Overview of Goldman Sachs October 2014

Overview of Goldman Sachs
October 2014
Cautionary Note on Forward Looking Statements
Today’s presentation may include forward-looking statements. These statements are not historical facts, but instead represent the
Firm’s belief regarding future events many of which, by their nature, are inherently uncertain and outside of the Firm’s control. It is
possible that the Firm’s actual results and financial condition may differ, possibly materially, from the anticipated results and financial
condition indicated in these forward-looking statements.
For a discussion of some of the risks and important factors that could affect the Firm’s future results, see “Risk Factors” in Part I,
Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2013. You should also read the forward-looking
disclaimers in our quarterly earnings release, particularly as it relates to estimated capital, liquidity, and leverage ratios, riskweighted assets, total assets and global core excess liquidity, and information on the calculation of non-GAAP financial measures
that is posted on the Investor Relations portion of our website: www.gs.com. The Supplementary Leverage Ratios is an estimate
based on our current interpretations, expectations and understanding of the U.S. Federal Bank regulatory agencies’ Final Rule.
The statements in the presentation are current only as of its date – October 16, 2014.
1
Key Credit Strengths
Well Positioned
with respect to
Regulatory
Captial Ratios
Best in Class
Liquidity Risk
Management
Substantial
Excess Liquidity
 The firm is well-positioned for Basel III capital requirements with a 3Q14 Common Equity Tier 1 ratio of 11.8%
under the Advanced approach on a transitional basis
 Our gross leverage is 10.6x as of 3Q14
 In addition, the vast majority of our balance sheet is marked to fair value which means our equity reflects market
value
 We have in place a comprehensive set of liquidity policies that allow us to maintain significant flexibility to
address both GS-specific and broader industry or market liquidity events
 Our two major liquidity and funding policies are based on the core tenets of:
— Excess liquidity refers to always having enough cash or cash-like instruments on hand to meet contractual
and contingent outflows in a stressed environment
— Asset-liability management refers to having a liability profile that has sufficient term and diversification
based upon the liquidity profile of the assets
 The Basel Liquidity requirements are broadly consistent with how GS manages liquidity risk and under the new
rules, we believe we are well positioned for the Liquidity Coverage Ratio
 A substantial portion of our balance sheet is highly liquid and we maintain significant levels of excess liquidity.
We call this pool of excess liquidity the Global Core Excess or “GCE”
— GCE ended 3Q14 at $180 billion, representing 21% of our period end balance sheet
— GCE is comprised of cash, high quality and narrowly defined unencumbered assets including U.S.
Treasuries and German, French, Japanese and United Kingdom government obligations
— GCE is sized well in excess of our near-term contractual and contingent outflows
 As a BHC, access to the Fed as the lender of last resort provides additional liquidity protection, although we do
not rely on this funding in our liquidity planning and stress testing
2
Key Credit Strengths (cont’d)
 Our principal objective is to fund our balance sheet and run the firm with the ability to weather stressed market
conditions without dependence on government support
 Balance sheet comprised of highly liquid assets1
— Vast majority of assets marked-to-market daily and ~93% of the balance sheet is liquid (cash, reverses / borrows,
US government/agency and other financial instruments) as of 2Q14
Conservative
Asset Liability
Management
— Businesses subject to conservative balance sheet limits that are reviewed regularly and monitored daily
 Liability term structure – we seek to have long-dated liabilities to reduce our refinancing risk
— WAM2 of approximately 8 years as of 2Q14 for long-term unsecured borrowings
— WAM > 120 days for secured funding as of 2Q14 (excluding funding collateralized by highly liquid securities that
are eligible for inclusion in our GCE)
 We maintain broad and diversified funding sources globally
 Counterparties well distributed throughout the U.S., Europe, and Asia
 The balance sheet stands at $869 billion as of 3Q14, up $9 billion vs. 2Q14 and down 22% vs. 4Q07
Strong Asset
Quality
 Our asset quality has substantially improved since 4Q07 as our balance sheet reductions targeted less liquid, legacy
exposures such as Level 3 assets
— Level 3 assets are down approximately 41% since the end of 4Q07 to $41 billion and represent roughly 4.7% of our
balance sheet as of 3Q14
 From 1999-2013, net revenues have grown at a compound annual growth rate of approximately 7%
Diversified Global
Business with
Profitable Track
Record
1
2
 Average annual ROE from 1999-2013: 17.6%
 Our diversified business model allows us to outperform through cycles
— Although our FICC and Equities Client Execution businesses averaged 43% of net revenues from 2009 through
2013, this encompasses various products, markets, and regions designed to serve our global client base, which
includes corporations, financial institutions and governments
Excludes sum of Level 3 and Other Assets
WAM stands for Weighted Average Maturity
3
Goldman Sachs’ Credit Profile
Credit Ratings as of October 16, 2014
S&P
Moody's
Fitch
GS Group Inc.
