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Commitments, Contingencies and Guarantees
 9 Months Ended
Sep. 30, 2020
Commitments and Contingencies Disclosure [Abstract]  
Commitments, Contingencies and Guarantees
Note 18.
Commitments, Contingencies and Guarantees
Commitments
The table below presents commitments by type.
 
    As of  
$ in millions
  
 
September
2020
 
 
      December
2019		  
 
Commitment Type
     
Commercial lending:
     
Investment-grade
  
 
$  79,362
 
      $  89,276  
Non-investment-grade
  
 
53,392
 
      58,718  
Warehouse financing
  
 
7,973
 
      5,581  
Credit cards
  
 
18,880
 
      13,669  
Total lending
  
 
159,607
 
      167,244  
Collateralized agreement
  
 
83,472
 
      62,093  
Collateralized financing
  
 
47,614
 
      10,193  
Letters of credit
  
 
362
 
      456  
Investment
  
 
5,015
 
      7,879  
Other
  
 
7,169
 
      6,135  
Total commitments
  
 
$303,239
 
      $254,000  
The table below presents commitments by expiration.
 
   
As of September 2020
  
$ in millions
  
 
Remainder of
2020
 
 
  
 
2021 -
2022
 
 
  
 
2023 -
2024
 
 
  
 
2025 -
Thereafter
 
 
Commitment Type
        
Commercial lending:
        
Investment-grade
  
 
$    2,601
 
  
 
$27,050
 
  
 
$40,570
 
  
 
$  9,141
 
Non-investment-grade
  
 
1,299
 
  
 
13,096
 
  
 
26,938
 
  
 
12,059
 
Warehouse financing
  
 
676
 
  
 
4,682
 
  
 
2,302
 
  
 
313
 
Credit cards
  
 
18,880
 
  
 
–
 
  
 
–
 
  
 
–
 
Total lending
  
 
23,456
 
  
 
44,828
 
  
 
69,810
 
  
 
21,513
 
Collateralized agreement
  
 
79,105
 
  
 
4,367
 
  
 
–
 
  
 
–
 
Collateralized financing
  
 
46,335
 
  
 
1,279
 
  
 
–
 
  
 
–
 
Letters of credit
  
 
137
 
  
 
185
 
  
 
–
 
  
 
40
 
Investment
  
 
573
 
  
 
1,152
 
  
 
1,097
 
  
 
2,193
 
Other
  
 
6,976
 
  
 
193
 
  
 
–
 
  
 
–
 
Total commitments
  
 
$156,582
 
  
 
$52,004
 
  
 
$70,907
 
  
 
$23,746
 
Lending Commitments
The firm’s commercial and warehouse financing lending commitments are agreements to lend with fixed termination dates and depend on the satisfaction of all contractual conditions to borrowing. These commitments are presented net of amounts syndicated to third parties. The total commitment amount does not necessarily reflect actual future cash flows because the firm may syndicate all or substantial portions of these commitments. In addition, commitments can expire unused or be reduced or cancelled at the counterparty’s request. The firm also provides credit to consumers by issuing credit card lines.
The table below presents information about lending commitments.
 
    As of  
$ in millions
  
 
September
2020
 
 
      December
2019		  
 
Held for investment
  
 
$146,043
 
      $150,100  
Held for sale
  
 
11,194
 
      15,245  
At fair value
  
 
2,370
 
      1,899  
Total
  
 
$159,607
 
      $167,244  
In the table above:
 
•  
Held for investment lending commitments are accounted for at amortized cost. The carrying value of lending commitments was a liability of $800 million (including allowance for credit losses of $615 million) as of September 2020 and $527 million (including allowance for credit losses of $361 million) as of December 2019. The estimated fair value of such lending commitments was a liability of $4.52 billion as of September 2020 and $3.05 billion as of December 2019. Had these lending commitments been carried at fair value and included in the fair value hierarchy, $1.42 billion as of September 2020 and $1.78 billion as of December 2019 would have been classified in level 2, and $3.10 billion as of September 2020 and $1.27 billion as of December 2019 would have been classified in level 3.
 
