Goldman Sachs 2007 Annual Report Download - page 59

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Management’s Discussion and Analysis
The following table sets forth the operating results of our Trading and Principal Investments segment:
Trading and Principal Investments Operating Results
Year Ended November
(in millions) 2007 2006 2005
FICC $16,165 $14,262 $ 8,940
Equities trading 6,725 4,965 2,675
Equities commissions 4,579 3,518 2,975
Total Equities 11,304 8,483 5,650
ICBC 495 937 —
SMFG (129) 527 1,475
Gross gains 3,728 1,534 767
Gross losses (814) (585) (198)
Net other corporate and real estate investments 2,914 949 569
Overrides 477 404 184
Total Principal Investments 3,757 2,817 2,228
Total net revenues 31,226 25,562 16,818
Operating expenses 17,998 14,962 10,600
Pre-tax earnings $13,228 $10,600 $ 6,218
of SMFG. We generate net revenues from returns on these
investments and from the increased share of the income and
gains derived from our merchant banking funds when the
return on a fund’s investments over the life of the fund exceeds
certain threshold returns (typically referred to as an override).
Substantially all of our inventory is marked-to-market daily
and, therefore, its value and our net revenues are subject to
fluctuations based on market movements. In addition, net
revenues derived from our principal investments in privately
held concerns and in real estate may fluctuate significantly
depending on the revaluation of these investments in any given
period. We also regularly enter into large transactions as part of
our trading businesses. The number and size of such transactions
may affect our results of operations in a given period.
Net revenues from Principal Investments do not include
management fees generated from our merchant banking funds.
These management fees are included in the net revenues of the
Asset Management and Securities Services segment.
Trading and Principal Investments
Our Trading and Principal Investments segment is divided into
three components:
■
FICC.
We make markets in and trade interest rate and credit
products, mortgage-related securities and loan products and
other asset-backed instruments, currencies and commodities,
structure and enter into a wide variety of derivative
transactions, and engage in proprietary trading and investing.
■
EQUITIES.
We make markets in and trade equities and equity-
related products, structure and enter into equity derivative
transactions and engage in proprietary trading. We generate
commissions from executing and clearing client transactions
on major stock, options and futures exchanges worldwide
through our Equities customer franchise and clearing activities.
We also engage in specialist and insurance activities.
■
PRINCIPAL INVESTMENTS.
We make real estate and corporate
principal investments, including our investments in the
ordinary shares of ICBC and the convertible preferred stock
57Goldman Sachs 2007 Annual Report