Short-term debt
A-2
P-2
F1
Long-term debt
A-
Baa1
A
Negative
Stable
Stable
A-1
—
F1
Outlook
GS & Co.
Short-term debt
A
—
A
Negative
—
Stable
A-1
P-1
F1
A
A2
A
Negative
Stable
Stable
Goldman Sachs Bank USA
Short-term deposit
—
P-1
F1
Short-term debt
A-1
P-1
F1
Long-term deposit
—
A2
A+
Long-term debt
A
A2
A
Negative
Stable
Stable
Goldman Sachs International Bank
Short-term deposit
—
P-1
F1
Short-term debt
A-1
P-1
F1
Long-term deposit
—
A2
A
Long-term debt
A
A2
A
Negative
Stable
Stable
Long-term debt
Outlook
Goldman Sachs International
Short-term debt
Long-term debt
Outlook
Outlook
Outlook
4
Diversified Net Revenue Mix
By Business 2009-1H14
Investing &
Lending
15%
Asia
16%
Investment
Banking
14%
Investment
Management
14%
FICC Client
Execution
34%
Securities
Services
5%
By Geography 2009-1H14
EMEA
26%
Americas
58%
Commissions
and Fees
Equities
9%
Client
Execution
9%
Our continued goal is to have the leading institutional franchise businesses
5
Financial Performance
Net Earnings ($bn) & ROE1 (%)
Net Revenues ($bn)
32.8%
$46.0
32.7%
$45.2
$13.4
$39.2
$37.7
$11.6
$34.2 $34.2
21.8%
22.5%
$9.5
$28.8
$26.8
$21.0
$8.4
19.8%
$25.2
$8.0
$7.5
$22.2
$6.3
13.1%
$5.6
$4.6
11.0% 11.2%
$4.4
$2.3
10.7%
5.9%
4.9%
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 9M14
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 9M14
Net Earnings
1
ROE
Return on Common Shareholders’ Equity. ROE for 2010 excludes $465mm related to the U.K. bank payroll tax, $550mm related to the SEC settlement and $305mm related to the impairment of the
firm’s NYSE Designated Market Maker rights; If these items are included, our 2010 ROE was 11.5%. 2011 ROE excludes the impact of the $1.64 billion preferred dividend relating to the redemption of
the firm’s Series G Preferred Stock; If this item is included, our 2011 ROE was 3.7%
6
Our Risk Philosophy
Corporate and Senior Management Oversight
 Board of Directors and Board Committees
 Senior Management
(Chairman & CEO, President, CFO)
Management Committee
 Firmwide Risk Committee (Credit, Market, Finance,
Operational, Technology Risk & Investment Policy)
 Firmwide Capital & Commitments Committees
(Loan / Underwriting Risk)
 Firmwide Client & Business Standards Committee
(New Activities / Suitability)
Independent
Control and
Support
Functions
Revenue
Producing Units
 Senior management awareness of nature and amount of
risk incurred
 Independence of process from the business
 Fair value accounting is a critical risk mitigant and is
supported by a robust price verification process
 Minimize losses and manage risk through:
— Active management
— Risk mitigation, where possible using collateral
— Diversification
— Return hurdles matched to underlying risks
 Overall risk tolerance established by assessment of
opportunity relative to potential loss
— Qualitative and quantitative analysis, but not a
specific formulaic link
 Variety of approaches used to monitor risk exposures
 Effective risk systems, which are thorough, timely and
flexible
Internal Audit
 While we manage risk conservatively, we are in a risktaking business and will incur losses
7
Managing Our Risk
3Q14
4Q07
1
2
Average
Daily VaR1
End of Period
Global Core
Excess2
Balance
Sheet
Level 3
Assets
$869bn
$41bn
$66mm
$180bn
$73.1bn
10.6x
(22)%
(41)%
(56)%
3.0x
84%
(60)%
$1,120bn
$69bn
$151mm
$61bn
$39.7bn
26.2x
Represents average daily VaR for the quarterly period
Includes balances at GS Bank. Period end 4Q07 GCE reflects loan value and period end 3Q14 GCE reflects fair value
Common
Equity
Gross
Leverage
8
Balance Sheet
Overview
 Balance sheet comprised of highly liquid assets with the vast majority marked-to-market daily
— As of 2Q14, approximately 93%1 of the balance sheet is more liquid (cash, reverses / borrows, US government/agency and
other financial instruments)
 Businesses are subject to conservative balance sheet limits that are reviewed regularly and monitored daily, including aged
inventory limits
2Q14 Balance Sheet Allocation
Investing &
Lending
8%
2Q14 Inventory Turnover (days) 2
Other