•  
Held for sale lending commitments are accounted for at the lower of cost or fair value. The carrying value of lending commitments held for sale was a liability of $75 million as of September 2020 and $60 million as of December 2019. The estimated fair value of such lending commitments approximates the carrying value. Had these lending commitments been included in the fair value hierarchy, they would have been primarily classified in level 3 as of September 2020 and primarily classified in level 2 as of December 2019.
 
•  
Gains or losses related to lending commitments at fair value, if any, are generally recorded net of any fees in other principal transactions.
Commercial Lending.
The firm’s commercial lending commitments were primarily extended to investment-grade corporate borrowers. Such commitments primarily included $106.08 billion as of September 2020 and $102.50 billion as of December 2019, related to relationship lending activities (principally used for operating and general corporate purposes) and $14.69 billion as of September 2020 and $33.47 billion as of December 2019, related to other investment banking activities (generally extended for contingent acquisition financing and are often intended to be short-term in nature, as borrowers often seek to replace them with other funding sources). The firm also extends lending commitments in connection with other types of corporate lending, as well as commercial real estate financing. See Note 9 for further information about funded loans.
To mitigate the credit risk associated with the firm’s commercial lending activities, the firm obtains 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. (SMFG) provides the firm with credit loss protection on certain approved loan commitments (primarily investment-grade commercial lending
commitments), for which the notional amount
was $3.21 billion as of September 2020 and $5.74 billion as of December 2019. The credit loss protection on loan commitments provided by SMFG is generally limited to 95% of the first loss the firm realizes on such commitments, up to a maximum of approximately $950 million. In addition, subject to the satisfaction of certain conditions, upon the firm’s request, SMFG will provide protection for 70% of additional losses on such commitments, up to a maximum of $750 million, of which no protection had been provided as of September 2020 and December 2019.
Warehouse Financing.
The firm provides financing to clients who warehouse financial assets. These arrangements are secured by the warehoused assets, primarily consisting of residential real estate, consumer and corporate loans.
Credit Cards.
The firm’s credit card lending commitments represents credit card lines issued by the firm to consumers. These credit card lines are cancellable by the firm.
Collateralized Agreement Commitments/ Collateralized Financing Commitments
Collateralized agreement commitments includes forward starting resale and securities borrowing agreements, and collateralized financing commitments includes forward starting repurchase and secured lending agreements that settle at a future date, generally within three business days. Collateralized agreement commitments also includes transactions where the firm has entered into commitments to provide contingent financing to its clients and counterparties through resale agreements. The firm’s funding of these commitments depends on the satisfaction of all contractual conditions to the resale agreement and these commitments can expire unused.
Letters of Credit
The firm has commitments under letters of credit issued by various banks which the firm provides to counterparties in lieu of securities or cash to satisfy various collateral and margin deposit requirements.
Investment Commitments
Investment commitments includes commitments to invest in private equity, real estate and other assets directly and through funds that the firm raises and manages. Investment commitments included $1.82 billion as of September 2020 and $2.06 billion as of December 2019, related to commitments to invest in funds managed by the firm. If these commitments are called, they would be funded at market value on the date of investment.
Contingencies
Legal Proceedings.
See Note 27 for information about legal proceedings, including certain mortgage-related matters.
Certain Mortgage-Related Contingencies.
During the period 2005 through 2008 in connection with both sales and securitizations of loans, the firm provided loan-level representations and/or assigned the loan-level representations from the party from whom the firm purchased the loans.
Based on the large number of defaults in residential mortgages, including those sold or securitized by the firm, there is a potential for repurchase claims. However, the firm is not in a position to make a meaningful estimate of that exposure at this time. The firm’s exposure to claims for repurchase of residential mortgage loans based on alleged breaches of representations will depend on a number of factors, such as the extent to which these claims are made within the statute of limitations, taking into consideration the agreements to toll the statute of limitations the firm entered into with trustees representing certain trusts.
Other Contingencies.
In connection with the settlement agreement with the Residential Mortgage-Backed Securities Working Group of the U.S. Financial Fraud Enforcement Task Force, the firm agreed to provide $1.80 billion in consumer relief by January 2021. As of September 2020, approximately $1.70 billion of such relief was provided. This relief was provided in the form of principal forgiveness for underwater homeowners and distressed borrowers; financing for construction, rehabilitation and preservation of affordable housing; and support for debt restructuring, foreclosure prevention and housing quality improvement programs, as well as land banks.
Guarantees
The table below presents derivatives that meet the definition of a guarantee, securities lending indemnifications and certain other financial guarantees.
 
