure have been robust throughout the COVID-19 pandemic, enabling us to conduct our activities without disruption. Communication throughout our organization has remained active during the pandemic and our risk management processes have continued to operate in a rigorous and disciplined manner. We maintained high liquidity levels during the third quarter of 2021, as our GCLA averaged$356 billion . We have continued to access our traditional funding sources in the normal course and service our debt and other obligations on a timely basis. See "Balance Sheet and Funding Sources" and "Risk Management - Liquidity Risk Management" for further information. Accounting estimates, particularly those made in connection with determining the allowance for credit losses and the fair value of certain level 3 assets, are sensitive to assumptions regarding future economic conditions. Predicting the trajectory of the economic recovery is highly judgmental given the uncertainty as to how the pandemic will evolve, as it will largely depend on the extent to which the Delta variant continues to spread, the emergence of other mutations of the virus and further progress with vaccine distribution. See Note 9 to the consolidated financial statements for further information about our allowance for credit losses and Note 4 to the consolidated financial statements for further information about fair value measurements. The market backdrop was generally favorable during the third quarter of 2021 and supported healthy levels of client activity, although at the end of the quarter anxiety over the trajectory of inflation, uncertainty regardingU.S. economic policy and longer-term extension of the federal debt ceiling intensified and volatility increased. We continued to deploy our balance sheet to intermediate risk and to support the needs of clients. We have maintained our proactive approach to managing market risk levels, which entails ongoing review and monitoring of exposures and focusing on ways to mitigate risk. As a result of the improved broader economic backdrop, credit risk in general has abated from the depths of the pandemic, including the risk associated with industries that were most severely impacted by lockdowns, such as hospitality and airlines. However, the operating environment remains unpredictable and we continue to closely monitor our exposures to industries that are most at risk to encountering financial stress due to the persistence of the pandemic. See "Risk Management - Market Risk Management" and "- Credit Risk Management" for further information. Economies around the world continue to be susceptible to potential adverse developments related to the pandemic, such as additional waves of infection, a worsening of supply chain constraints and an intensification of inflationary pressures. If the future effects of the pandemic were to lead to a sustained period of economic weakness, our businesses would be negatively impacted. This would have a negative impact on factors that are important to our operating performance, such as the level of client activity, creditworthiness of counterparties and borrowers, and the amount of our AUS. We will continue to closely monitor the rollout of vaccines across regions, as well as the impact of new variants of the virus, and will take further actions, as necessary, in order to best serve the interests of our employees, clients and counterparties. For further information about the risks associated with the COVID-19 pandemic, see "Risk Factors" in Part I, Item 1A of the 2020 Form 10-K.
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Table of Contents THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Management's Discussion and Analysis
Off-Balance
Sheet Arrangements and Contractual Obligations
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; and
• Providing guarantees, indemnifications, commitments, letters of credit and
representations and warranties.
We enter into these arrangements for a variety of business purposes, including securitizations. The securitization vehicles that purchase mortgages, corporate bonds, and other types of financial assets are critical to the functioning of several significant investor markets, including the mortgage-backed and other asset-backed securities markets, since they offer investors access to specific cash flows and risks created through the securitization process. We also enter into these arrangements to underwrite client securitization transactions; provide secondary market liquidity; make investments in performing and nonperforming debt, distressed loans, power-related assets, equity securities, real estate and other assets; provide investors with credit-linked and asset-repackaged notes; and receive or provide letters of credit to satisfy margin requirements and to facilitate the clearance and settlement process. The table below presents where information about our various off-balance sheet arrangements may be found in this Form 10-Q. In addition, see Note 3 to the consolidated financial statements for information about our consolidation policies. Off-Balance Disclosure in Sheet Arrangement Form 10-Q Variable interests and other See Note 17 to the consolidated obligations, including contingent financial statements. obligations, arising from variable interests in nonconsolidated variable interest entities (VIEs) Guarantees, letters of credit, and See Note 18 to the
consolidated
lending and other commitments financial statements.
Derivatives See "Risk Management - Credit Risk
Management - Credit Exposures - OTC
Derivatives" and Notes 4, 5, 7 and 18
to the consolidated financial
statements.
Contractual Obligations
We have certain contractual obligations which require us to make future cash
payments. These contractual obligations include our time deposits, secured
long-term financings, unsecured long-term borrowings, interest payments and
operating lease payments.
Our obligations to make future cash payments also include our commitments and
guarantees related to
off-balance
sheet arrangements, which are excluded from the table below. See Note 18 to the
consolidated financial statements for further information about such commitments
and guarantees.
Due to the uncertainty of the timing and amounts that will ultimately be paid,
our liability for unrecognized tax benefits has been excluded from the table
below. See Note 24 to the consolidated financial statements for further
information about our unrecognized tax benefits.
The table below presents our contractual obligations by type.
As of
September December
$ in millions 2021 2020
Time deposits $ 24,057 $ 26,433
Financings and borrowings:
Secured long-term $ 9,585 $ 12,537
Unsecured long-term $242,780 $213,481
Interest payments $ 46,333 $ 44,073
Operating lease payments $ 3,031 $ 3,268 Goldman Sachs
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Table of Contents THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Management's Discussion and Analysis
The table below presents our contractual obligations by expiration.
As of September 2021
Remainder 2022 - 2024 - 2026 -
$ in millions of 2021 2023 2025 Thereafter
Time deposits $ - $12,392 $ 7,284 $ 4,381
Financings and borrowings:
Secured long-term $ - $ 4,316 $ 2,184 $ 3,085
Unsecured
long-term $ - $46,085 $58,246 $138,449
Interest payments $1,368 $10,474 $ 8,140 $ 26,351
Operating lease payments $ $ $
71 612 509 $ 1,839
In the table above:
• Obligations maturing within one year of our financial statement date or
redeemable within one year of our financial statement date at the option of
the holders are excluded as they are treated as short-term obligations. See
Note 14 to the consolidated financial statements for further information about
our short-term borrowings.
• Obligations that are repayable prior to maturity at our option are reflected
at their contractual maturity dates and obligations that are redeemable prior
to maturity at the option of the holders are reflected at the earliest dates
such options become exercisable.
• As of
through 2065, consisted principally of senior borrowings, and included
long-term borrowings resulting from the application of hedge accounting. See
Note 14 to the consolidated financial statements for further information about
our unsecured long-term borrowings.
• As of
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
which the fair value option was elected, exceeded the related aggregate
contractual principal amount by $290 million .
• Interest payments represents estimated future contractual interest payments
related to unsecured long-term borrowings, secured long-term financings and
time deposits based on applicable interest rates as of
includes stated coupons, if any, on structured notes.
• Operating lease payments includes lease commitments for office space that
expire on various dates through 2069. Certain agreements are subject to
periodic escalation provisions for increases in real estate taxes and other
charges. See Note 15 to the consolidated financial statements for further
information about our operating lease liabilities.
Risk Management Risks are inherent in our businesses and include liquidity, market, credit, operational, model, legal, compliance, conduct, regulatory and reputational risks. Our risks include the risks across our risk categories, regions or global businesses, as well as those which have uncertain outcomes and have the potential to materially impact our financial results, our liquidity and our reputation. For further information about our risk management processes, see "Overview and Structure of Risk Management," and for information about our areas of risk, see "Liquidity Risk Management," "Market Risk Management," "Credit Risk Management," "Operational Risk Management" and "Model Risk Management" and "Risk Factors" in Part I, Item 1A of the 2020 Form 10-K. Overview and Structure of Risk Management Overview We believe that effective risk management is critical to our success. Accordingly, we have established an enterprise risk management framework that employs a comprehensive, integrated approach to risk management, and is designed to enable comprehensive risk management processes through which we identify, assess, monitor and manage the risks we assume in conducting our activities. Our risk management structure is built around three core components: governance, processes and people. Governance. Risk management governance starts with the Board, which both directly and through its committees, including its Risk Committee, oversees our 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 objectives included in our strategic business plan, while remaining in compliance with regulatory requirements. The Board reviews our strategic business plan and is ultimately responsible for overseeing and providing direction about our strategy and risk appetite.
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Table of Contents THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Management's Discussion and Analysis The Board receives regular briefings on firmwide risks, including liquidity risk, market risk, credit risk, operational risk and model risk, from our independent risk oversight and control functions, including the chief risk officer, and on compliance risk and conduct risk from Compliance, on legal and regulatory enforcement matters from the chief legal officer, and on other matters impacting our reputation from the chair of ourFirmwide Client and Business Standards Committee and our Firmwide Reputational Risk Committee. The chief risk officer reports to our chief executive officer and to the Risk Committee of the Board. As part of the review of the firmwide risk portfolio, the chief risk officer regularly advises the Risk Committee of the Board of relevant risk metrics and material exposures, including risk limits and thresholds established in our risk appetite statement. The implementation of our risk governance structure and core risk management processes are overseen by Enterprise Risk, which reports to our chief risk officer, and is responsible for ensuring that our enterprise risk management framework provides the Board, our risk committees and senior management with a consistent and integrated approach to managing our various risks in a manner consistent with our risk appetite. Our revenue-producing units, as well asTreasury , Engineering,Human Capital Management , Operations, and Corporate and Workplace Solutions, are considered our first line of defense. They are accountable for the outcomes of our risk-generating activities, as well as for assessing and managing those risks within our risk appetite. Our independent risk oversight and control functions are considered our second line of defense and provide independent assessment, oversight and challenge of the risks taken by our first line of defense, as well as lead and participate in risk committees. Independent risk oversight and control functions include Compliance, Conflicts Resolution, Controllers, Legal, Risk and Tax. Internal Audit is considered our third line of defense and our director of Internal Audit reports to the Audit Committee of the Board and administratively to our chief executive officer. Internal Audit includes professionals with a broad range of audit and industry experience, including risk management expertise. Internal Audit is responsible for independently assessing and validating the effectiveness of key controls, including those within the risk management framework, and providing timely reporting to the Audit Committee of the Board, senior management and regulators. The three lines of defense structure promotes the accountability of first line risk takers, provides a framework for effective challenge by the second line and empowers independent review from the third line. Processes. We maintain various processes that are critical components of our risk management framework, including (i) risk identification and assessment, (ii) risk appetite, limit and threshold setting, (iii) risk reporting and monitoring, and (iv) risk decision-making.
• Risk Identification and Assessment.
We believe that the identification and assessment of our risks is a critical
step in providing our Board and senior management transparency and insight
into the range and materiality of our risks. We have a comprehensive data
collection process, including firmwide policies and procedures that require
all employees to report and escalate risk events. Our approach for risk
identification and assessment is comprehensive across all risk types, is
dynamic and forward-looking to reflect and adapt to our changing risk profile
and business environment, leverages subject matter expertise, and allows for
prioritization of our most critical risks.
To effectively assess our risks, we maintain a daily discipline of marking substantially all of our inventory to current market levels. We carry our inventory at fair value, with changes in valuation reflected immediately in our risk management systems and in net revenues. We do so because we believe this discipline is one of the most effective tools for assessing and managing risk and that it provides transparent and realistic insight into our inventory exposures. An important part of our risk management process is firmwide stress testing. It allows us to quantify our exposure to tail risks, highlight potential loss concentrations, undertake risk/reward analysis, and assess and mitigate our risk positions. Firmwide stress tests are performed on a regular basis and are designed to ensure a comprehensive analysis of our vulnerabilities and idiosyncratic risks combining financial and nonfinancial risks, including, but not limited to, credit, market, liquidity and funding, operational and compliance, strategic, systemic and emerging risks into a single combined scenario. We also perform ad hoc stress tests in anticipation of market events or conditions. Stress tests are also used to assess capital adequacy as part of our capital planning and stress testing process. See "Capital Management andRegulatory Capital - Capital Management" for further information.
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Table of Contents THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Management's Discussion and Analysis
• Risk Appetite, Limit and Threshold Setting.
We 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, and monitoring these
limits.
