Goldman Sachs 2013 Annual Report Download - page 46

Management’s Discussion and Analysis
2012 versus 2011. Commissions and fees on the
consolidated statements of earnings were $3.16 billion for
2012, 16% lower than 2011, reflecting lower commissions
and fees in the United States, Europe and Asia. Our average
daily volumes during 2012 were lower in each of these
regions compared with 2011, consistent with listed cash
equity market volumes.
Market making
“Market making” is comprised of revenues (excluding net
interest) from client execution activities related to making
markets in interest rate products, credit products,
mortgages, currencies, commodities and equity products.
Market-making activities are included in our Institutional
Client Services segment.
During 2013, market-making revenues reflected a
challenging operating environment that required continual
reassessment of the outlook for the global economy, as
uncertainty about when the U.S. Federal Reserve would
begin tapering its asset purchase program, as well as
constant global political risk and uncertainty, were
interspersed with improvements in the U.S. economy over
the course of the year. As a result, our clients’ risk appetite
and activity levels fluctuated during 2013. Compared with
2012, activity levels were generally lower, global equity
prices significantly increased and credit spreads tightened. If
macroeconomic concerns continue over the long term,
market-making revenues would likely continue to be
negatively impacted.
2013 versus 2012. Market-making revenues on the
consolidated statements of earnings were $9.37 billion for
2013, 17% lower than 2012. The decrease compared with
2012 was primarily due to significantly lower revenues in
equity products, mortgages and interest rate products, as
well as lower revenues in currencies. The decrease in equity
products was due to the sale of our Americas reinsurance
business in 2013, the sale of our hedge fund administration
business in 2012 (2012 included a gain on sale of
$494 million) and lower revenues in derivatives, partially
offset by significantly higher revenues in cash products
compared with 2012. Revenues in commodities were
higher, while revenues in credit products were essentially
unchanged compared with 2012. In December 2013, we
completed the sale of a majority stake in our European
insurance business and recognized a gain of $211 million.
2012 versus 2011. Market-making revenues on the
consolidated statements of earnings were $11.35 billion for
2012, 22% higher than 2011, primarily reflecting
significantly higher revenues in mortgages and higher
revenues in interest rate products, credit products and
equity cash products, partially offset by significantly lower
revenues in commodities. In addition, market-making
revenues included significantly higher revenues in securities
services compared with 2011, reflecting a gain of
$494 million on the sale of our hedge fund
administration business.
Other principal transactions
“Other principal transactions” is comprised of revenues
(excluding net interest) from our investing activities and the
origination of loans to provide financing to clients. In
addition, “Other principal transactions” includes revenues
related to our consolidated investments. Other principal
transactions are included in our Investing &
Lending segment.
During 2013, other principal transactions revenues
generally reflected favorable company-specific events and
strong corporate performance, as well as the impact of
significantly higher global equity prices and tighter
corporate credit spreads. However, concerns about the
outlook for the global economy and uncertainty over
financial regulatory reform continue to impact the global
marketplace. If equity markets decline or credit spreads
widen, other principal transactions revenues would likely
be negatively impacted.
2013 versus 2012. Other principal transactions revenues
on the consolidated statements of earnings were
$6.99 billion for 2013, 19% higher than 2012, reflecting a
significant increase in net gains from investments in equity
securities, driven by company-specific events and stronger
corporate performance, as well as significantly higher
global equity prices. In addition, net gains from debt
securities and loans were slightly higher, while revenues
related to our consolidated investments were lower
compared with 2012.
2012 versus 2011. Other principal transactions revenues
on the consolidated statements of earnings were
$5.87 billion for 2012 compared with $1.51 billion for
2011. The increase compared with 2011 reflected a
significant increase in net gains from investments in equity
securities, primarily in public equities, principally due to the
impact of an increase in global equity prices during 2012
after equity prices in Europe and Asia declined significantly
during 2011. Net gains from equity securities included a
gain in 2012 and a loss in 2011 related to our investment in
the ordinary shares of Industrial and Commercial Bank of
China Limited (ICBC). The increase compared with 2011
also reflected a significant increase in net gains from debt
securities and loans, primarily due to approximately
$1 billion of unrealized losses related to relationship
lending activities, including the effect of hedges, in 2011
and the impact of a more favorable credit environment as
credit spreads tightened during 2012 after widening during
2011. These increases were partially offset by lower
revenues related to our consolidated investments.
44 Goldman Sachs 2013 Annual Report