Assets
3%
>360
5%
Excess
Liquidity
and Cash
20%
181-360
10%
91-180
13%
Institutional
Client
Services
45%
1
Secured
Client
Financing
24%
0-45
59%
46-90
13%
Excludes Level 3 Assets and Other Assets
turnover on cash inventory primarily held by our market-making businesses within our Institutional Client Services segment; excludes derivatives
2 Reflects
9
Regulatory Capital Ratios
3Q14
Basel III Common Equity Tier 1 Ratio
Advanced Approach1
11.8%
Transitional Ratio
Fully
Phased-in
Minimums
Preliminary
G-SIB
Buffer
2Q14 Basel III Advanced Approach RWAs: ~$592bn1
Op. Risk
~$94bn
(16%)
+1.5%
Market Risk
~$154bn
(26%)
7.0%
Regulatory
Minimum
Credit Risk
~$344bn
(58%)
Firm Supplementary Leverage Ratio (SLR)2
≥5.2%3
4.9%
4.5%
 Our Basel III Common Equity Tier 1 ratio as of 3Q14 under the
Advanced approach was 11.8%1 and 11.1% under the
Standardized approach, both based on the transitional
provisions provided by the rules
 With regard to the SLR, although the final rule will not take
effect until 2018, we believe we are well positioned to comply
4.2%
— Including the capital impact of reducing the firm’s fund
investments to comply with the Volcker rule, the estimated
SLR is ≥5.2%
1Q14
2Q14
3Q14
III Transitional Ratio and Basel III RWAs are calculated under the Advanced approach on a transitional basis based on the Federal Reserve Board’s final Basel III rules
SLR reflects our best estimate based on the U.S. Federal bank regulatory agencies’ final rule
2 Estimated SLR including the capital impact of reducing the firm’s fund investments to comply with the Volcker rule
1 Basel
2
10
Conservative and Comprehensive Liquidity Risk Management
Excess Liquidity
 Our most important liquidity policy is to
prefund estimated potential liquidity needs in a
stressed environment
 Our GCE consists of cash and highly-liquid
government and agency securities that would
be readily convertible to cash in a matter of
days
 GCE size is based on:
— Modeled assessment of the firm’s liquidity
risks, including contractual, behavioral and
market-driven outflows
Asset-Liability Management
 Conservative asset and liability management
to ensure stability of financing
 Focus on size and composition of assets to
determine appropriate funding strategy
 Secured and unsecured financing sufficiently
long-term relative to the liquidity profile of our
assets in order to withstand a stressed
environment without relying on asset sales
 Consistently manage overall characteristics of
liabilities, including term, diversification and
excess capacity
— Qualitative assessment of the conditions of
the financial markets and the firm
Rigorous and conservative stress tests underpin our excess liquidity and asset-liability management frameworks
11
Excess Liquidity
2Q14 Average GCE by Entity
We maintain material liquidity reserves
 Our liquidity resources are substantial, reflecting 21% of our
balance sheet in 3Q14
 As of 2Q14, roughly 75% of our liquidity pool was made up
of U.S. government obligations, overnight cash deposits
(which are mainly at the Federal Reserve) and U.S. federal
agency obligations, with the balance in high quality foreign
governments
GS Group
23%
Major Bank
Subsidiaries
29%
 Our GCE is held at our parent company and each of our
major bank and broker-dealer subsidiaries to ensure that
liquidity is available to meet entity requirements
End of Period GCE Trend ($bn)1
We continually enhance the models that drive the size of
our GCE
+3.0x
 Our Modeled Liquidity Outflow reflects potential contractual
and contingent outflows of cash or collateral
 We continue to make improvements to our models and can
more granularly assess idiosyncratic risks in our businesses
Major BrokerDealer
Subsidiaries
48%
$171
$175
$172
$175
4Q09
4Q10
4Q11
4Q12
$184
$180
4Q13
3Q14
$127
$61
4Q07
4Q08
Per the final rules, we estimate that we currently exceed the fully phased-in 100% LCR requirement
1 Prior
to 4Q08, GCE reflects loan value and subsequent periods reflect fair value
12
Asset-Liability Management