The Risk Governance Committee is responsible for approving limits at firmwide, business and product levels. Certain limits may be set at levels that will require periodic adjustment, rather than at levels that reflect our maximum risk appetite. This fosters an ongoing dialogue about risk among our first and second lines of defense, committees and senior management, as well as rapid escalation of risk-related matters. Additionally, through delegated authority from the Risk Governance Committee, Market Risk sets limits at certain product and desk levels, and Credit Risk sets limits for individual counterparties, counterparties and their subsidiaries, industries and countries. Limits are reviewed regularly and amended on a permanent or temporary basis to reflect changing market conditions, business conditions or risk tolerance.
• Risk Reporting and Monitoring.
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 provide us with
complete, accurate and timely information. Our risk reporting and monitoring
processes are designed to take into account information about both existing
and emerging risks, thereby enabling our risk committees and senior management
to perform their responsibilities with the appropriate level of insight into
risk exposures. Furthermore, our limit and threshold breach processes provide
means for timely escalation. We evaluate changes in our risk profile and our
businesses, including changes in business mix or jurisdictions in which we
operate, by monitoring risk factors at a firmwide level.
• Risk Decision-Making.
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 committees that meet regularly and serve as an
important means to facilitate and foster ongoing discussions to manage and
mitigate risks.
We maintain strong and proactive communication about risk and we have a culture of collaboration in decision-making among our first and second lines of defense, committees and senior management. While our first line of defense is responsible for management of their risk, we dedicate extensive resources to our second line of defense in order to ensure a strong oversight structure and an appropriate segregation of duties. We regularly reinforce our strong culture of escalation and accountability across all functions. People. 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 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.
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Table of Contents THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Management's Discussion and Analysis
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,
councils or working groups, are described below. In addition to these
committees, we have other risk committees that provide oversight for different
businesses, activities, products, regions and entities. All of our committees
have responsibility for considering the impact on our reputation of the
transactions and activities that they oversee.
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.
[[Image Removed]]
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 overseeing all of our
financial and nonfinancial risks. As part of such oversight, the committee is
responsible for the ongoing review, approval and monitoring of our enterprise
risk management framework, as well as our risk limits framework. 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 or councils that report to the Firmwide
Enterprise Risk Committee:
•
relevant financial risks and related risk limits at the firmwide, business and
product levels. This council 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 controller and chief accounting officer, and the head of Operations and
Platform Engineering for the Global Markets Division, who are appointed as
chairs by the chairs of the Firmwide Enterprise Risk Committee.
•
overseeing operational risk, and for ensuring our business and operational
resilience. To assist the
in carrying out its mandate, other risk committees with dedicated oversight
for technology-related risks, including cyber security matters, report into
the
co-chaired
by our chief administrative officer and the head of Operational Risk, who are
appointed as chairs by the chairs of the Firmwide Enterprise Risk Committee.
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Table of Contents THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Management's Discussion and Analysis
• Firmwide Conduct Committee.
The Firmwide Conduct Committee is responsible for the ongoing approval and
monitoring of the frameworks and policies which govern our conduct risks.
Conduct risk is the risk that our people fail to act in a manner consistent
with our Business Principles and related core values, policies or codes, or
applicable laws or regulations, thereby falling short in fulfilling their
responsibilities to us, our clients, colleagues, other market participants or
the broader community. This committee is chaired by our chief legal officer,
who is appointed as chair by the chairs of the Firmwide Enterprise Risk
Committee.
• Risk Governance Committee.
The Risk Governance Committee (through delegated authority from the Firmwide
Enterprise Risk Committee) is responsible for the ongoing approval and
monitoring of risk frameworks, policies and parameters related to our core
risk management processes, as well as limits, at firmwide, business and
product levels. In addition, this committee reviews the results of stress
tests and scenario analyses. To assist the Risk Governance Committee in
carrying out its mandate, a number of other risk committees with dedicated
oversight for stress testing, model risks and Volcker Rule compliance report
into the Risk Governance Committee. This committee is chaired by our chief
risk officer, who is appointed as chair by the chairs of the Firmwide
Enterprise Risk Committee.
Firmwide Client and Business Standards Committee .The Firmwide Client and Business Standards Committee is responsible for overseeing relationships with our clients, client service and experience, and related business standards, as well as client-related reputational matters. 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 theFirmwide 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 and as determined by
committee leadership. This committee is chaired by our president and chief
operating officer, who is appointed as chair by the chief executive officer,
and the vice-chairs are our chief legal officer and the chair of Conflicts
Resolution, who are appointed as vice-chairs by the chair of the Firmwide
Reputational Risk Committee. This committee periodically provides updates to,
and receives guidance from, the Public Responsibilities Committee of the
Board.
• 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 our chief compliance officer, and the
co-headof EMEA FICC sales, who are appointed as chairs by the chair of the Firmwide
•
and lending activities on a portfolio basis, including review of risk
management and controls, and sets business standards and policies for these
types of investments. This committee is
co-chaired
by the head of our Asset Management Division , a
co-headof our Global Markets Division and the chief risk officer, who are appointed
as chairs by our president and chief operating officer and our chief financial
officer.
• Firmwide Capital Committee.
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 and the head of Americas Leveraged Finance, who are
appointed as chairs by the chairs of the Firmwide Enterprise Risk Committee.
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Table of Contents THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Management's Discussion and Analysis
• 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 procedures designed to ensure that legal,
reputational, regulatory and business standards are maintained on a global
basis. In addition to reviewing specific transactions, this committee
periodically 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, the chiefunderwriting officer for EMEA, and a managing director in our Investment
Banking Division, who are appointed as chairs by the chair of the Firmwide
Firmwide Asset Liability Committee. The Firmwide Asset Liability Committee reviews and approves the strategic direction for our financial resources, including capital, liquidity, funding and balance 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. Conflicts Management Conflicts of interest and our approach to dealing with them are fundamental to our client relationships, our reputation and our long-term success. The term "conflict of interest" does not have a universally accepted meaning, and conflicts can arise in many forms within a business or between businesses. The responsibility for identifying potential conflicts, as well as complying with our policies and procedures, is shared by all of our employees. We have a multilayered approach to resolving conflicts and addressing reputational risk. Our senior management oversees policies related to conflicts resolution, and, in conjunction with Conflicts Resolution, Legal and Compliance, theFirmwide Client and Business Standards Committee , and other internal committees, formulates policies, standards and principles, and assists in making judgments regarding the appropriate resolution of particular conflicts. Resolving potential conflicts necessarily depends on the facts and circumstances of a particular situation and the application of experienced and informed judgment. As a general matter, Conflicts Resolution reviews financing and advisory assignments in Investment Banking and certain of our investing, lending and other activities. In addition, we have various transaction oversight committees, such as theFirmwide Capital , Commitments and Suitability Committees and other committees that also review new underwritings, loans, investments and structured products. These groups and committees work with internal and external counsel and Compliance to evaluate and address any actual or potential conflicts. The head of Conflicts Resolution reports to our chief legal officer, who reports to our chief executive officer. We regularly assess our policies and procedures that address conflicts of interest in an effort to conduct our business in accordance with the highest ethical standards and in compliance with all applicable laws, rules and regulations. Compliance Risk Management Compliance risk is the risk of legal or regulatory sanctions, material financial loss or damage to our reputation arising from our failure to comply with the requirements of applicable laws, rules and regulations, and our internal policies and procedures. Compliance risk is inherent in all activities through which we conduct our businesses. Our Compliance Risk Management Program, administered by Compliance, assesses our compliance, regulatory and reputational risk; monitors for compliance with new or amended laws, rules and regulations; designs and implements controls, policies, procedures and training; conducts independent testing; investigates, surveils and monitors for compliance risks and breaches; and leads our responses to regulatory examinations, audits and inquiries. We monitor and review business practices to assess whether they meet or exceed minimum regulatory and legal standards in all markets and jurisdictions in which we conduct business.
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Table of Contents THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Management's Discussion and Analysis
Liquidity Risk Management
Overview
Liquidity risk is the risk that we will be unable to fund ourselves or meet our liquidity needs in the event of firm-specific, broader industry or market liquidity stress events. We have in place a comprehensive and conservative set of liquidity and funding policies. Our principal objective is to be able to fund ourselves and to enable our core businesses to continue to serve clients and generate revenues, even under adverse circumstances.Treasury , which reports to our chief financial officer, has primary responsibility for developing, managing and executing our liquidity and funding strategy within our risk appetite. Liquidity Risk, which is independent of our revenue-producing units andTreasury , 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 are determined by many factors, including market movements,
collateral requirements and client commitments, all of which can change
dramatically in a difficult funding environment;
• During a liquidity crisis, credit-sensitive funding, including unsecured debt,
certain deposits and some types of secured financing agreements, may be
unavailable, and the terms (e.g., interest rates, collateral provisions and
tenor) or availability of other types of secured financing may change and
certain deposits may be withdrawn; and
• As a result of our policy to
pre-fund
liquidity that we estimate may be needed in a crisis, we hold more
unencumbered securities and have larger funding balances than our businesses
would otherwise require. We believe that our liquidity is stronger with
greater balances of highly liquid unencumbered securities, even though it
increases our total assets and our funding costs.
We maintain our GCLA acrossGroup Inc. ,Goldman Sachs Funding LLC (Funding IHC) andGroup Inc.'s major broker-dealer and bank subsidiaries, asset types and clearing agents to provide us with sufficient operating liquidity to ensure timely settlement in all major markets, even in a difficult funding environment. In addition to the GCLA, we maintain cash balances and securities in several of our other entities, primarily for use in specific currencies, entities or jurisdictions where we do not have immediate access to parent company liquidity. Asset-Liability Management. Our liquidity 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;
• Actively managing and monitoring our asset base, with particular focus on the
liquidity, holding period and ability to fund assets on a secured basis. We
assess our funding requirements and our ability to liquidate assets in a
stressed environment while appropriately managing risk. This enables us todetermine 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
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Table of Contents THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Management's Discussion and Analysis
• 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 byGroup Inc. , which provides the necessary funds to Funding IHC and other subsidiaries, some of which are regulated, to meet their asset financing, liquidity and capital requirements. In addition,Group Inc. provides its regulated subsidiaries with the necessary capital to meet their regulatory requirements. The benefits of this approach to subsidiary funding are enhanced control and greater flexibility to meet the funding requirements of our subsidiaries. Funding is also raised at the subsidiary level through a variety of products, including deposits, secured funding and unsecured borrowings. Our intercompany funding policies assume that a subsidiary's funds or securities are not freely available to its parent, Funding IHC or other subsidiaries unless (i) legally provided for and (ii) there are no additional regulatory, tax or other restrictions. In particular, many of our subsidiaries are subject to laws that authorize regulatory bodies to block or reduce the flow of funds from those subsidiaries toGroup Inc. or Funding IHC. Regulatory action of that kind could impede access to funds thatGroup Inc. needs to make payments on its obligations. Accordingly, we assume that the capital provided to our regulated subsidiaries is not available toGroup Inc. or other subsidiaries and any other financing provided to our regulated subsidiaries is not available toGroup Inc. or Funding IHC until the maturity of such financing.Group Inc. has provided substantial amounts of equity and subordinated indebtedness, directly or indirectly, to its regulated subsidiaries. For example, as ofSeptember 2021 ,Group Inc. had$36.96 billion of equity and subordinated indebtedness invested in GS&Co., its principalU.S. registered broker-dealer;$44.52 billion invested in GSI, a regulatedU.K. broker-dealer;$2.66 billion invested in GSJCL, a regulated Japanese broker-dealer;$44.47 billion invested inGS Bank USA , a regulatedNew York State -chartered bank; and$4.27 billion invested in GSIB, a regulatedU.K. bank.Group Inc. also provides financing, directly or indirectly, in the form of:$112.49 billion of unsubordinated loans (including secured loans of$54.73 billion ) and$20.04 billion of collateral and cash deposits to these entities, substantially all of which was to GS&Co., GSI,GSJCL and GS Bank USA , as ofSeptember 2021 . In addition, as ofSeptember 2021 ,Group Inc. had significant amounts of capital invested in and loans to its other regulated subsidiaries. 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 in detail our potential responses if our assessments indicate that we have entered a liquidity crisis, which include pre-funding for what we estimate will be our potential cash and collateral needs, as well as utilizing secondary sources of liquidity. Mitigants and action items to address specific risks which may arise are also described and assigned to individuals responsible for execution. The contingency funding plan identifies key groups of individuals and their responsibilities, which include fostering effective coordination, control and distribution of information, implementing liquidity maintenance activities and managing internal and external communication, all of which are critical in the management of a crisis or period of market stress.