$ in millions
     Derivatives       
 		 Securities
lending
indemnifications		  
 
 		     
 
 Other
financial
guarantees
  
 
 
As of September 2020
        
Carrying Value of Net Liability
  
 
$    5,897
 
   
 
$         –
 
   
 
$  
 
256
 
Maximum Payout/Notional Amount by Period of Expiration
 
Remainder of 2020
  
 
$  22,573
 
   
 
$20,901
 
   
 
$  
 
558
 
2021 - 2022
  
 
102,509
 
   
 
–
 
   
 
2,106
 
2023 - 2024
  
 
31,521
 
   
 
–
 
   
 
3,171
 
2025 - thereafter
  
 
38,180
 
   
 
–
 
   
 
2,055
 
Total
  
 
$194,783
 
   
 
$20,901
 
   
 
$7,890
 
 
As of December 2019
        
Carrying Value of Net Liability
     $    3,817        $        
  
–		        $     27  
Maximum Payout/Notional Amount by Period of Expiration
 
2020
     $  91,814        $17,891        $2,044  
2021 - 2022
     76,693        –        1,714  
2023 - 2024
     19,377        –        2,219  
2025 - thereafter
     36,317        –        149  
Total
     $224,201        $17,891        $6,126  
In the table above:
 
•  
The maximum payout is based on the notional amount of the contract and does not represent anticipated losses.
 
•  
Amounts exclude certain commitments to issue standby letters of credit that are included in lending commitments. See the tables in “Commitments” above for a summary of the firm’s commitments.
 