 We actively manage and monitor our asset base, with particular focus on liquidity and potential holding period
 Through our dynamic balance sheet management process, we use actual and projected asset balances to determine our funding
requirements
 We conservatively manage the overall characteristics of our funding book, with a focus on maintaining long-term, diversified
sources of financing with tenors appropriate for the anticipated holding period of our assets
 Our plans are reviewed by the firmwide Finance Committee as well as senior managers in our independent control and support
functions
Principal Sources of Funding
As of 2Q14
% of Total
Assets
Equity and
Long-term
Debt
Deposits


Excess Liquidity and
Cash
20%
Secured Client
Financing
24%
Institutional Client
Services
45%


Investing & Lending
Assets
8%


Other Assets
3%

Total Assets
Secured
Funding
Trading
Liabilities




$859.9bn
13
Diversification of Core Funding Sources
2Q14
 Nearly one-half of our secured
funding book is in GCE-quality
collateral1
 A significant, stable and
perpetual source of funding
 Our secured funding book is
diversified across:
— Counterparties
— Tenor
— Geography
Secured
Funding
$141.6bn
 Term is dictated by the
composition of our fundable assets
with longer maturities executed for
less liquid assets
Deposits
$73.8bn
Shareholders'
Equity
$81.6bn
Long-Term
Unsecured Debt
$167.0bn
 Deposits have become a larger source
of funding
 We are focused on contractual term: 31% of our
deposits are brokered CDs with approximately 3year weighted average maturity
1 Based
on gross secured funding trades
Short-Term
Unsecured Debt
$45.8bn
 Well diversified across the
tenor spectrum, currency,
investors and geography
 Weighted average maturity
of long-term debt of 8
years
 Short-term unsecured debt
includes $27.4bn of the
current portion of our longterm unsecured debt
14
Secured Funding Principles
We manage our secured funding liquidity risk with:
 Extending initial trade tenors and managing maturities
1
Term
 Pre-rolling and negotiating tenor extensions with clients
 Longer tenors targeted for less liquid assets
2
Diversity
3
Excess Capacity
4
GCE
 Raising secured funding from a diverse set of funding counterparties
 Raising excess secured funding to insure against rollover risk or growth in assets to finance
 We raise excess unsecured funding and hold as GCE to mitigate any 1-month modeled
liquidity losses
 Imposing stress test limits to ensure we do not have excessive liquidity risk even in a
severe scenario
5
Stress Tests
— “Funding at Risk” (FaR) uses various metrics over various time periods to evaluate the
risks in the secured funding book
— Matched book (“Cash gap”)
15
Unsecured Long-Term Issuance
 Through 3Q14, we have raised $23.1bn of long-term benchmark unsecured vanilla funding, including $17.6bn of fixed-rate notes, $3.5bn of
floating-rate notes, and $2.0bn of perpetual preferred
— 9.7 year weighted average initial maturity at issuance compared to the ~8 year WAM of the entire long-term debt portfolio
 Diversification across currency, channel and tenor remains a key focus
— ~40% of our year-to-date issuance has been from non-USD institutional markets
— Issuance was conducted across the tenor spectrum, with 3, 5, 7, 10 and 30 year maturities. Additionally, we issued several notes with
non-round tenors to improve maturity diversification
 Going forward, we expect issuances to roughly match maturities over time, nevertheless, issuance targets will be revisited frequently
depending on the size and composition of our balance sheet
 With respect to potential OLA bail-in requirements, we believe we are well positioned with estimated bail-in capital1 equal to 36% of total
Basel III Advanced RWAs
GS Group Long-Term Vanilla Benchmark Issuance vs. Maturities ($bn)
2011-2013 Average
Issuance / Maturities: 101%
$24.5
$20.9
$17.4
$20.3 $20.1 $20.3
2011
2012
Issuance
1 Bail-in
2013
Scheduled Maturities3
$23.1
$19.3
2014
$20.6
2015
2013 Estimated Bail-In Capital as a % of Fully
Phased-In Advanced Basel III RWAs1,2
