Goldman Sachs 2012 Annual Report Download - page 4

2Goldman Sachs 2012 Annual Report
When we wrote to you last, the global economy was experiencing macroeconomic strains,
punctuated by concerns over potential sovereign defaults in Europe and struggling labor and housing
markets in the U.S. These concerns weighed on markets and hindered a broad-based recovery.
While 2012 presented its own challenges amidst rapidly shifting investor sentiment, we are pleased
to report that Goldman Sachs performed relatively well, posting solid results. This performance
was the result of a competitive position defined by our deep and global client franchise, a mix of
core businesses to which we have demonstrated a longstanding commitment, a healthy and strong
balance sheet and the focus and enduring commitment of our people to our client-centered culture.
Fellow Shareholders:
The Operating Environment in 2012
While the sovereign debt crisis in Europe and a weak
recovery in the U.S. continued to persist throughout much of
2012, the deep uncertainty that permeated the recent past
began to show signs of abating in the second half of the year.
Despite ongoing political ambiguity both in the U.S. and
Europe, generally improving economic data coupled with
continued strong central bank actions helped stabilize
corporate and investor sentiment. The European Central Bank
enhanced its Long-Term Refinancing Operations to provide
term liquidity at the end of 2011, and affirmed its support for
the Euro. It also expressed its willingness to make outright
purchases in the secondary bond market. While the potential
for instability remains, these actions reduced systemic risk
across Europe. In the U.S., the Federal Reserve continued to
take steps to support markets and economic growth, while
the labor and housing markets produced encouraging signs of
stability and even some improvement.
As corporate and investing clients digested these
macroeconomic developments, activity levels increased in
some areas and remained sluggish in others. For example,
global debt issuance increased by 11 percent year over year,
with high-yield issuance increasing by 38 percent. Conversely,
global equity underwriting volumes were up only one percent
and completed global mergers and acquisitions (M&A)
volumes decreased by 18 percent and remained very low
as a percentage of market capitalization.
For 2012, the firm produced net revenues of $34.2 billion,
a 19 percent increase from $28.8 billion in the prior year.
Net earnings of $7.5 billion increased by 68 percent from
$4.4 billion in 2011. Diluted earnings per common share
were $14.13, up more than three times from $4.51 in 2011.
Our return on average common shareholders’ equity was
10.7 percent. Book value per common share increased by
11 percent during 2012, and has grown from $20.94 at the
end of our first year as a public company in 1999 to $144.67,
a compounded annual growth rate of nearly 16 percent over
this period. Our capital management in 2012 reflected a
prudent approach, as our capital ratios improved significantly,
despite returning $5.5 billion to common shareholders
through share buybacks and dividends.
In this year’s letter, we would like to review the economic
and market environment in 2012 and discuss the steps
we have taken to differentiate Goldman Sachs across the
competitive landscape to ensure we are poised to seize upon
new opportunities as they unfold. We then will address our
response to structural changes reshaping the marketplace,
including regulatory change, globalization and technology.
Lastly, we will provide you with an update on the important
work taking place across our corporate engagement initiatives
that we believe are making a meaningful difference for
many individuals and communities.