Goldman Sachs 2001 Annual Report Download - page 32

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GOLDMAN SACHS ANNUAL REPORT 2001
2000 versus 1999–Net revenues in Global Capital Markets
increased 18% to $12.0 billion, reflecting strong performances
in both Investment Banking and Trading and Principal
Investments. Operating expenses increased 26%, principally due
to higher levels of compensation commensurate with growth in
net revenues, and increased costs associated with global expan-
sion, higher employment levels and increased business activity.
Pre-tax earnings were $4.15 billion compared with $3.90 billion
in 1999.
Investment Banking–Investment Banking generated net revenues
of $5.37 billion, a 23% increase over 1999. Net revenue growth
was strong in all major regions, particularly in the high technology
and communications, media and entertainment sectors.
Net revenues in Financial Advisory increased 14% over 1999.
We capitalized on increased worldwide mergers and acquisitions
activity, which rose 8% to a record $3.3 trillion for transactions
announced during the period from January 1, 2000 to Novem-
ber 30, 2000.(1) Underwriting net revenues rose 33% over 1999,
reflecting strong investor demand for equities, particularly in the
high technology and telecommunications sectors. The global
equity underwriting market rose to record levels with over $320
billion in proceeds raised during our fiscal year, including record
amounts in initial public offerings.(1) Debt underwriting net rev-
enues were also up slightly due to increased market activity in
the earlier part of the year.
Trading and Principal Investments–Net revenues in Trading and
Principal Investments were $6.63 billion for the year, an increase
of 15% compared with 1999, as significant net revenue growth in
Equities was partially offset by a decline in Principal Investments.
Net revenues in FICC increased 5% compared with 1999, pri-
marily due to increased activity in fixed income derivatives and
currencies, partially offset by lower net revenues in our credit-
sensitive businesses. Fixed income derivatives and currencies
benefited from an increase in customer activity, while the credit-
sensitive businesses were negatively affected by market uncer-
tainty and wider credit spreads. Additionally, net revenues
declined in government bonds due to increased volatility and in
commodities due to reduced deal flow in metals.
Equities net revenues rose 78% compared with 1999, primarily
due to significant growth in equity derivatives and our global
shares businesses. Equity derivatives benefited from favorable
market conditions and increased customer flow. Our European
and U.S. shares businesses also grew due to record transaction
volumes and increased market volatility.
Principal Investments net revenues decreased substantially, as
market declines in the high technology and telecommunications
sectors led to unrealized losses on many of our merchant bank-
ing investments. Realized gains, primarily in our real estate port-
folio, were substantially offset by these unrealized losses.
Asset Management and Securities Services
The components of the Asset Management and Securities
Services segment are set forth below:
•Asset Management–Asset Management generates management
fees by providing investment advisory services to a diverse client
base of institutions and individuals;
•Securities Services–Securities Services includes prime broker-
age, 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 fees from executing and
clearing client transactions on major stock, options and futures
markets worldwide. Commissions also include revenues from
the increased share of the income and gains derived from our
merchant banking funds.
In January 2002, we began to implement a new fee-based pric-
ing structure in our Nasdaq trading business. Previously we did
not charge explicit fees in this business but rather earned mar-
ket-making revenues based generally on the difference between
bid and ask prices. Such market-making net revenues are
reported in our Equities trading results. As a result of the change
to the fee-based pricing structure, a substantial portion of our
Nasdaq net revenues will be reported in Commissions beginning
in the first quarter of 2002.
(1) Source: Thomson Financial Securities Data.