Goldman Sachs 2000 Annual Report Download - page 34

primarily in our real estate portfolio, were substantially off-
set by these unrealized losses.
1999 versus 1998. Net revenues in Global Capital Markets
were $10.13 billion, an increase of 76% compared with
1998, reflecting substantial growth in all major components
of the business. Operating expenses increased 57%, princi-
pally due to the inclusion of compensation expense related
to services rendered by managing directors who, prior to
our conversion to corporate form, were profit participating
limited partners, higher levels of compensation commensu-
rate with growth in net revenues, and increased costs asso-
ciated with global expansion and higher levels of business
activity. Pre-tax earnings were $3.90 billion in 1999 com-
pared with $1.77 billion in 1998.
Investment Banking. Investment Banking generated net
revenues of $4.36 billion for the full year, a 29% increase
over 1998. Net revenue growth was strong in both Financial
Advisory and Underwriting as our global presence and
strong client base enabled us to capitalize on record levels
of global mergers and acquisitions and new issue activity.
Net revenue growth was driven by strong performances
across all regions, particularly in the communications,
media and entertainment, high technology, energy and
power, and healthcare sectors.
Financial Advisory revenues increased 28% compared with
1998. Goldman Sachs maintained its leading position in the
advisory business and benefited from an increase in merg-
ers and acquisitions activity across many industry sectors in
both Europe and the United States. Worldwide mergers and
acquisitions activity rose to record levels with transactions
valued at over $3 trillion announced during the period from
January 1, 1999 to November 30, 1999.(1) Underwriting
revenues increased 31% compared with 1998. Equity
underwriting revenues benefited from favorable global
economic conditions, which led major equity market indices
higher and new issue activity to record levels. Our debt
underwriting business generally benefited from a more
stable economic environment in 1999.
Trading and Principal Investments. Net revenues in Trading
and Principal Investments were $5.77 billion, compared with
$2.38 billion in 1998, as substantially all components of the
business recovered from the global market turmoil of the
second half of 1998.
Net revenues in FICC nearly doubled compared with 1998,
primarily due to growth in our credit-sensitive businesses
and commodities that was partially offset by lower net rev-
enues in currencies. The credit-sensitive businesses bene-
fited from improved economic conditions as credit spreads
and market liquidity returned to more normal levels follow-
ing the dislocation experienced during the second half of
1998. Net revenue growth in commodities benefited from
increased customer activity, while reduced activity and
volatility in the global foreign exchange markets con-
tributed to a decline in net revenues from currencies.
The significant net revenue growth in Equities was primarily
due to strength in arbitrage and convertibles and increased
customer flow in derivatives and global shares. Net revenue
growth in arbitrage and convertibles was driven by
improved market conditions following the turmoil in global
markets during the second half of 1998 and by increased
mergers and acquisitions and other corporate activity.
Equity derivatives net revenues were substantially higher
primarily as a result of increased customer activity world-
wide. Increased transaction volumes in global equity mar-
kets contributed to the net revenue growth in our global
shares businesses.
Net revenues from Principal Investments increased dramat-
ically due to unrealized gains on certain merchant banking
investments, particularly in the high technology and
telecommunications sectors.
Asset Management and Securities Services
The components of the Asset Management and Securities
Services segment are set forth below:
• Asset Management. Asset Management generates man-
agement fees by providing investment advisory services
to a diverse client base of institutions and individuals;
• Securities Services. Securities Services includes prime
brokerage, financing services and securities lending,
and our matched book businesses, all of which generate
revenues primarily in the form of fees or interest rate
spreads; and
• Commissions. Commissions include clearing and agency
transactions for clients on major stock, options and
futures exchanges and revenues from the increased
share of the income and gains derived from our mer-
chant banking funds.
32 Goldman Sachs Annual Report 2000
(1) Source: Thomson Financial Securities Data.