Goldman Sachs International Bank – Financial Statements

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GOLDMAN SACHS INTERNATIONAL BANK (UNLIMITED COMPANY)

Strategic Report

Balance Sheet

The balance sheet is set out on page 22 of this annual report.

As of November 2019, total assets were $45.41 billion, an increase of $6.66 billion from November 2018, reflecting increases in collateralised agreements with group undertakings of $4.15 billion and customer accounts receivable of $2.69 billion primarily due to an increase in lending activities.

As of November 2019, total liabilities were $42.19 billion, an increase of $6.55 billion from November 2018, reflecting increases in customer accounts payable of $5.17 billion and deposits by banks of $1.95 billion primarily due to an increase in deposit-taking activities.

Key Metrics

The table below presents amounts related to lending and deposit-taking activities as included in the balance sheet.

In the table above, customer deposits includes deposits from institutional clients, private wealth management clients and consumer clients through the digital deposit platform.

The unfunded portion of bank loans and mortgage-backed loans held as principal risk was $6.38 billion as of November 2019 and $4.44 billion as of November 2018.

In addition to the lending activities detailed above, the bank reinvests funds generated from deposit-taking activities on both a secured and unsecured basis with group undertakings.

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Future Outlook

The directors consider that the period end financial position of the bank was satisfactory. While no significant change in the bank's principal business activities is currently expected, the directors continue to assess the impact of the U.K.'s decision to leave the European Union (Brexit) and the global outbreak of a novel strain of coronavirus (COVID-19).

During the Brexit transition period that will last until the end of December 2020, the bank will continue to benefit from non- discriminatory access to E.U. clients and infrastructure. In the event that the bank loses access to E.U. markets on December 31, 2020, the bank expects that some of its E.U. client base will be serviced by other E.U. subsidiaries of Group Inc. The extent to which this happens will depend upon the applicable framework at the end of the transition period and the extent to which the bank can continue to service its clients via third country branches and rely on national cross-border access regimes. See "Principal Risks and Uncertainties" below for further information.

As at the time of publication, the COVID-19 outbreak is resulting in various governments putting restrictions in place regarding the movement of people and causing widespread disruption to financial markets and normal patterns of business activity across the world, including the U.K.. This has led to significant market volatility and accommodative monetary policies by global central banks and the bank has activated business continuity planning (BCP) strategies to safeguard the well-being of employees, the continued operation of critical functions and support of its clients. The extent of the impact of COVID-19 on the bank's operational and financial performance, will depend on future developments including the duration and continued spread of the outbreak.

Business Environment

Global

During the period ended November 2019, global economic activity appeared to decrease compared with the period ended November 2018, reflecting decreased growth in both emerging markets and advanced economies, including in the U.S. Concerns about future global growth and a mixed macroeconomic environment led to accommodative monetary policies by global central banks, including three cuts to the federal funds rate by the U.S. Federal Reserve during the period ended November 2019 to a target range of 1.5% to 1.75%. The market sentiment in the period ended November 2019 was also impacted by geopolitical uncertainty, including ongoing trade concerns between the U.S. and China, and multiple extensions of the Brexit deadline.

GOLDMAN SACHS INTERNATIONAL BANK (UNLIMITED COMPANY)

Strategic Report

Principal Risks and Uncertainties

The bank faces a variety of risks that are substantial and inherent in its businesses including market, liquidity, credit, operational, model, legal, regulatory and reputational risks and uncertainties. The following are some of the more important factors that could affect the bank's businesses.

Economic and Market Conditions

The bank's businesses, by their nature, do not produce predictable earnings and are materially affected by conditions in the global financial markets and economic conditions generally, both directly and through their impact on client activity levels and creditworthiness. In addition, a significant portion of the bank's business involves transactions with, through, arising from, involving, or otherwise related to other GS Group entities, and any adverse change in the businesses or activity levels of GS Group more broadly can have an adverse impact on the bank. These conditions can change suddenly and negatively.

Regulation

As a participant in the financial services industry and a subsidiary of a systemically important financial institution, the bank is subject to extensive regulation, principally in the U.K., and the E.U. more generally, but also in the U.S. as a subsidiary of Group Inc. and in certain other jurisdictions. The bank faces the risk of significant intervention by law enforcement, regulatory and tax authorities, as well as private litigation, in all jurisdictions in which it conducts its businesses. In many cases, the bank's activities may be subject to overlapping and divergent regulation in different jurisdictions. Among other things, as a result of law enforcement authorities, regulators or private parties challenging the bank's compliance with laws and regulations, the bank or its employees could be fined, criminally charged or sanctioned, prohibited from engaging in certain business activities, subjected to limitations or conditions on its business activities including higher capital requirements, or subjected to new or substantially higher taxes or other governmental charges in connection with the conduct of its businesses or with respect to its employees. These limitations or conditions may limit business activities and negatively impact the bank's profitability.