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Table of Contents THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Management's Discussion and Analysis Stress Tests In order to determine the appropriate size of our GCLA, we model liquidity outflows over a range of scenarios and time horizons. One of our primary internal liquidity risk models, referred to as the Modeled Liquidity Outflow, quantifies our liquidity risks over a 30-day stress scenario. We also consider other factors, including, but not limited to, an assessment of our potential intraday liquidity needs through an additional internal liquidity risk model, referred to as the Intraday Liquidity Model, the results of our long-term stress testing models, our resolution liquidity models and other applicable regulatory requirements and a qualitative assessment of our condition, as well as the financial markets. The results of the Modeled Liquidity Outflow, the Intraday Liquidity Model, the long-term stress testing models and the resolution liquidity models are reported to senior management on a regular basis. We also perform firmwide stress tests. See "Overview and Structure of Risk Management" for information about firmwide stress tests. Modeled Liquidity Outflow. 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, which includes low consumer and
corporate confidence, financial and political instability, and adverse changes
in market values, including potential declines in equity markets and widening
of credit spreads; and
• A firm-specific crisis potentially triggered by material losses, reputational
damage, litigation and/or a ratings downgrade.
The following are key modeling elements of our Modeled Liquidity Outflow:
• Liquidity needs over a
30-day
scenario;
• A
two-notch
downgrade of our long-term senior unsecured credit ratings;
• Changing conditions in funding markets, which limit our access to unsecured
and secured funding;
• No support from additional government funding facilities. Although we have
access to various central bank funding programs, we do not assume reliance on
additional sources of funding in a liquidity crisis; and
• A combination of contractual outflows, such as upcoming maturities of
unsecured debt, and contingent outflows, including, but not limited to, the
withdrawal of customer credit balances in our prime brokerage business,
increase in variation margin requirements due to adverse changes in the value
of our exchange-traded and
OTC-cleared
derivatives, and withdrawals of deposits that have no contractual maturity.
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. 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. Resolution Liquidity Models. In connection with our resolution planning efforts, we have established our Resolution Liquidity Adequacy and 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 aGroup Inc. bankruptcy filing in accordance with our preferred resolution strategy. 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 forGroup Inc. Limits We use liquidity risk limits at various levels and across liquidity risk types to manage the size of our liquidity exposures. Limits are measured relative to acceptable levels of risk given our liquidity risk tolerance. See "Overview and Structure of Risk Management" for information about the limit approval process. Limits are monitored byTreasury and Liquidity Risk. Liquidity Risk is responsible for identifying and escalating to senior management and/or the appropriate risk committee, on a timely basis, instances where limits have been exceeded.
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Table of Contents THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Management's Discussion and Analysis 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, a qualitative assessment of our condition, as well as the financial markets, we believe our liquidity position as of bothSeptember 2021 andDecember 2020 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 liquidity in our GCLA, such as less liquid unencumbered securities or committed credit facilities. The table below presents information about our GCLA. Average for the Three Months Ended September June $ in millions 2021 2021 Denomination U.S. dollar$233,010 $217,977 Non-U.S. dollar 123,067 111,427 Total$356,077 $329,404 Asset Class Overnight cash deposits$199,545 $171,007 U.S. government obligations 110,081 106,708 U.S. agency obligations 10,015 8,227 Non-U.S. government obligations 36,436 43,462 Total$356,077 $329,404 Entity Type Group Inc. and Funding IHC$ 60,510 $ 53,327 Major broker-dealer subsidiaries 112,961 102,593 Major bank subsidiaries 182,606 173,484 Total$356,077 $329,404 In the table above:
• The
and agency obligations (including highly liquid
obligations), all of which are eligible as collateral in
market operations and (ii) certain overnight
• The
non-
dollar-denominated GCLA consists of
non-
government obligations (only unencumbered German, French, Japanese and
government obligations) and certain overnight cash deposits in highly liquid
currencies.
We maintain our GCLA to enable us to meet current and potential liquidity requirements of our parent company,Group Inc. , and its subsidiaries. Our Modeled Liquidity Outflow and Intraday Liquidity Model incorporate a requirement forGroup 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 toGroup 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 toGroup Inc. or Funding IHC unless (i) legally provided for and (ii) there are no additional regulatory, tax or other restrictions. In addition, the Modeled Liquidity Outflow and Intraday Liquidity Model also incorporate a broader assessment of standalone liquidity requirements for other subsidiaries and we hold a portion of our GCLA directly atGroup Inc. or Funding IHC to support such requirements. Other Unencumbered Assets. In addition to our GCLA, we have a significant amount of other unencumbered cash and financial instruments, 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$256.84 billion for the three months endedSeptember 2021 and$249.61 billion for the three months endedJune 2021 . 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 theU.S. federal bank regulatory agencies. The LCR rule requires organizations to maintain an adequate ratio of eligible high-quality liquid assets (HQLA) to expected net cash outflows under an acute, short-term liquidity stress scenario. Eligible HQLA excludes HQLA held by subsidiaries that is in excess of their minimum requirement and is subject to transfer restrictions. We are required to maintain a minimum LCR of 100%. We expect that fluctuations in client activity, business mix and the market environment will impact our LCR.
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Table of Contents THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Management's Discussion and Analysis
The table below presents information about our average daily LCR.
Average for the
Three Months Ended
September June
$ in millions 2021 2021
Total HQLA $344,351 $318,525
Eligible HQLA $249,915 $238,397
Net cash outflows $196,664 $172,895
LCR 127% 138%
In October 2020 , the U.S. federal bank regulatory agencies issued a final rule
that establishes a net stable funding ratio (NSFR) requirement for large U.S.
banking organizations. This rule became effective on July 1, 2021 and requires
banking organizations to ensure they have access to stable funding over a
one-year
time horizon. The rule also requires disclosure of the ratio on a semi-annual
basis and a description of the banking organization's stable funding sources
beginning in 2023. Our NSFR as of September 2021 exceeded the minimum
requirement.
The following provides information about our subsidiary liquidity regulatory
requirements:
•
the
LCR exceeded the minimum requirement. The NSFR requirement described above
also applies to
the minimum requirement.
• GSI.
GSI is subject to a minimum LCR of 100% under the LCR rule approved by the
twelve-month period ended
will become subject to the applicable NSFR requirement in the
expected to become effective in
• Other Subsidiaries.
We monitor local regulatory liquidity requirements of our subsidiaries to
ensure compliance. For many of our subsidiaries, these 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.
The implementation of these rules and any amendments adopted by the regulatory authorities could impact our liquidity and funding requirements and practices in the future. Credit Ratings We rely on the short- and long-term debt capital markets to fund a significant portion of our day-to-day operations and the cost and availability of debt financing is influenced by our credit ratings. Credit ratings are also important when we are competing in certain markets, such as OTC derivatives, and when we seek to engage in longer-term transactions. See "Risk Factors" in Part I, Item 1A of the 2020 Form 10-K for information about the risks associated with a reduction in our credit ratings. The table below presents the unsecured credit ratings and outlook ofGroup Inc. As of September 2021 DBRS Fitch Moody's R&I S&P Short-term debt R-1 (middle ) F1 P-1 a-1 A-2 Long-term debt A (high ) A A2 A BBB+ Subordinated debt A BBB+ Baa2 A- BBB- Trust preferred A BBB- Baa3 N/A BB Preferred stock BBB (high ) BBB- Ba1 N/A BB Ratings outlook Stable Stable Stable Stable Stable In the table above:
• The ratings and outlook are by
Investors Service (Moody's), Rating and Investment Information, Inc. (R&I),
and
• 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
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Table of Contents THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Management's Discussion and Analysis
The table below presents the unsecured credit ratings and outlook of GS Bank
As of September 2021
Fitch Moody's S&P
GS Bank USA
Short-term debt F1 P-1 A-1
Long-term debt A+ A1 A+
Short-term bank deposits F1+ P-1 N/A
Long-term bank deposits AA- A1 N/A
Ratings outlook Stable Stable Stable
GSIB
Short-term debt F1 P-1 A-1
Long-term debt A+ A1 A+
Short-term bank deposits F1 P-1 N/A
Long-term bank deposits A+ A1 N/A
Ratings outlook Stable Stable Stable
GSBE
Short-term debt F1 P-1 A-1
Long-term debt A A1 A+
Short-term bank deposits N/A P-1 N/A
Long-term bank deposits N/A A1 N/A
Ratings outlook Stable Stable Stable
GS&Co.
Short-term debt F1 N/A A-1
Long-term debt A+ N/A A+
Ratings outlook Stable N/A Stable
GSI
Short-term debt F1 P-1 A-1
Long-term debt A+ A1 A+
Ratings outlook Stable Stable Stable
We believe our credit ratings are primarily based on the credit rating agencies' assessment of:
• Our liquidity, market, credit and operational risk management practices;
• Our level and variability of earnings; • Our capital base; • Our franchise, reputation and management; • Our corporate governance; and
• The external operating and economic environment, including, in some cases, the
assumed level of government support or other systemic considerations, such as
potential resolution.
Certain of our derivatives have been transacted under bilateral agreements with counterparties who may require us to post collateral or terminate the transactions based on changes in our credit ratings. We manage our GCLA to ensure we would, among other potential requirements, be able to make the additional collateral or termination payments that may be required in the event of a two-notch reduction in our long-term credit ratings, as well as collateral that has not been called by counterparties, but is available to them. See Note 7 to the consolidated financial statements for further information about derivatives with credit-related contingent features and the additional collateral or termination payments related to our net derivative liabilities under bilateral agreements that could have been called by counterparties in the event of a one- or 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. Nine Months Ended September 2021. Our cash and cash equivalents increased by $55.99 billion to $211.83 billion at the end of the third quarter of 2021, due to net cash provided by financing activities, partially offset by net cash used for operating activities and investing activities. The net cash provided by financing activities primarily reflected an increase in net deposits, principally reflecting increases in institutional, transaction banking, private bank, consumer and deposit sweep programs deposits, and net issuances of unsecured long-term borrowings. The net cash used for operating activities primarily reflected an increase in collateralized transactions (an increase in collateralized agreements, partially offset by an increase in collateralized financings), partially offset by an increase in trading liabilities. The net cash used for investing activities primarily reflected purchases of investments and an increase in net lending activities, partially offset by sales and paydowns of investments. Nine Months Ended September 2020. Our cash and cash equivalents increased by $19.66 billion to $153.20 billion at the end of the third quarter of 2020, due to net cash provided by financing activities, partially offset by net cash used for operating activities and investing activities. The net cash provided by financing activities primarily reflected an increase in net deposits, reflecting increases in consumer, transaction banking and private bank deposits. The net cash used for operating activities primarily reflected an increase in trading assets, net customer and other receivables and payables, and collateralized transactions (an increase in collateralized agreements and a decrease in collateralized financings), partially offset by an increase in trading liabilities as a result of our activities and our clients' activities. The net cash used for investing activities reflected an increase in net loans and net purchases of investments, reflecting an increase inU.S. government obligations accounted for as available-for-sale.