•  
The carrying value for derivatives included derivative assets of $1.51 billion as of September 2020 and $1.56 billion as of December 2019, and derivative liabilities of $7.41 billion as of September 2020 and $5.38 billion as of December 2019.
Derivative Guarantees.
The firm enters into various derivatives that meet the definition of a guarantee under U.S. GAAP, including written equity and commodity put options, written currency contracts and interest rate caps, floors and swaptions. These derivatives are risk managed together with derivatives that do not meet the definition of a guarantee, and therefore the amounts in the table above do not reflect the firm’s overall risk related to derivative activities. Disclosures about derivatives are not required if they may be cash settled and the firm has no basis to conclude it is probable that the counterparties held the underlying instruments at inception of the contract. The firm has concluded that these conditions have been met for certain large, internationally active commercial and investment bank counterparties, central clearing counterparties, hedge funds and certain other counterparties. Accordingly, the firm has not included such contracts in the table above. See Note 7 for information about credit derivatives that meet the definition of a guarantee, which are not included in the table above.
Derivatives are accounted for at fair value and therefore the carrying value is considered the best indication of payment/performance risk for individual contracts. However, the carrying values in the table above exclude the effect of counterparty and cash collateral netting.
Securities Lending Indemnifications.
The firm, in its capacity as an agency lender, indemnifies most of its securities lending customers against losses incurred in the event that borrowers do not return securities and the collateral held is insufficient to cover the market value of the securities borrowed. Collateral held by the lenders in connection with securities lending indemnifications was $21.50 billion as of September 2020 and $19.14 billion as of December 2019. Because the contractual nature of these arrangements requires the firm to obtain collateral with a market value that exceeds the value of the securities lent to the borrower, there is minimal performance risk associated with these guarantees.
Other Financial Guarantees.
In the ordinary course of business, the firm provides other financial guarantees of the obligations of third parties (e.g., standby letters of credit and other guarantees to enable clients to complete transactions and fund-related guarantees). These guarantees represent obligations to make payments to beneficiaries if the guaranteed party fails to fulfill its obligation under a contractual arrangement with that beneficiary. Other financial guarantees also include a guarantee that the firm has provided to the Government of Malaysia that it will receive at least $1.4 billion in assets and proceeds from assets seized by governmental authorities around the world related to 1Malaysia Development Berhad, a sovereign wealth fund in Malaysia (1MDB). See Note 27 for further information.
Guarantees of Securities Issued by Trusts.
The firm has established trusts, including Goldman Sachs Capital I, the APEX Trusts and other entities, for the limited purpose of issuing securities to third parties, lending the proceeds to the firm and entering into contractual arrangements with the firm and third parties related to this purpose. The firm does not consolidate these entities. See Note 14 for further information about the transactions involving Goldman Sachs Capital I and the APEX Trusts.
The firm effectively provides for the full and unconditional guarantee of the securities issued by these entities. Timely payment by the firm of amounts due to these entities under the guarantee, borrowing, preferred stock and related contractual arrangements will be sufficient to cover payments due on the securities issued by these entities.
Management believes that it is unlikely that any circumstances will occur, such as nonperformance on the part of paying agents or other service providers, that would make it necessary for the firm to make payments related to these entities other than those required under the terms of the guarantee, borrowing, preferred stock and related contractual arrangements and in connection with certain expenses incurred by these entities.
Indemnities and Guarantees of Service Providers.
In the ordinary course of business, the firm indemnifies and guarantees certain service providers, such as clearing and custody agents, trustees and administrators, against specified potential losses in connection with their acting as an agent of, or providing services to, the firm or its affiliates.
The firm may also be liable to some clients or other parties for losses arising from its custodial role or caused by acts or omissions of third-party service providers, including
sub-custodians
and third-party brokers. In certain cases, the firm has the right to seek indemnification from these third-party service providers for certain relevant losses incurred by the firm. In addition, the firm is a member of payment, clearing and settlement networks, as well as securities exchanges around the world that may require the firm to meet the obligations of such networks and exchanges in the event of member defaults and other loss scenarios.
In connection with the firm’s prime brokerage and clearing businesses, the firm agrees to clear and settle on behalf of its clients the transactions entered into by them with other brokerage firms. The firm’s obligations in respect of such transactions are secured by the assets in the client’s account, as well as any proceeds received from the transactions cleared and settled by the firm on behalf of the client. In connection with joint venture investments, the firm may issue loan guarantees under which it may be liable in the event of fraud, misappropriation, environmental liabilities and certain other matters involving the borrower.
The firm is unable to develop an estimate of the maximum payout under these guarantees and indemnifications. However, management believes that it is unlikely the firm will have to make any material payments under these arrangements, and no material liabilities related to these guarantees and indemnifications have been recognized in the consolidated balance sheets as of both September 2020 and December 2019.
Other Representations, Warranties and Indemnifications.
The firm provides representations and warranties to counterparties in connection with a variety of commercial transactions and occasionally indemnifies them against potential losses caused by the breach of those representations and warranties. The firm may also provide indemnifications protecting against changes in or adverse application of certain U.S. tax laws in connection with ordinary-course transactions, such as securities issuances, borrowings or derivatives.
In addition, the firm may provide indemnifications to some counterparties to protect them in the event additional taxes are owed or payments are withheld, due either to a change in or an adverse application of certain
non-U.S.
tax laws.
These indemnifications generally are standard contractual terms and are entered into in the ordinary course of business. Generally, there are no stated or notional amounts included in these indemnifications, and the contingencies triggering the obligation to indemnify are not expected to occur. The firm is unable to develop an estimate of the maximum payout under these guarantees and indemnifications. However, management believes that it is unlikely the firm will have to make any material payments under these arrangements, and no material liabilities related to these arrangements have been recognized in the consolidated balance sheets as of both September 2020 and December 2019.
Guarantees of Subsidiaries.
Group Inc. fully and unconditionally guarantees the securities issued by GS Finance Corp., a wholly-owned finance subsidiary of the firm. Group Inc. has guaranteed the payment obligations of Goldman Sachs & Co. LLC (GS&Co.) and GS Bank USA, subject to certain exceptions. In addition, Group Inc. has provided a guarantee to GS Bank USA related to assets that GS Bank USA has acquired from certain subsidiaries and affiliated funds of Group Inc., and Group Inc. has provided a guarantee to Goldman Sachs International (GSI) related to agreements that GSI has entered into with certain of its counterparties.
Group Inc. guarantees many of the obligations of its other consolidated subsidiaries on a
transaction-by-transaction
basis, as negotiated with counterparties. Group Inc. is unable to develop an estimate of the maximum payout under its subsidiary guarantees. However, because these obligations are also obligations of consolidated subsidiaries, Group Inc.’s liabilities as guarantor are not separately disclosed.