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If there are new laws or regulations or changes in the enforcement of existing laws or regulations applicable to the bank's businesses or those of the bank's clients, including capital, liquidity, leverage, long-term debt, total loss-absorbing capacity (TLAC) and margin requirements, restrictions on other business practices, reporting requirements, requirements relating to the implementation of the E.U. Bank Recovery and Resolution Directive, tax burdens and compensation restrictions, that are imposed on a limited subset of financial institutions (whether based on size, method of funding, activities, geography or other criteria) which may include the bank or GS Group, compliance with these new laws and regulations, or changes in the enforcement of existing laws or regulations, could adversely affect the bank's ability to compete effectively with other institutions that are not affected in the same way. In addition, regulation imposed on financial institutions or market participants generally, such as taxes on financial transactions, could adversely impact levels of market activity more broadly, and thus impact the bank's businesses.

These developments could impact the bank's profitability in the affected jurisdictions, or even make it uneconomic to continue to conduct all or certain businesses in those jurisdictions, or could result in the bank incurring significant costs associated with changing business practices, restructuring businesses, moving all or certain businesses and employees to other locations or complying with applicable capital requirements, including liquidating assets or raising capital in a manner that adversely increases the bank's funding costs or otherwise adversely affects its shareholder and creditors.

The implementation of higher capital requirements, the liquidity coverage ratio, the net stable funding ratio, requirements relating to long-term debt and TLAC and the prohibition on proprietary trading by the provisions of the U.S. Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) referred to as the "Volcker Rule" may continue to adversely affect the bank's profitability and competitive position, particularly if these requirements do not apply, or do not apply equally, to the bank's competitors or are not implemented uniformly across jurisdictions.

The bank is also subject to laws and regulations, such as the E.U.'s General Data Protection Regulation, relating to the privacy of the information of clients, employees or others, and any failure to comply with these laws and regulations could expose the bank to liability and/or reputational damage. As new privacy-related laws and regulations are implemented, the time and resources needed for the bank to comply with such laws and regulations, as well as the bank's potential liability for non-compliance and reporting obligations in the case of data breaches, may significantly increase.

GOLDMAN SACHS INTERNATIONAL BANK (UNLIMITED COMPANY)

Strategic Report

In addition, the bank's businesses are increasingly subject to laws and regulations relating to surveillance, encryption and data on-shoring in the jurisdictions in which the bank operates. Compliance with these laws and regulations may require the bank to change its policies, procedures and technology for information security, which could, among other things, make the bank more vulnerable to cyber attacks and misappropriation, corruption or loss of information or technology.

The bank has entered into a consumer-orienteddeposit-taking business and the bank expects to expand the product scope of its offerings. This expansion subjects the bank to numerous additional regulations. Not only are these regulations extensive, but they involve types of regulations and supervision, as well as regulatory compliance risks, that the bank has not previously encountered. The level of regulatory scrutiny and the scope of regulations affecting financial interactions with consumers is often much greater than that associated with doing business with institutions and high-net- worth individuals. Complying with these regulations is time- consuming, costly and presents new and increased risks.

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

Brexit

On January 31, 2020, the U.K. left the E.U. The bank expects considerable change in the regulatory framework that will govetransactions and business undertaken by the bank in the E.U. As a result, the bank faces numerous risks that could adversely affect the conduct of its businesses, its profitability and liquidity.

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The bank is incorporated and headquartered in the U.K., and currently benefits from non-discriminatory access to E.U. clients and infrastructure based on E.U. treaties and E.U. legislation, including arrangements for cross-border "passporting" and the establishment of E.U. branches. The E.U. and the U.K. Parliament have ratified the Withdrawal Agreement, which provides for a transition period for the U.K. and the E.U to negotiate and agree to a framework for their future relationship. The transition period is currently scheduled to end on December 31, 2020 and the relationship between the U.K. and the E.U. beyond that date is uncertain. At the end of the transition period, firms based in the U.K. are expected to lose their existing access arrangements to the E.U. markets.

As necessary, certain client relationships and activities currently undertaken by the bank may be transitioned to other E.U. subsidiaries of Group Inc., which may result in a decline in the bank's total operating income and profitability.

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

Market Volatility

The bank has exposure to market interest rate movements as a result of its lending and deposit-taking activities. In addition to the impact on the general economy, changes in interest rates could directly impact the bank in one or more of the following ways:

• The yield on interest-earning assets, primarily on lending activities, and rates paid on interest-bearing liabilities, primarily deposit-taking activities, may change in disproportionate ways;
• The value of certain balance sheet and off-balance sheet financial instruments could decline; or
• The cost of funding from affiliates or third parties may increase and the ability to raise funding could become more difficult.