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Table of Contents THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Management's Discussion and Analysis
Market Risk Management
Overview
Market risk is the risk of loss in the value of our inventory, investments, loans and other financial assets and liabilities accounted for at fair value due to changes in market conditions. We hold such positions primarily for market making for our clients and for our investing and financing activities, and therefore, these positions change based on client demands and our investment opportunities. Since these positions are accounted for at fair value, they fluctuate on a daily basis, with the related gains and losses included in the consolidated statements of earnings. We employ a variety of risk measures, each described in the respective sections below, to monitor market risk. Categories of market risk include the following:
• Interest rate risk: results from exposures to changes in the level, slope and
curvature of yield curves, the volatilities of interest rates, prepayment
speeds and credit spreads;
• Equity price risk: results from exposures to changes in prices and
volatilities of individual equities, baskets of equities and equity indices;
• Currency rate risk: results from exposures to changes in spot prices, forward
prices and volatilities of currency rates; and
• Commodity price risk: results from exposures to changes in spot prices,
forward prices and volatilities of commodities, such as crude oil, petroleum
products, natural gas, electricity, and precious and base metals.
Market Risk, which is independent of our revenue-producing units and reports to our chief risk officer, has primary responsibility for assessing, monitoring and managing our market risk through firmwide oversight across our global businesses. Managers in revenue-producing units and Market Risk discuss market information, positions and estimated loss scenarios on an ongoing basis. Managers in revenue-producing units are accountable for managing risk within prescribed limits. These managers have in-depth knowledge of their positions, markets and the instruments available to hedge their exposures. Market Risk Management Process Our process for managing market risk includes the critical components of our risk management framework described in the "Overview and Structure of Risk Management," as well as the following:
• Monitoring compliance with established market risk limits and reporting our
exposures;
• Diversifying exposures;
• Controlling position sizes; and
• Evaluating mitigants, such as economic hedges in related securities orderivatives.
Our market risk management systems enable us to perform an independent calculation of Value-at-Risk (VaR) and stress measures, capture risk measures at individual position levels, attribute risk measures to individual risk factors of each position, report many different views of the risk measures (e.g., by desk, business, product type or entity) and produce ad hoc analyses in a timely manner. Risk Measures We produce risk measures and monitor them against established market risk limits. These measures reflect an extensive range of scenarios and the results are aggregated at product, business and firmwide levels. We use a variety of risk measures to estimate the size of potential losses for both moderate and more extreme market moves over both short- and long-term time horizons. Our primary risk measures are VaR, which is used for shorter-term periods, and stress tests. Our risk reports detail key risks, drivers and changes for each desk and business, and are distributed daily to senior management of both our revenue-producing units and our independent risk oversight and control functions. Value-at-Risk. 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 risk characteristics. VaR also captures the diversification of aggregated risk at the firmwide level. We are aware of the inherent limitations to VaR and therefore use a variety of risk measures in our market risk management process. Inherent limitations to VaR include:
• VaR does not estimate potential losses over longer time horizons where moves
may be extreme;
• VaR does not take account of the relative liquidity of different risk
positions; and
• Previous moves in market risk factors may not produce accurate predictions of
all future market moves.
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Table of Contents THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Management's Discussion and Analysis 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 firmwide stress tests,
sensitivity analysis and scenario analysis. The results of our various stress
tests are analyzed together for risk management purposes. See "Overview and
Structure of Risk Management" for information about firmwide stress tests.
Sensitivity analysis is used to quantify the impact of a market move in a single
risk factor across all positions (e.g., equity prices or credit spreads) using a
variety of defined market shocks, ranging from those that could be expected over
a
one-day
time horizon up to those that could take many months to occur. We also use
sensitivity analysis to quantify the impact of the default of any single entity,
which captures the risk of large or concentrated exposures.
Scenario analysis is used to quantify the impact of a specified event, including
how the event impacts multiple risk factors simultaneously. For example, for
sovereign stress testing we calculate potential direct exposure associated with
our sovereign positions, as well as the corresponding debt, equity and currency
exposures associated with our
non-sovereign
positions that may be impacted by the sovereign distress. When conducting
scenario analysis, we often consider a number of possible outcomes for each
scenario, ranging from moderate to severely adverse market impacts. In addition,
these stress tests are constructed using both historical events and
forward-looking hypothetical scenarios.
Unlike VaR measures, which have an implied probability because they are
calculated at a specified confidence level, there may not be an implied
probability that our stress testing scenarios will occur. Instead, stress
testing is used to model both moderate and more extreme moves in underlying
market factors. When estimating potential loss, we generally assume that our
positions cannot be reduced or hedged (although experience demonstrates that we
are generally able to do so).
Limits
We use market risk limits at various levels to manage the size of our market
exposures. These limits are set based on VaR and on a range of stress tests
relevant to our exposures. See "Overview and Structure of Risk Management" for
information about the limit approval process.
Market Risk is responsible for monitoring these limits, and identifying and
escalating to senior management and/or the appropriate risk committee, on a
timely basis, instances where limits have been exceeded (e.g., due to positional
changes or changes in market conditions, such as increased volatilities or
changes in correlations). Such instances are remediated by a reduction in the
positions we hold and/or a temporary or permanent increase to the limit.
Metrics
We analyze VaR at the firmwide level and a variety of more detailed levels,
including by risk category, business and region. Diversification effect in the
tables below represents the difference between total VaR and the sum of the VaRs
for the four risk categories. This effect arises because the four market risk
categories are not perfectly correlated.
The table below presents our average daily VaR.
Nine Months
Three Months Ended Ended September
September June September
$ in millions 2021 2021 2020 2021 2020
Categories
Interest rates $ 58 $ 64 $ 72 $ 60 $ 77
Equity prices 40 48 55 46 57
Currency rates 12 13 22 12 26
Commodity prices 22 22 26 22 20
Diversification effect (52 ) (57 ) (84 ) (53 ) (82 )
Total $ 80 $ 90 $ 91 $ 87 $ 98
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Table of Contents
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management's Discussion and Analysis
Our average daily VaR decreased to $80 million for the three months ended
September 2021 from $90 million for the three months ended June 2021, primarily
due to lower levels of volatility. The total decrease of $10 million was
primarily driven by decreases in the equity prices and interest rates
categories, partially offset by a decrease in the diversification effect.
Our average daily VaR decreased to $80 million for the three months ended
September 2021 from $91 million for the three months ended September 2020, due
to lower levels of volatility, partially offset by increased exposures. The
total decrease of $11 million was primarily driven by decreases in the equity
prices, interest rates and currency rates categories, partially offset by a
decrease in the diversification effect.
Our average daily VaR decreased to $87 million for the nine months ended
September 2021 from $98 million for the nine months ended September 2020, due to
lower levels of volatility, partially offset by increased exposures. The total
decrease of $11 million was primarily driven by decreases in the interest rates,
currency rates and equity prices categories, partially offset by a decrease in
the diversification effect.
The table below presents our
period-end
VaR.
As of
September June September
$ in millions 2021 2021 2020
Categories
Interest rates $ 57 $ 74 $ 60
Equity prices 37 41 46
Currency rates 9 16 17
Commodity prices 31 25 20
Diversification effect (47 ) (61 ) (62 )
Total $ 87 $ 95 $ 81
Our
period-end
VaR decreased to $87 million as of September 2021 from $95 million as of
June 2021, primarily due to lower levels of volatility. The total decrease of
$8 million was driven by decreases in the interest rates, currency rates and
equity prices categories, partially offset by a decrease in the diversification
effect and an increase in the commodity prices category.
Our
period-end
VaR increased to $87 million as of September 2021 from $81 million as of
September 2020, due to increased exposures, partially offset by lower levels of
volatility. The total increase of $6 million was primarily driven by a decrease
in the diversification effect and an increase in the commodity prices category,
partially offset by decreases in the equity prices and currency rates
categories.
During the nine months ended September 2021, the firmwide VaR risk limit was not
exceeded, raised or reduced, and there were no permanent or temporary changes to
the firmwide VaR risk limit. During 2020, the firmwide VaR risk limit was
exceeded on 16 occasions (all of which occurred during the first half of 2020),
primarily due to higher levels of volatility. There were no permanent changes to
the firmwide VaR risk limit during this period. However, there were temporary
increases to the firmwide VaR risk limit as a result of the market environment
in 2020.
The table below presents our high and low VaR.
Three Months Ended
September 2021 June 2021 September 2020
$ in millions High Low High Low High Low
Categories
Interest rates $74 $50 $ 74 $58 $ 99 $59
Equity prices $48 $33 $ 57 $37 $ 75 $42
Currency rates $16 $ 8 $ 17 $10 $ 32 $16
Commodity prices $33 $15 $ 32 $15 $ 37 $17
Firmwide
VaR $95 $74 $101 $81 $125 $77
The chart below presents our daily VaR for the nine months ended September 2021.
[[Image Removed]]The table below presents, by number of business days, the frequency distribution of our daily net revenues for positions included in VaR.
Three Months Nine Months
Ended September Ended September
$ in millions 2021 2020 2021 2020
>$100 13 4 47 44
$75 - $100 11 9 39 30
$50 - $75 11 21 30 34
$25 - $50 10 17 26 39
$0 - $25 11 8 31 25
$(25) - $0 7 3 14 9
$(50) - $(25) - 2 - 4
$(75) - $(50) - - - 2
$(100) - $(75) - - - 2
<$(100) 1 - 1 -
Total 64 64 188 189
145 Goldman Sachs September 2021 Form 10-Q
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Table of Contents
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management's Discussion and Analysis
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 one occasion during the three months ended
September 2021 and did not exceed our 95%
one-day
VaR during the three months ended September 2020.
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 our market risk by asset category for positions
accounted for at fair value, that are not included in VaR.
As of
September June September
$ in millions 2021 2021 2020
Equity $2,034 $2,096 $1,760
Debt 2,385 2,429 2,391
Total $4,419 $4,525 $4,151
In the table above:
• The market risk of these positions is determined by estimating the potential
reduction in net revenues of a 10% decline in the value of these positions.
• Equity positions relate to private and restricted public equity securities,
including interests in funds that invest in corporate equities and real estate
and interests in hedge funds.
• Debt positions include interests in funds that invest in corporate mezzanine
and senior debt instruments, loans backed by commercial and residential real
estate, corporate bank loans and other corporate debt, including acquired
portfolios of distressed loans.
• Funded equity and debt positions are included in our consolidated balance
sheets in investments and loans. See Note 8 to the consolidated financial
statements for further information about investments and Note 9 to the
consolidated financial statements for further information about loans.
• These measures do not reflect the diversification effect across asset
categories or across other market risk measures.
Credit and Funding Spread Sensitivity on Derivatives and Financial Liabilities. VaR excludes the impact of changes in counterparty credit spreads, our own credit spreads and unsecured funding 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) and unsecured funding spreads on derivatives (including hedges) was a loss of $2 million as of both September 2021 and June 2021. 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 $32 million as of September 2021 and $31 million as of June 2021. 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 accounted for at amortized cost were $126.03 billion as of September 2021 and $116.04 billion as of June 2021, substantially all of which had floating interest rates. The estimated sensitivity to a 100 basis point increase in interest rates on such loans was $880 million as of September 2021 and $826 million as of June 2021 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 accounted for at amortized cost. Other Market Risk Considerations We make investments in securities that are accounted for as available-for-sale, held-to-maturity or under the equity method which are included in investments in the consolidated balance sheets. See Note 8 to the consolidated financial statements for further information. Direct investments in real estate are accounted for at cost less accumulated depreciation. See Note 12 to the consolidated financial statements for further information about other assets.