36%
25%
$20.9
2016
GS
US Peer Average
Maturities
capital is defined as Basel 3 Tier 1 Capital, Holding Company long-term debt (due in >1yr) and Holding Company subordinated debt. Basel 3 Tier 1 Capital per company filings; Holding Company data
per Bank Holding Company Performance Reports (BHCPRs) as of 4Q13
2 US Peers include JP Morgan, Morgan Stanley, Bank of America and Citigroup
3 Includes the current portion of long-term debt
16
Deposits
As of 2Q14
 As part of the Firm’s efforts to diversify its funding base, deposits have become a more meaningful share of the Firm’s funding
activities, and the Firm has more than doubled its deposit funding since late 2008
 In particular, GS Bank USA has raised deposits with an emphasis on issuance of long-term certificates of deposit, private bank
deposits and long-term relationships with broker-dealer aggregators where they sweep their client cash to an FDIC-insured deposit
at GS Bank USA
 GS International Bank, our main deposit-taking entity in Europe, raises deposits largely in the form of fixed term and on-demand
deposits
Deposits: $73.8bn 9% of Liabilities
Deposit Growth Trends ($bn)
Institutional
7%
+167% increase
Deposit
Sweep
Program
20%
$70.1
$70.8
$73.8
4Q12
4Q13
2Q14
$46.1
Private
Bank
Deposits
41%
$39.4
$38.6
4Q09
4Q10
$27.6
Certificates
of Deposit
32%
4Q08
US Deposits
4Q11
International Deposits
17
Credit, Market & Operational Risk Management
Policies
 Exposures and policies reviewed regularly
 Multiple risk metrics used to monitor and manage exposures
 Extensive investment in Credit, Market and Operational Risk groups
 Frequent reporting to / communication with senior management
Market Risk
Credit Risk
Operational Risk
Risk Overview
 Potential loss from changes in
market prices
 Risk related to failure of
counterparties to fulfill
financial and contractual
obligations
 Risk of loss resulting from a failure
of internal processes, people and
systems or from external events
Management
 Allocate risk limits to business level
and control position sizes
 Set and monitor current and
potential counterparty credit
exposure levels
 Set comprehensive risk policies,
enforcing, monitoring and measuring
performance through various
benchmarks, and active participation
Committee
Oversight
 Firmwide Risk Committee
 Firmwide Risk Committee
reviews the activities of existing
reviews existing counterparty
businesses, approves new businesses
credit positions, approves
and products, approves firmwide
firmwide credit risk limits and
market risk limits and reviews business
reviews business level credit
level market risk limits
risk limits
 Firmwide Operational Risk
Committee provides oversight
of operational risk policies, framework
and methodologies, and monitors the
effectiveness
of operational risk management
Controls &
Active
Management
 Market Risk Management &
Analysis managers in revenueproducing units discuss market
information, positions and estimated
risk and loss scenarios on an ongoing
basis
 Operational Risk
Management & Analysis
centrally manages implementation of
the framework and business level
managers actively manage and
monitor exposures to operational risks
 Credit Risk Management &
Advisory centrally manages
and controls counterparty
credit exposures through the
establishment of limits, use of
collateral and netting
agreements
18
Market Risk Related Metrics
($ in millions)
Average Daily VaR ($mm)
10% Sensitivity Table
June
2014
March
2014
$240
Asset Categories
$40
Equity
$38
$181
$2,259
$2,243
$38
Debt
$1,727
$1,506
$38
$161
$49
$31
$35
$120
$113
$135
$37
$26
$23
Total
$3,986
$3,749
$89
$32
$88
$24
$21
$23
 The size of the aggregate 10%
sensitivity has decreased by
24% since 4Q07
$65
$218
$126
-$94
1Q09
-$103
4Q09
Interest Rates
$109
$49
$95
$26
$15
$29
$76
$76
$20
$11
$21
$14
$31
$30
$81
$18
$15
$37
$123
$86
-$86
-$84
4Q10
1Q11
$24
$90
$87
$66
$20
$19
$67
$62
$62
$46
-$58
-$65
-$53
-$51
-$51
-$43
4Q11
1Q12
4Q12
1Q13
4Q13
3Q14
-$120
1Q10
Equity Prices
Currency rates
Commodity Prices
Diversification Effect
19