Goldman Sachs 2013 Annual Report Download - page 52

Management’s Discussion and Analysis
Institutional Client Services
Our Institutional Client Services segment is comprised of:
Fixed Income, Currency and Commodities Client
Execution. Includes client execution activities related to
making markets in interest rate products, credit products,
mortgages, currencies and commodities.
We generate market-making revenues in these activities in
three ways:
‰In large, highly liquid markets (such as markets for U.S.
Treasury bills or certain mortgage pass-through
certificates), we execute a high volume of transactions for
our clients for modest spreads and fees.
‰In less liquid markets (such as mid-cap corporate bonds,
growth market currencies or certain non-agency
mortgage-backed securities), we execute transactions for
our clients for spreads and fees that are generally
somewhat larger.
‰We also structure and execute transactions involving
customized or tailor-made products that address our
clients’ risk exposures, investment objectives or other
complex needs (such as a jet fuel hedge for an airline).
Given the focus on the mortgage market, our mortgage
activities are further described below.
Our activities in mortgages include commercial mortgage-
related securities, loans and derivatives, residential
mortgage-related securities, loans and derivatives
(including U.S. government agency-issued collateralized
mortgage obligations, other prime, subprime and Alt-A
securities and loans), and other asset-backed securities,
loans and derivatives.
We buy, hold and sell long and short mortgage positions,
primarily for market making for our clients. Our inventory
therefore changes based on client demands and is generally
held for short-term periods.
See Notes 18 and 27 to the consolidated financial
statements for information about exposure to mortgage
repurchase requests, mortgage rescissions and
mortgage-related litigation.
Equities. Includes client execution activities related to
making markets in equity products and commissions and
fees from executing and clearing institutional client
transactions on major stock, options and futures exchanges
worldwide, as well as over-the-counter transactions.
Equities also includes our securities services business, which
provides financing, securities lending and other prime
brokerage services to institutional clients, including hedge
funds, mutual funds, pension funds and foundations, and
generates revenues primarily in the form of interest rate
spreads or fees.
The table below presents the operating results of our
Institutional Client Services segment.
Year Ended December
in millions 2013 2012 2011
Fixed Income, Currency and
Commodities Client Execution $ 8,651 $ 9,914 $ 9,018
Equities client execution 12,594 3,171 3,031
Commissions and fees 3,103 3,053 3,633
Securities services 1,373 1,986 1,598
Total Equities 7,070 8,210 8,262
Total net revenues 15,721 18,124 17,280
Operating expenses 11,782 12,480 12,837
Pre-tax earnings $ 3,939 $ 5,644 $ 4,443
1. In April 2013, we completed the sale of a majority stake in our Americas
reinsurance business and no longer consolidate this business. Net revenues
related to the Americas reinsurance business were $317 million for 2013,
$1.08 billion for 2012 and $880 million for 2011. See Note 12 to the
consolidated financial statements for further information about this sale.
2013 versus 2012. Net revenues in Institutional Client
Services were $15.72 billion for 2013, 13% lower
than 2012.
Net revenues in Fixed Income, Currency and Commodities
Client Execution were $8.65 billion for 2013, 13% lower
than 2012, reflecting significantly lower net revenues in
interest rate products compared with a solid 2012, and
significantly lower net revenues in mortgages compared
with a strong 2012. The decrease in interest rate products
and mortgages primarily reflected the impact of a more
challenging environment and lower activity levels
compared with 2012. In addition, net revenues in
currencies were slightly lower, while net revenues in credit
products and commodities 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.
50 Goldman Sachs 2013 Annual Report