Goldman Sachs September 2021 Form 10-Q 146
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Table of Contents THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Management's Discussion and Analysis Financial Statement Linkages to Market Risk Measures We employ a variety of risk measures, each described in the respective sections above, to monitor market risk across the consolidated balance sheets and consolidated statements of earnings. The related gains and losses on these positions are included in market making, other principal transactions, interest income and interest expense in the consolidated statements of earnings, and debt valuation adjustment in the consolidated statements of comprehensive income. The table below presents certain assets and liabilities in our consolidated balance sheets and the market risk measures used to assess those assets and liabilities. Assets or Liabilities Market Risk Measures
Collateralized agreements, at fair value VaR
Customer and other receivables, at fair value 10% Sensitivity Measures
Trading assets VaR
Credit Spread Sensitivity
Investments, at fair value VaR
10% Sensitivity Measures
Loans VaR
10% Sensitivity Measures
Interest Rate Sensitivity
Deposits, at fair value VaR
Credit Spread Sensitivity
Collateralized financings, at fair value VaR
Trading liabilities VaR
Credit Spread Sensitivity
Unsecured borrowings, at fair value VaR
Credit Spread Sensitivity
Credit Risk Management
Overview
Credit risk represents the potential for loss due to the default or
deterioration in credit quality of a counterparty (e.g., an OTC derivatives
counterparty or a borrower) or an issuer of securities or other instruments we
hold. Our exposure to credit risk comes mostly from client transactions in OTC
derivatives and loans and lending commitments. Credit risk also comes from cash
placed with banks, securities financing transactions (i.e., resale and
repurchase agreements and securities borrowing and lending activities) and
customer and other receivables.
Credit Risk, which is independent of our revenue-producing units and reports to
our chief risk officer, has primary responsibility for assessing, monitoring and
managing our credit risk through firmwide oversight across our global
businesses. In addition, we hold other positions that give rise to credit risk
(e.g., bonds and secondary bank loans). These credit risks are captured as a
component of market risk measures, which are monitored and managed by Market
Risk. We also enter into derivatives to manage market risk exposures. Such
derivatives also give rise to credit risk, which is monitored and managed by
Credit Risk.
Credit Risk Management Process
Our process for managing credit risk includes the critical components of our
risk management framework described in the "Overview and Structure of Risk
Management," as well as the following:
• Monitoring compliance with established credit risk limits and reporting our
credit exposures and credit concentrations;
• Establishing or approving underwriting standards;
• Assessing the likelihood that a counterparty will default on its payment
obligations;
• Measuring our current and potential credit exposure and losses resulting from
a counterparty default;
• Using credit risk mitigants, including collateral and hedging; and
• Maximizing recovery through active workout and restructuring of claims.
We also perform credit reviews, which include initial and ongoing analyses of our counterparties. For substantially all of our credit exposures, the core of our process is an annual counterparty credit review. A credit review is an independent analysis of the capacity and willingness of a counterparty to meet its financial obligations, resulting in an internal credit rating. The determination of internal credit ratings also incorporates assumptions with respect to the nature of and outlook for the counterparty's industry, and the economic environment. Senior personnel, with expertise in specific industries, inspect and approve credit reviews and internal credit ratings. Our risk assessment process may also include, where applicable, reviewing certain key metrics, including, but not limited to, delinquency status, collateral values, FICO credit scores and other risk factors.
147 Goldman Sachs September 2021 Form 10-Q
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Table of Contents THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Management's Discussion and Analysis Our credit risk management systems capture credit exposure to individual counterparties and on an aggregate basis to counterparties and their subsidiaries. These systems also provide management with comprehensive information about our aggregate credit risk by product, internal credit rating, industry, country and region. Risk Measures We measure our credit risk based on the potential loss in the event of non-payment by a counterparty using current and potential exposure. For derivatives and securities financing transactions, current exposure represents the amount presently owed to us after taking into account applicable netting and collateral arrangements, while potential exposure represents our estimate of the future exposure that could arise over the life of a transaction based on market movements within a specified confidence level. Potential exposure also takes into account netting and collateral arrangements. For loans and lending commitments, the primary measure is a function of the notional amount of the position. Stress Tests We conduct regular stress tests to calculate the credit exposures, including potential concentrations that would result from applying shocks to counterparty credit ratings or credit risk factors (e.g., currency rates, interest rates, equity prices). These shocks cover a wide range of moderate and more extreme market movements, including shocks to multiple risk factors, consistent with the occurrence of a severe market or economic event. In the case of sovereign default, we estimate the direct impact of the default on our sovereign credit exposures, changes to our credit exposures arising from potential market moves in response to the default, and the impact of credit market deterioration on corporate borrowers and counterparties that may result from the sovereign default. Unlike potential exposure, which is calculated within a specified confidence level, stress testing does not generally assume a probability of these events occurring. We also perform firmwide stress tests. See "Overview and Structure of Risk Management" for information about firmwide stress tests. To supplement these regular stress tests, as described above, we also conduct tailored stress tests on an ad hoc basis in response to specific market events that we deem significant. We also utilize these stress tests to estimate the indirect impact of certain hypothetical events on our country exposures, such as the impact of credit market deterioration on corporate borrowers and counterparties along with the shocks to the risk factors described above. The parameters of these shocks vary based on the scenario reflected in each stress test. We review estimated losses produced by the stress tests in order to understand their magnitude, highlight potential loss concentrations, and assess and mitigate our exposures where necessary. Limits We use credit risk limits at various levels, as well as underwriting standards to manage the size and nature of our credit exposures. Limits for industries and countries are based on our risk appetite and are designed to allow for regular monitoring, review, escalation and management of credit risk concentrations. See "Overview and Structure of Risk Management" for information about the limit approval process. Credit Risk is responsible for monitoring these limits, and identifying and escalating to senior management and/or the appropriate risk committee, on a timely basis, instances where limits have been exceeded. Risk Mitigants To reduce our credit exposures on derivatives and securities financing transactions, we may enter into netting agreements with counterparties that permit us to offset receivables and payables with such counterparties. We may also reduce credit risk with counterparties by entering into agreements that enable us to obtain collateral from them on an upfront or contingent basis and/or to terminate transactions if the counterparty's credit rating falls below a specified level. We monitor the fair value of the collateral to ensure that our credit exposures are appropriately collateralized. We seek to minimize exposures where there is a significant positive correlation between the creditworthiness of our counterparties and the market value of collateral we receive. For loans and lending commitments, depending on the credit quality of the borrower and other characteristics of the transaction, we employ a variety of potential risk mitigants. Risk mitigants include collateral provisions, guarantees, covenants, structural seniority of the bank loan claims and, for certain lending commitments, provisions in the legal documentation that allow us to adjust loan amounts, pricing, structure and other terms as market conditions change. The type and structure of risk mitigants employed can significantly influence the degree of credit risk involved in a loan or lending commitment. When we do not have sufficient visibility into a counterparty's financial strength or when we believe a counterparty requires support from its parent, we may obtain third-party guarantees of the counterparty's obligations. We may also mitigate our credit risk using credit derivatives or participation agreements.
Goldman Sachs September 2021 Form 10-Q 148
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Table of Contents
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management's Discussion and Analysis
Credit Exposures
As of September 2021, our aggregate credit exposure increased as compared with
December 2020, primarily reflecting increases in cash deposits with central
banks and loans and lending commitments. The percentage of our credit exposures
arising from
non-investment-grade
counterparties (based on our internally determined public rating agency
equivalents) decreased as compared with December 2020, primarily reflecting an
increase in investment-grade credit exposure related to cash deposits with
central banks. Our credit exposure to counterparties that defaulted during the
nine months ended September 2021 was lower as compared with our credit exposure
to counterparties that defaulted during the same prior year period, and such
exposure was primarily related to loans and lending commitments. Our credit
exposure to counterparties that defaulted during the nine months ended
September 2021 remained low, representing less than 1% of our total credit
exposure. Estimated losses associated with these defaults have been recognized
in earnings. Our credit exposures are described further below.
Cash and Cash Equivalents.
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 our credit exposure from unrestricted cash and cash
equivalents, and the concentration by industry, region and internally determined
public rating agency equivalents.
As of
September
December
$ in millions 2021 2020
Cash and Cash Equivalents $187,120 $131,324
Industry
Financial Institutions 7% 11%
Sovereign 93% 89%
Total 100% 100%
Region
Americas 58% 45%
EMEA 33% 41%
Asia 9% 14%
Total 100% 100%
Credit Quality (Credit Rating Equivalent)
AAA 63% 44%
AA 25% 38%
A 11% 17%
BBB 1% 1%
Total 100% 100%
The table above excludes cash segregated for regulatory and other purposes of
$24.71 billion as of September 2021 and $24.52 billion as of December 2020.
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.
The table below presents our net credit exposure from OTC derivatives and the
concentration by industry and region.
As of
September
December
$ in millions 2021 2020
OTC derivative assets $ 65,200 $ 64,850
Collateral (not netted under U.S. GAAP) (17,530 ) (18,990 )
Net credit exposure $ 47,670 $ 45,860
Industry
Consumer & Retail 2% 4%
Diversified Industrials 8% 23%
Financial Institutions 11% 12%
Funds 15% 12%
Healthcare 1% 2%
Municipalities & Nonprofit 5% 6%
Natural Resources & Utilities 37% 11%
Sovereign 8% 14%
Technology, Media & Telecommunications 10% 12%
Other (including Special Purpose Vehicles) 3% 4%
Total 100% 100%
Region
Americas 54% 62%
EMEA 37% 30%
Asia 9% 8%
Total 100% 100%
In the table above:
• OTC derivative assets, included in the consolidated balance sheets, are
reported on a
net-by-counterparty
basis (i.e., the net receivable for a given counterparty) when a legal right
of setoff exists under an enforceable netting agreement (counterparty netting)
and are accounted for at fair value, net of cash collateral received under
enforceable credit support agreements (cash collateral netting).
• Collateral represents cash collateral and the fair value of securities
collateral, primarily
non-
government and agency obligations, received under credit support agreements,
that we consider when determining credit risk, but such collateral is not
eligible for netting under
149 Goldman Sachs September 2021 Form 10-Q
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Table of Contents
THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management's Discussion and Analysis
The table below presents the distribution of our net credit exposure from OTC
derivatives by tenor.
Non-Investment-
Investment-
$ in millions Grade Grade / Unrated Total
As of September 2021
Less than 1 year $
$ 27,658 $ 13,359 41,017
1 - 5 years 22,137 12,323 34,460
Greater than 5 years 65,130 6,646 71,776
Total 114,925 32,328 147,253
Netting (88,989 ) (10,594 ) (99,583 )
Net credit exposure $ 25,936 $ 21,734 $ 47,670
As of December 2020
Less than 1 year $ $ $
22,332 12,507 34,839
1 - 5 years 23,927 16,486 40,413
Greater than 5 years 77,653 8,958 86,611
Total 123,912 37,951 161,863
Netting (101,691 ) (14,312 ) (116,003 )
Net credit exposure $ $ $
22,221 23,639 45,860
In the table above:
• Tenor is based on remaining contractual maturity.
• Netting includes counterparty netting across tenor categories and collateral
that we consider when determining credit risk (including collateral that is
not eligible for netting under
same tenor category is included within such tenor category.
The tables below present the distribution of our net credit exposure from OTC
derivatives by tenor and internally determined public rating agency equivalents.
Investment-Grade
$ in millions AAA AA A BBB Total
As of September 2021
Less than 1 year $ $ $
694 5,280 $ 11,544 $ 10,140 27,658
1 - 5 years 929 2,998 9,605 8,605 22,137
Greater than 5 years 13,326 5,759 24,399 21,646 65,130
Total 14,949 14,037 45,548 40,391 114,925
Netting (12,677 ) (9,816 ) (37,666 ) (28,830 ) (88,989 )
Net credit exposure $ $
$ 2,272 4,221 $ 7,882 $ 11,561 25,936
As of December 2020
Less than 1 year $
$ $
532 $ 4,146 11,440 6,214 $ 22,332
1 - 5 years 1,069 4,189 10,976 7,693 23,927
Greater than 5 years 16,550 7,403 28,410 25,290 77,653
Total 18,151 15,738 50,826 39,197 123,912
Netting (14,364 ) (11,230 ) (44,529 ) (31,568 ) (101,691 )
Net credit exposure $ $ $
3,787 $ 4,508 6,297 7,629 $ 22,221
Non-Investment-Grade
/ Unrated
$ in millions BB or lower Unrated Total
As of September 2021
Less than 1 year $
$ 12,465 894 $ 13,359
1 - 5 years 12,267 56 12,323
Greater than 5 years 6,538 108 6,646
Total 31,270 1,058 32,328
Netting (10,546 ) (48 ) (10,594 )
Net credit exposure $ 20,724 $1,010 $ 21,734
As of December 2020
Less than 1 year $ $ $
11,541 966 12,507
1 - 5 years 16,274 212 16,486
Greater than 5 years 8,844 114 8,958
Total 36,659 1,292 37,951
Netting (14,114 ) (198 ) (14,312 )
Net credit exposure $ $
22,545 $1,094 23,639
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.