The bank's profitability depends to an extent on net interest income. Accordingly, the bank's results depend on movements in market interest rates and its ability to manage interest-rate- sensitive assets and liabilities in response to these movements. Factors such as inflation, recession and instability in financial markets, among other factors beyond the bank's control, may affect interest rates.

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GOLDMAN SACHS INTERNATIONAL BANK (UNLIMITED COMPANY)

Strategic Report

Derivative Transactions

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

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

In addition, as new complex derivative products are created, covering a wider array of underlying credit and other instruments, disputes about the terms of the underlying contracts could arise, which could impair the bank's ability to effectively manage its risk exposures from these products and subject it to increased costs. The provisions of legislation requiring central clearing of credit derivatives and other over- the-counter (OTC) derivatives, or a market shift toward standardised derivatives, could reduce the risk associated with these transactions, but under certain circumstances could also limit the bank's ability to develop derivatives that best suit the needs of clients and to hedge its own risks, and could adversely affect the bank's profitability and increase credit exposure to central clearing platforms.

Operational Infrastructure

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

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

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

The financial, accounting, data processing or other operational systems and facilities, or operational systems or facilities of affiliates on which the bank depends, may fail to operate properly or become disabled as a result of events that are wholly or partially beyond the bank's control, such as a spike in transaction volume, adversely affecting the bank's ability to process these transactions or provide these services. These systems must be continuously updated to support operations and growth and to respond to changes in regulations and markets. The bank invests in systemic controls and training to ensure that such transactions do not violate applicable rules and regulations or, due to errors in processing such transactions, adversely affect markets, clients and counterparties or the bank.

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

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GOLDMAN SACHS INTERNATIONAL BANK (UNLIMITED COMPANY)

Strategic Report

Although the bank takes protective measures proactively and endeavours to modify them as circumstances warrant, its computer systems, software and networks may be vulnerable to unauthorised access, misuse, computer viruses or other malicious code, cyber attacks on the bank's vendors and other events that could have a security impact. Due to the complexity and interconnectedness of the bank's systems, the process of enhancing protective measures can itself create a risk of systems disruptions and security issues. In addition, protective measures that the bank employs to compartmentalise its data may reduce its visibility into, and adversely affect its ability to respond to, cyber threats and issues within its systems.

If one or more of such events occur, this potentially could jeopardise the bank or its clients' or counterparties' confidential and other information processed, stored in or transmitted through the bank's computer systems and networks, or otherwise cause interruptions or malfunctions in the bank's operations or those of its clients', its counterparties' or third parties', which could impact their ability to transact with the bank or otherwise result in legal or regulatory action, significant losses or reputational damage.

In addition, such an event could persist for an extended period of time before being detected, and, following detection, it could take considerable time for the bank to obtain full and reliable information about the extent, amount and type of information compromised. During the course of an investigation, the bank may not know the full impact of the event and how to remediate it, and actions, decisions and mistakes that are taken or made may further increase the negative effects of the event on the bank's business, results of operations and reputation.

The bank has expended, and expects to continue to expend, significant resources on an ongoing basis to modify its protective measures and to investigate and remediate vulnerabilities or other exposures, but these measures may be ineffective and the bank may be subject to legal or regulatory action, as well as financial losses that are either not insured against or not fully covered through any insurance it maintains.

The bank's confidential information may also be at risk from the compromise of clients' personal electronic devices or as a result of a data security breach at an unrelated company. Losses due to unauthorised account activity could harm the bank's reputation and may have adverse effects on its business, financial condition and results of operations.

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The increased use of mobile and cloud technologies can heighten these and other operational risks. Certain aspects of the security of such technologies are unpredictable or beyond the bank's control, and the failure by mobile technology and cloud service providers to adequately safeguard their systems and prevent cyber attacks could disrupt the bank's operations and result in misappropriation, corruption or loss of confidential and other information. In addition, there is a risk that encryption and other protective measures, despite their sophistication, may be defeated, particularly to the extent that new computing technologies vastly increase the speed and computing power available.

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

Risk Management

The bank seeks to monitor and control its risk exposure through a risk and control framework encompassing a variety of separate, but complementary financial, credit, operational, compliance and legal reporting systems, internal controls, management review processes and other mechanisms, as well as activities conducted through third-party relationships. In doing so, the bank uses and benefits from the risk management processes of GS Group. The bank's risk management process seeks to balance its ability to profit from financial transactions in which it engages with its exposure to potential losses. Whilst the bank employs a broad and diversified set of risk monitoring and risk mitigation techniques, those techniques and the judgements that accompany their application cannot anticipate every economic and financial outcome or the specifics and timing of such outcomes. Thus, the bank may, in the course of its activities, incur losses. Market conditions in recent years have involved unprecedented dislocations and highlight the limitations inherent in using historical data to manage risk.