Goldman Sachs 2013 Annual Report Download - page 51

Management’s Discussion and Analysis
Our investment banking transaction backlog represents an
estimate of our future net revenues from investment
banking transactions where we believe that future revenue
realization is more likely than not. We believe changes in
our investment banking transaction backlog may be a
useful indicator of client activity levels which, over the long
term, impact our net revenues. However, the time frame for
completion and corresponding revenue recognition of
transactions in our backlog varies based on the nature of
the assignment, as certain transactions may remain in our
backlog for longer periods of time and others may enter and
leave within the same reporting period. In addition, our
transaction backlog is subject to certain limitations, such as
assumptions about the likelihood that individual client
transactions will occur in the future. Transactions may be
cancelled or modified, and transactions not included in the
estimate may also occur.
Operating expenses were $3.48 billion for 2013, 4% higher
than 2012, due to increased compensation and benefits
expenses, primarily resulting from higher net revenues. Pre-
tax earnings were $2.53 billion in 2013, 58% higher
than 2012.
2012 versus 2011. Net revenues in Investment Banking
were $4.93 billion for 2012, 13% higher than 2011.
Net revenues in Financial Advisory were $1.98 billion,
essentially unchanged compared with 2011. Net revenues
in Underwriting were $2.95 billion, 25% higher than 2011,
due to strong net revenues in debt underwriting. Net
revenues in debt underwriting were significantly higher
compared with 2011, primarily reflecting higher net
revenues from investment-grade and leveraged finance
activity. Net revenues in equity underwriting were lower
compared with 2011, primarily reflecting a decline in
industry-wide initial public offerings.
During 2012, Investment Banking operated in an
environment generally characterized by continued concerns
about the outlook for the global economy and political
uncertainty. These concerns weighed on investment
banking activity, as completed mergers and acquisitions
activity declined compared with 2011, and equity and
equity-related underwriting activity remained low,
particularly in initial public offerings. However, industry-
wide debt underwriting activity improved compared with
2011, as credit spreads tightened and interest rates
remained low.
During 2012, our investment banking transaction backlog
increased due to an increase in potential debt underwriting
transactions, primarily reflecting an increase in leveraged
finance transactions, and an increase in potential advisory
transactions. These increases were partially offset by a
decrease in potential equity underwriting transactions
compared with the end of 2011, reflecting uncertainty in
market conditions.
Operating expenses were $3.33 billion for 2012, 11%
higher than 2011, due to increased compensation and
benefits expenses, primarily resulting from higher net
revenues. Pre-tax earnings were $1.60 billion in 2012, 17%
higher than 2011.
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