The table below presents our loans and lending commitments.
Lending
$ in millions Loans Commitments Total
As of September 2021
Corporate $ 54,107 $164,422 $218,529
Wealth management 41,775 4,051 45,826
Commercial real estate 21,707 6,005 27,712
Residential real estate 13,359 3,018 16,377
Consumer:
Installment 3,449 11 3,460
Credit cards 6,251 31,718 37,969
Other 6,308 5,307 11,615
Total, gross 146,956 214,532 361,488
Allowance for loan losses (3,332 ) (833 ) (4,165 )
Total $143,624 $213,699 $357,323
As of December 2020
Corporate $ 48,659 $135,818 $184,477
Wealth management 33,023 3,103 36,126
Commercial real estate 20,290 4,268 24,558
Residential real estate 5,750 1,900 7,650
Consumer:
Installment 3,823 4 3,827
Credit cards 4,270 21,640 25,910
Other 4,174 4,842 9,016
Total, gross 119,989 171,575 291,564
Allowance for loan losses (3,874 ) (557 ) (4,431 )
Total $116,115 $171,018 $287,133
Goldman Sachs September 2021 Form 10-Q 150
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Table of Contents THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Management's Discussion and Analysis
Corporate.
Corporate loans and lending commitments include term loans, revolving lines of
credit, letter of credit facilities and bridge loans, and are principally used
for operating and general corporate purposes, or in connection with
acquisitions. Corporate loans may be secured or unsecured, depending on the loan
purpose, the risk profile of the borrower and other factors.
The table below presents our credit exposure from corporate loans and lending
commitments, and the concentration by industry, region, internally determined
public rating agency equivalents and other credit metrics.
Lending
$ in millions Loans Commitments Total
As of September 2021
Corporate $54,107 $164,422 $218,529
Industry
Consumer & Retail 6% 12% 11%
Diversified Industrials 15% 21% 20%
Financial Institutions 8% 7% 7%
Funds 19% 3% 7%
Healthcare 7% 10% 9%
Natural Resources & Utilities 8% 17% 15%
Real Estate 6% 5% 5%
Technology, Media & Telecommunications 20% 20% 20%
Other (including Special Purpose Vehicles) 11% 5% 6% Total 100% 100% 100% Region Americas 56% 74% 69% EMEA 36% 24% 27% Asia 8% 2% 4% Total 100% 100% 100% Credit Quality (Credit Rating Equivalent) AAA - 1% 1% AA 1% 4% 3% A 5% 15% 13% BBB 20% 38% 33% BB or lower 74% 41% 49% Other metrics/unrated - 1% 1% Total 100% 100% 100% As of December 2020 Corporate $48,659 $135,818 $184,477 Industry Consumer & Retail 7% 14% 12% Diversified Industrials 17% 17% 17% Financial Institutions 10% 6% 7% Funds 13% 3% 6% Healthcare 7% 12% 11% Natural Resources & Utilities 12% 18%
16%
Real Estate 8% 6%
6%
Technology, Media & Telecommunications 17% 19%
19%
Other (including Special Purpose Vehicles) 9% 5% 6%
Total 100% 100% 100%
Region
Americas 60% 70% 67%
EMEA 31% 28% 29%
Asia 9% 2% 4%
Total 100% 100% 100%
Credit Quality (Credit Rating Equivalent)
AAA - 1% 1%
AA - 5% 4%
A 6% 19% 15%
BBB 13% 36% 30%
BB or lower 80% 38% 49%
Other metrics/unrated 1% 1% 1%
Total 100% 100% 100%
In the table above, credit exposure excludes $2.76 billion as of September 2021
and $3.20 billion as of December 2020 relating to issued letters of credit which
are classified as guarantees in our consolidated financial statements. See
Note 18 to the consolidated financial statements for further information about
guarantees.
Wealth Management.
Wealth management loans and lending commitments are extended to private bank
clients, including wealth management and other clients. 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, residential real estate, commercial real estate
or other assets.
The table below presents our credit exposure from wealth management loans and
lending commitments, and the concentration by region, internally determined
public rating agency equivalents and other credit metrics.
Lending
$ in millions Loans Commitments Total
As of September 2021
Wealth Management $41,775 $4,051 $45,826
Region
Americas 86% 96% 87%
EMEA 11% 4% 10%
Asia 3% - 3%
Total 100% 100% 100%
Credit Quality (Credit Rating Equivalent)
Investment-grade 71% 57% 70%
Non-investment-grade 13% 14% 13%
Other metrics/unrated 16% 29% 17%
Total 100% 100% 100%
As of December 2020
Wealth Management $33,023 $3,103 $36,126
Region
Americas 88% 99% 89%
EMEA 10% 1% 9%
Asia 2% - 2%
Total 100% 100% 100%
Credit Quality (Credit Rating Equivalent)
Investment-grade 67% 58% 66%
Non-investment-grade 16% 21% 17%
Other metrics/unrated 17% 21% 17%
Total 100% 100% 100%
In the table above, other metrics/unrated loans primarily include loans backed
by residential real estate. Our risk assessment process for such loans include
reviewing certain key metrics, such as
loan-to-value
ratio and delinquency status.
151 Goldman Sachs September 2021 Form 10-Q
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Table of Contents THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Management's Discussion and AnalysisCommercial Real Estate . Commercial real estate loans and lending commitments include originated loans and lending commitments (other than those extended to private bank clients) that are directly or indirectly secured by hotels, retail stores, multifamily housing complexes and commercial and industrial properties. Commercial real estate loans and lending commitments also includes loans and lending commitments extended to clients who warehouse assets that are directly or indirectly backed by commercial real estate. In addition, commercial real estate includes loans purchased by us. The table below presents our credit exposure from commercial real estate loans and lending commitments, and the concentration by region, internally determined public rating agency equivalents and other credit metrics. Lending $ in millions Loans Commitments Total As of September 2021 Commercial Real Estate $21,707 $6,005 $27,712 Region Americas 75% 82% 77% EMEA 19% 8% 16% Asia 6% 10% 7% Total 100% 100% 100% Credit Quality (Credit Rating Equivalent) Investment-grade 16% 16% 16% Non-investment-grade 82% 77% 81% Other metrics/unrated 2% 7% 3% Total 100% 100% 100% As of December 2020 Commercial Real Estate $20,290 $4,268 $24,558 Region Americas 71% 65% 70% EMEA 19% 10% 18% Asia 10% 25% 12% Total 100% 100% 100% Credit Quality (Credit Rating Equivalent) Investment-grade 9% 13% 10% Non-investment-grade 86% 87% 86% Other metrics/unrated 5% - 4% Total 100% 100% 100% In the table above, credit exposure includes loans and lending commitments of $9.66 billion as of September 2021 and $7.88 billion as of December 2020 which are extended to clients who warehouse assets that are directly or indirectly backed by commercial real estate. In addition, we also have credit exposure to certain commercial real estate loans held for securitization of $361 million as of September 2021 and $503 million as of December 2020. Such loans are included in trading assets in our consolidated balance sheets.Residential Real Estate . Residential real estate loans and lending commitments are extended to clients (other than those extended to private bank clients) who warehouse assets that are directly or indirectly secured by residential real estate and also includes loans purchased by us. The table below presents our credit exposure from residential real estate loans and lending commitments, and the concentration by region, internally determined public rating agency equivalents and other credit metrics. Lending $ in millions Loans Commitments Total As of September 2021 Residential Real Estate $13,359 $3,018 $16,377 Region Americas 92% 67% 87% EMEA 5% 23% 8% Asia 3% 10% 5% Total 100% 100% 100% Credit Quality (Credit Rating Equivalent) Investment-grade 9% 36% 14% Non-investment-grade 83% 64% 79% Other metrics/unrated 8% - 7% Total 100% 100% 100% As of December 2020 Residential Real Estate $ 5,750 $1,900 $ 7,650 Region Americas 88% 98% 91% EMEA 9% 2% 7% Asia 3% - 2% Total 100% 100% 100% Credit Quality (Credit Rating Equivalent) Investment-grade 11% 2% 9% Non-investment-grade 67% 93% 73% Other metrics/unrated 22% 5% 18% Total 100% 100% 100% In the table above:
• Credit exposure includes loans and lending commitments of $12.80 billion as of
September 2021 and $5.71 billion as of December 2020 which are extended to
clients who warehouse assets that are directly or indirectly secured by
residential real estate.
• Other metrics/unrated primarily includes loans purchased by us. Our risk
assessment process for such loans includes reviewing certain key metrics, such
as
loan-to-value
ratio, delinquency status, collateral values, expected cash flows and other
risk factors.
In addition, we also have exposure to residential real estate loans held for securitization of $8.96 billion as of September 2021 and $5.57 billion as of December 2020. Such loans are included in trading assets in our consolidated balance sheets.
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Table of Contents THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Management's Discussion and Analysis Installment and Credit Card Lending. We originate unsecured installment loans and credit card loans (pursuant to revolving lines of credit) to consumers in theAmericas . The credit card lines are cancellable by us and therefore do not result in credit exposure. The table below presents our credit exposure from originated installment and credit card funded loans, and the concentration by the five most concentratedU.S. states. As of September December $ in millions 2021 2020 Installment $3,449 $3,823 California 11% 11% Texas 9% 9% New York 7% 7% Florida 7% 7% Illinois 4% 4% Other 62% 62% Total 100% 100% Credit Cards $6,251 $4,270 California 19% 19% Texas 9% 9% New York 8% 8% Florida 8% 8% Illinois 4% 4% Other 52% 52% Total 100% 100% See Note 9 to the consolidated financial statements for further information about the credit quality indicators of installment and credit card loans. Other. Other loans and lending commitments are extended to clients who warehouse assets that are directly or indirectly secured by consumer loans, including auto loans and private student loans, and other assets. Other loans also includes unsecured consumer and credit card loans purchased by us. The table below presents our credit exposure from other loans and lending commitments, and the concentration by region, internally determined public rating agency equivalents and other credit metrics. Lending $ in millions Loans Commitments Total As of September 2021 Other $6,308 $5,307 $11,615 Region Americas 88% 92% 90% EMEA 10% 6% 8% Asia 2% 2% 2% Total 100% 100% 100% Credit Quality (Credit Rating Equivalent) Investment-grade 43% 87% 63% Non-investment-grade 40% 13% 28% Other metrics/unrated 17% - 9% Total 100% 100% 100% As of December 2020 Other $4,174 $4,842 $ 9,016 Region Americas 81% 98% 90% EMEA 17% - 8% Asia 2% 2% 2% Total 100% 100% 100% Credit Quality (Credit Rating Equivalent) Investment-grade 44% 94% 71% Non-investment-grade 23% 6% 14% Other metrics/unrated 33% - 15% Total 100% 100% 100% In the table above:
• Credit exposure includes loans and lending commitments extended to clients who
warehouse assets of $9.64 billion as of September 2021 and $7.28 billion as of
December 2020.
• Other metrics/unrated primarily includes consumer and credit card loans
purchased by us. Our risk assessment process for such loans includes reviewing
certain key metrics, such as expected cash flows, delinquency status and other
risk factors.
In addition, we also have exposure to other loans held for securitization of $307 million as of September 2021 and $420 million as of December 2020. Such loans are included in trading assets in our consolidated balance sheets. Credit Hedges To mitigate the credit risk associated with our lending activities, we obtain credit protection on certain loans and lending commitments through credit default swaps, both single-name and index-based contracts, and through the issuance of credit-linked notes. In addition, Sumitomo Mitsui Financial Group, Inc. provides us with credit loss protection on certain approved loan commitments.
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Table of Contents THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Management's Discussion and Analysis 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 collateral received. Securities collateral for these transactions primarily includesU.S. and non-U.S. government and agency obligations. The table below presents our credit exposure from securities financing transactions and the concentration by industry, region and internally determined public rating agency equivalents. As of September December $ in millions 2021 2020 Securities Financing Transactions $37,049 $30,190 Industry Financial Institutions 37% 39% Funds 28% 24% Municipalities & Nonprofit 6% 5% Sovereign 28% 30% Other (including Special Purpose Vehicles) 1% 2% Total 100% 100% Region Americas 37% 33% EMEA 45% 46% Asia 18% 21% Total 100% 100% Credit Quality (Credit Rating Equivalent) AAA 11% 15% AA 31% 28% A 36% 40% BBB 9% 10% BB or lower 13% 5% Unrated - 2% Total 100% 100% The table above reflects both netting agreements and collateral that we consider when determining credit risk. Other Credit Exposures. We are exposed to credit risk from our receivables from brokers, dealers 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. The table below presents our other credit exposures and the concentration by industry, region and internally determined public rating agency equivalents. As of September December $ in millions 2021 2020 Other Credit Exposures $54,838 $56,429 Industry Financial Institutions 82% 85% Funds 11% 9% Other (including Special Purpose Vehicles) 7% 6% Total 100% 100% Region Americas 51% 54% EMEA 41% 35% Asia 8% 11% Total 100% 100% Credit Quality (Credit Rating Equivalent) AAA 4% 5% AA 47% 48% A 26% 27% BBB 8% 8% BB or lower 14% 11% Unrated 1% 1% Total 100% 100% The table above reflects collateral that we consider when determining credit risk. Selected Exposures We have credit and market exposures, as described below, that have had heightened focus given recent events and broad market concerns. Credit exposure represents the potential for loss due to the default or deterioration in credit quality of a counterparty or borrower. Market exposure represents the potential for loss in value of our long and short positions due to changes in market prices.
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Table of Contents THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Management's Discussion and Analysis Country Exposures. High external funding needs and inconsistent monetary policy have led to significant depreciation of the Turkish Lira, prompting concerns about foreign exchange reserves and economic instability. As of September 2021, our total credit exposure toTurkey was $2.27 billion, which was to non-sovereign counterparties or borrowers. Such exposure consisted of $1.38 billion related to OTC derivatives, $180 million related to loans and lending commitments and $709 million related to secured receivables. After taking into consideration the benefit of hedges and Turkish corporate and sovereign collateral, and other risk mitigants provided by Turkish counterparties, our net credit exposure was $338 million. In addition, our total market exposure toTurkey as of September 2021 was $80 million, primarily to non-sovereign issuers or underliers. Such exposure consisted of $199 million related to debt, $(245) million related to credit derivatives and $126 million related to equities. Liquidity pressures prompted the Argentine government to default and restructure local and foreign obligations in 2020. Economic challenges persist and the country still needs to secure new financial terms with theIMF . As of September 2021, our total credit exposure toArgentina was $124 million, which was to non-sovereign counterparties or borrowers, and was primarily related to loans and lending commitments. In addition, our total market exposure toArgentina as of September 2021 was $91 million, primarily to sovereign issuers or underliers. Such exposure consisted of $95 million related to debt, $(34) million related to credit derivatives and $30 million related to equities. The restructuring ofLebanon's sovereign debt and sharp currency depreciation have led to concerns about its financial and political stability. As of September 2021, our total credit and market exposure toLebanon was not material.Zambia's sovereign debt default and liquidity pressures aggravated by the COVID-19 pandemic have led to concerns about the country's financial stability. As of September 2021, our total credit and market exposure toZambia was not material.Venezuela has delayed payments on its sovereign debt and is experiencing deep economic and social crises. As of September 2021, our total credit and market exposure toVenezuela was not material. We have a comprehensive framework to monitor, measure and assess our country exposures and to determine our risk appetite. We determine the country of risk by the location of the counterparty, issuer or underlier's assets, where they generate revenue, the country in which they are headquartered, the jurisdiction where a claim against them could be enforced, and/or the government whose policies affect their ability to repay their obligations. We monitor our credit exposure to a specific country both at the individual counterparty level, as well as at the aggregate country level. See "Stress Tests" for information about stress tests that are designed to estimate the direct and indirect impact of events involving the above countries. Industry Exposures. The sharp decline in economic activity as a result of the COVID-19 pandemic resulted in a significant impact to the gaming and lodging industry. Though the rate of recovery in gaming and lodging has accelerated during recent months, the timing of full recovery to the pre-pandemic levels remains uncertain. As of September 2021, our credit exposure to gaming and lodging companies (including hotel owners and operators) related to loans and lending commitments was $2.82 billion ($526 million of loans and $2.29 billion of lending commitments). Such exposure included $2.21 billion of exposure to non-investment-grade counterparties ($526 million related to loans and $1.68 billion related to lending commitments), of which 69% was secured. In addition, we extend loans that are secured by hotel properties. As of September 2021, our exposure related to such loans and lending commitments was $1.60 billion and was to non-investment-grade counterparties. In addition, we have exposure to our clients in the gaming and lodging industry arising from derivatives. As of September 2021, our credit exposure related to derivatives and receivables to gaming and lodging companies was $95 million, which was to non-investment-grade counterparties. After taking into consideration the benefit of $62 million of hedges, our net credit exposure was $2.85 billion. As of September 2021, our market exposure related to gaming and lodging companies was $(296) million, substantially all of which was to non-investment-grade issuers or underliers. Such exposure consisted of $(126) million related to debt, $(483) million related to credit derivatives and $313 million related to equities.
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Table of Contents THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Management's Discussion and Analysis Although air travel has increased from its low point of the COVID-19 pandemic, the airline industry still faces hurdles in the path to a full recovery. As of September 2021, our credit exposure to airline companies related to loans and lending commitments was $1.71 billion ($572 million of loans and $1.14 billion of lending commitments) to non-investment-grade counterparties, of which 86% was secured. In addition, we have exposure to our clients in the airline industry arising from derivatives. As of September 2021, our credit exposure related to derivatives and receivables to airline companies was $193 million ($151 million to investment-grade counterparties and $42 million to non-investment-grade counterparties). After taking into consideration the benefit of $238 million of hedges, our net credit exposure was $1.67 billion. As of September 2021, our market exposure related to airline companies was $82 million, substantially all of which was to non-investment-grade issuers or underliers. Such exposure consisted of $147 million related to debt, $(203) million related to credit derivatives and $138 million related to equities. Operational Risk Management Overview Operational risk is the risk of an adverse outcome resulting from inadequate or failed internal processes, people, systems or from external events. Our exposure to operational risk arises from routine processing errors, as well as extraordinary incidents, such as major systems failures or legal and regulatory matters. Potential types of loss events related to internal and external operational risk include: • Clients, products and business practices; • Execution, delivery and process management; • Business disruption and system failures; • Employment practices and workplace safety; • Damage to physical assets; • Internal fraud; and • External fraud. Operational Risk, which is independent of our revenue-producing units and reports to our chief risk officer, has primary responsibility for developing and implementing a formalized framework for assessing, monitoring and managing operational risk with the goal of maintaining our exposure to operational risk at levels that are within our risk appetite. Operational Risk Management Process Our process for managing operational risk includes the critical components of our risk management framework described in the "Overview and Structure of Risk Management," including a comprehensive data collection process, as well as firmwide policies and procedures, for operational risk events. We combine top-down 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. We maintain a comprehensive control framework designed to provide a well-controlled environment to minimize operational risks. The Firmwide Operational Risk and Resilience Committee is responsible for overseeing operational risk, and for ensuring our business and operational resilience. Our operational risk management framework is in part designed to comply with the operational risk measurement rules under the Capital Framework and has evolved based on the changing needs of our businesses and regulatory guidance. We have established policies that require all employees to report and escalate operational risk events. When operational risk events are identified, our policies require that the events be documented and analyzed to determine whether changes are required in our systems and/or processes to further mitigate the risk of future events. We use operational risk management applications to capture and organize operational risk event data and key metrics. One of our key risk identification and assessment tools is an operational risk and control self-assessment process, which is performed by our managers. This process consists of the identification and rating of operational risks, on a forward-looking basis, and the related controls. The results from this process are analyzed to evaluate operational risk exposures and identify businesses, activities or products with heightened levels of operational risk.
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Table of Contents THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Management's Discussion and Analysis Risk Measurement We measure our operational risk exposure using both statistical modeling and scenario analyses, which involve qualitative and quantitative assessments of internal and external operational risk event data and internal control factors for each of our businesses. Operational risk measurement also incorporates an assessment of business environment factors, including: • Evaluations of the complexity of our business activities; • The degree of automation in our processes; • New activity information; • The legal and regulatory environment; and
• Changes in the markets for our products and services, including the diversity
and sophistication of our customers and counterparties.
The results from these scenario analyses are used to monitor changes in operational risk and to determine business lines that may have heightened exposure to operational risk. These analyses are used in the determination of the appropriate level of operational risk capital to hold. We also perform firmwide stress tests. See "Overview and Structure of Risk Management" for information about firmwide stress tests. Types of Operational Risks Increased reliance on technology and third-party relationships has resulted in increased operational risks, such as information and cyber security risk, third-party risk and business resilience risk. We manage those risks as follows: Information and Cyber Security Risk. Information and cyber security risk is the risk of compromising the confidentiality, integrity or availability of our data and systems, leading to an adverse impact to us, our reputation, our clients and/or the broader financial system. We seek to minimize the occurrence and impact of unauthorized access, disruption or use of information and/or information systems. We deploy and operate preventive and detective controls and processes to mitigate emerging and evolving information security and cyber security threats, including monitoring our network for known vulnerabilities and signs of unauthorized attempts to access our data and systems. There is increased information risk through diversification of our data across external service providers, including use of a variety of cloud-provided or -hosted services and applications. See "Risk Factors" in Part I, Item 1A of the 2020 Form 10-K for further information about information and cyber security risk. Third-Party Risk. Third-party risk, including vendor risk, is the risk of an adverse impact due to reliance on third parties performing services or activities on our behalf. These risks may include legal, regulatory, information security, reputational, operational or any other risks inherent in engaging a third party. We identify, manage and report key third-party risks and conduct due diligence across multiple risk domains, including information security and cyber security, resilience and additional third-party dependencies. The Third-Party Risk Program monitors, reviews and reassesses third-party risks on an ongoing basis. See "Risk Factors" in Part I, Item 1A of the 2020 Form 10-K for further information about third-party risk. Business Resilience Risk. Business resilience risk is the risk of disruption to our critical processes. We monitor threats and assess risks and seek to ensure our state of readiness in the event of a significant operational disruption to the normal operations of our critical functions or their dependencies, such as critical facilities, systems, third parties, data and/or personnel. We approach BCP through the lens of business and operational resilience. The resilience framework defines the fundamental principles for BCP and crisis management to ensure that critical functions can continue to operate in the event of a disruption. The business continuity program is comprehensive, consistent firmwide and up-to-date, incorporating new information, techniques and technologies as and when they become available, and our resilience recovery plans incorporate and test specific and measurable recovery time objectives in accordance with local market best practices and regulatory requirements, and under specific scenarios. See "Regulatory and Other Matters - Other Matters" for information about the impact of the COVID-19 pandemic. See "Business - Business Continuity and Information Security" in Part I, Item 1 of the 2020 Form 10-K for further information about business continuity. Model Risk Management Overview Model risk is the potential for adverse consequences from decisions made based on model outputs that may be incorrect or used inappropriately. We rely on quantitative models across our business activities primarily to value certain financial assets and liabilities, to monitor and manage our risk, and to measure and monitor our regulatory capital. Model Risk, which is independent of our revenue-producing units, model developers, model owners and model users, and reports to our chief risk officer, has primary responsibility for assessing, monitoring and managing our model risk through firmwide oversight across our global businesses, and provides periodic updates to senior management, risk committees and the Risk Committee of the Board.
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Table of Contents THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Management's Discussion and Analysis 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 Review and Validation Process Model Risk consists of quantitative professionals who perform an independent review, validation and approval of our models. This review includes an analysis of the model documentation, independent testing, an assessment of the appropriateness of the methodology used, and verification of compliance with model development and implementation standards. We regularly refine and enhance our models to reflect changes in market or economic conditions and our business mix. All models are reviewed on an annual basis, and new models or significant changes to existing models and their assumptions are approved prior to implementation. The model validation process incorporates a review of models and trade and risk parameters across a broad range of scenarios (including extreme conditions) in order to critically evaluate and verify:
• The model's conceptual soundness, including the reasonableness of model
assumptions, and suitability for intended use;
• The testing strategy utilized by the model developers to ensure that the
models function as intended;
• The suitability of the calculation techniques incorporated in the model;
• The model's accuracy in reflecting the characteristics of the related product
and its significant risks;
• The model's consistency with models for similar products; and • The model's sensitivity to input parameters and assumptions. See "Critical Accounting Policies - Fair Value - Review of Valuation Models," "Liquidity Risk Management," "Market Risk Management," "Credit Risk Management" and "Operational Risk Management" for further information about our use of models within these areas. Available Information Our internet address is www.goldmansachs.com and the investor relations section of our website is located at www.goldmansachs.com/investor-relations , where we make available, free of charge, our 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 Exchange Act, as well as proxy statements, as soon as reasonably practicable after we electronically file such material with, or furnish it to, theSEC . Also posted on our website, and available in print upon request of any shareholder to our Investor Relations Department (Investor Relations), are our certificate of incorporation and by-laws, charters for our Audit, Risk, Compensation, Corporate Governance and Nominating, and Public Responsibilities Committees, our Policy Regarding Director Independence Determinations, our Policy on Reporting of Concerns Regarding Accounting and Other Matters, our Corporate Governance Guidelines, our Code of Business Conduct and Ethics governing our directors, officers and employees, and our Sustainability Report. Within the time period required by theSEC , we will post on our website any amendment to the Code of Business Conduct and Ethics and any waiver applicable to any executive officer, director or senior financial officer. Our website also includes information about (i) purchases and sales of our equity securities by our executive officers and directors; (ii) disclosure relating to certain non-GAAP financial measures (as defined in theSEC's Regulation G) that we may make public orally, telephonically, by webcast, by broadcast or by other means; (iii) DFAST results; (iv) the public portion of our resolution plan submission; (v) our Pillar 3 disclosure; and (vi) our average daily LCR.
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Table of Contents THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Management's Discussion and Analysis Investor Relations can be contacted at The Goldman Sachs Group, Inc., 200 West Street, 29th Floor,New York, New York 10282, Attn: Investor Relations, telephone: 212-902-0300, e-mail: gs-investor-relations@gs.com . We use the following, as well as other social media channels, to disclose public information to investors, the media and others:
• Our website (
www.goldmansachs.com
);
• Our Twitter account (
twitter.com/GoldmanSachs
); and
• Our Instagram account (
instagram.com/GoldmanSachs
).
Our officers may use similar social media channels to disclose public information. It is possible that certain information we or our officers post on our website and on social media could be deemed material, and we encourage investors, the media and others interested in Goldman Sachs to review the business and financial information we or our officers post on our website and on the social media channels identified above. The information on our website and those social media channels is not incorporated by reference into this Form 10-Q. Forward-Looking Statements We have included in this Form 10-Q, and our management may make, statements that may constitute "forward-looking statements" within the meaning of the safe harbor provisions of theU.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements are not historical facts or statements of current conditions, but instead represent only our beliefs regarding future events, many of which, by their nature, are inherently uncertain and outside our control. By identifying these statements for you in this manner, we are alerting you to the possibility that our actual results, financial condition, liquidity and capital actions may differ, possibly materially, from the anticipated results, financial condition and liquidity in these forward-looking statements. Important factors that could cause our results, financial condition, liquidity and capital actions to differ from those in these statements include, among others, those described below and in "Risk Factors" in Part I, Item 1A of the 2020 Form 10-K. These statements may relate to, among other things, (i) our future plans and results, including our target ROE, ROTE, efficiency ratio and CET1 capital ratio, and how they can be achieved, (ii) trends in or growth opportunities for our businesses, including the timing, costs, profitability, benefits and other aspects of business and strategic initiatives and their impact on our efficiency ratio, (iii) our level of future compensation expense, including as a percentage of both operating expenses and revenues net of provision for credit losses, (iv) our investment banking transaction backlog, (v) our expected interest income and interest expense, (vi) our expense savings and strategic locations initiatives, (vii) expenses we may incur, including future litigation expense and expenses from investing in our consumer and transaction banking businesses, (viii) the projected growth of our deposits and other funding, asset liability management and funding strategies and related interest expense savings, (ix) our business initiatives, including transaction banking and new consumer financial products, (x) our planned 2021 benchmark debt issuances, (xi) the amount, composition and location of GCLA we expect to hold, (xii) our credit exposures, (xiii) our expected provisions for credit losses (including those related to our planned co-branded credit card relationship with General Motors), (xiv) the adequacy of our allowance for credit losses, (xv) the projected growth of our installment loan and credit card businesses, (xvi) the objectives and effectiveness of our BCP strategy, information security program, risk management and liquidity policies, (xvii) our resolution plan and strategy and their implications for stakeholders, (xviii) the design and effectiveness of our resolution capital and liquidity models and triggers and alerts framework, (xix) the results of stress tests, (xx) the effect of changes to regulations, and our future status, activities or reporting under banking and financial regulation, (xxi) our expected tax rate, (xxii) the future state of our liquidity and regulatory capital ratios, and our prospective capital distributions (including dividends and repurchases), (xxiii) our expected SCB and G-SIB surcharge, (xxiv) legal proceedings, governmental investigations or other contingencies, (xxv) the asset recovery guarantee and our remediation activities related to our1Malaysia Development Berhad (1MDB) settlements, (xxvi) the replacement of IBORs and our transition to alternative risk-free reference rates, (xxvii) the impact of the COVID-19 pandemic on our business, results, financial position and liquidity, (xxviii) the effectiveness of our management of our human capital, including our diversity goals, (xxix) our plans for our people to return to our offices, (xxx) future inflation and (xxxi) our announced acquisitions of the General Motors co-branded credit card portfolio,NN Investment Partners and GreenSky.
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Table of Contents THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Management's Discussion and Analysis Statements about our target ROE, ROTE, efficiency ratio and expense savings, and how they can be achieved, are based on our current expectations regarding our business prospects and are subject to the risk that we may be unable to achieve our targets due to, among other things, changes in our business mix, lower profitability of new business initiatives, increases in technology and other costs to launch and bring new business initiatives to scale, and increases in liquidity requirements. Statements about our target ROE, ROTE and CET1 capital ratio, and how they can be achieved, are based on our current expectations regarding the capital requirements applicable to us and are subject to the risk that our actual capital requirements may be higher than currently anticipated because of, among other factors, changes in the regulatory capital requirements applicable to us resulting from changes in regulations or the interpretation or application of existing regulations or changes in the nature and composition of our activities. Statements about the timing, costs, profitability, benefits and other aspects of business and expense savings initiatives, the level and composition of more durable revenues and increases in market share are based on our current expectations regarding our ability to implement these initiatives and actual results may differ, possibly materially, from current expectations due to, among other things, a delay in the timing of these initiatives, increased competition and an inability to reduce expenses and grow businesses with durable revenues. Statements about the level of future compensation expense, including as a percentage of both operating expenses and revenues net of provision for credit losses, and our efficiency ratio as our platform business initiatives reach scale are subject to the risks that the compensation and other costs to operate our businesses, including platform initiatives, may be greater than currently expected. Statements about our investment banking transaction backlog are subject to the risk that such transactions may be modified or may not be completed at all and related net revenues may not be realized or may be materially less than expected. Important factors that could have such a result include, for underwriting transactions, a decline or weakness in general economic conditions, an outbreak of hostilities, volatility in the securities markets or an adverse development with respect to the issuer of the securities and, for financial advisory transactions, a decline in the securities markets, an inability to obtain adequate financing, an adverse development with respect to a party to the transaction or a failure to obtain a required regulatory approval. For information about other important factors that could adversely affect our investment banking transactions, see "Risk Factors" in Part I, Item 1A of the 2020 Form 10-K. Statements about the projected growth of our deposits and other funding, asset liability management and funding strategies and related interest expense savings, and our installment loan and credit card businesses, are subject to the risk that actual growth and savings may differ, possibly materially, from that currently anticipated due to, among other things, changes in interest rates and competition from other similar products. Statements about planned 2021 benchmark debt issuances and the amount, composition and location of GCLA we expect to hold are subject to the risk that actual issuances and GCLA levels may differ, possibly materially, from that currently expected due to changes in market conditions, business opportunities or our funding and projected liquidity needs. Statements about our expected provisions for credit losses (including those related to our planned co-branded credit card relationship with General Motors) are subject to the risk that actual credit losses may differ and our expectations may change, possibly materially, from that currently anticipated due to, among other things, changes to the composition of our loan portfolio and changes in the economic environment in future periods and our forecasts of future economic conditions, as well as changes in our models, policies and other management judgments.
Goldman Sachs September 2021 Form 10-Q 160
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Table of Contents THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES Management's Discussion and Analysis Statements about our future effective income tax rate are subject to the risk that it may differ from the anticipated rate indicated in such statements, possibly materially, due to, among other things, changes in the tax rates applicable to us, 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 any corporate tax legislation that may be enacted or any guidance that may be issued by theU.S. Internal Revenue Service . Statements about the future state of our liquidity and regulatory capital ratios (including our SCB and G-SIB surcharge), and our prospective capital distributions (including dividends and repurchases), are subject to the risk that our actual liquidity, regulatory capital ratios and capital distributions may differ, possibly materially, from what is currently expected due to, among other things, the need to use capital to support clients, increased regulatory requirements resulting from changes in regulations or the interpretation or application of existing regulations, results of applicable supervisory stress tests and changes to the composition of our balance sheet. Statements about the risk exposure related to the asset recovery guarantee provided to theGovernment of Malaysia are subject to the risk that the actual value of assets and proceeds from assets seized and returned to theGovernment of Malaysia may be less than currently anticipated. Statements about the progress or the status of remediation activities relating to 1MDB are based on our expectations regarding our current remediation plans. Accordingly, our ability to complete the remediation activities may change, possibly materially, from what is currently expected. Statements about our objectives in management of our human capital, including our diversity goals, are based on our current expectations and are subject to the risk that we may not achieve these objectives and goals due to, among other things, competition in recruiting and attracting diverse candidates and unsuccessful efforts in retaining diverse employees. Statements about our plans for our people to return to our offices are based on our current expectations and that return may be delayed due to, among other factors, future events that are unpredictable, including the course of the COVID-19 pandemic, responses of governmental authorities and the availability, use and effectiveness of vaccines. Statements about future inflation are subject to the risk that actual inflation may differ, possibly materially, due to, among other things, changes in economic growth, unemployment or consumer demand. Statements about our announced acquisitions of the General Motors co-branded credit card portfolio,NN Investment Partners and GreenSky are subject to the risk that the transactions may not close on the timeline contemplated or at all, including due to a failure to obtain requisite regulatory approval and, in the case of GreenSky, shareholder approval, as well as the risk that we may be unable to realize the expected benefits of the acquisitions and the risk that integrating the General Motors co-branded credit card portfolio,NN Investment Partners and GreenSky, into our business may be more difficult, time-consuming or expensive than expected.
161 Goldman Sachs September 2021 Form 10-Q
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