Goldman Sachs 2013 Annual Report Download - page 53

Management’s Discussion and Analysis
Net revenues in Equities were $7.07 billion for 2013, 14%
lower compared with 2012, due to the sale of our Americas
reinsurance business 1in 2013 and the sale of our hedge
fund administration business in 2012. Net revenues in
equities client execution (excluding net revenues from our
Americas reinsurance business) were higher compared with
2012, including significantly higher net revenues in cash
products, partially offset by significantly lower net revenues
in derivatives. Commissions and fees were slightly higher
compared with 2012, reflecting higher commissions and
fees in Asia and Europe, partially offset by lower
commissions and fees in the United States. Our average
daily volumes during 2013 were higher in Asia and Europe
and lower in the United States compared with 2012,
consistent with listed cash equity market volumes.
Securities services net revenues were significantly lower
compared with 2012, primarily due to the sale of our hedge
fund administration business in 2012 (2012 included a gain
on sale of $494 million). During 2013, Equities operated in
an environment characterized by a significant increase in
global equity prices, particularly in Japan and the U.S., and
generally lower volatility levels.
The net loss attributable to the impact of changes in our
own credit spreads on borrowings for which the fair value
option was elected was $296 million ($220 million and
$76 million related to Fixed Income, Currency and
Commodities Client Execution and equities client
execution, respectively) for 2013, compared with a net loss
of $714 million ($433 million and $281 million related to
Fixed Income, Currency and Commodities Client
Execution and equities client execution, respectively)
for 2012.
During 2013, Institutional Client Services operated in a
challenging 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, net
revenues in Fixed Income, Currency and Commodities
Client Execution and Equities would likely continue to be
negatively impacted.
Operating expenses were $11.78 billion for 2013, 6%
lower than 2012, due to decreased compensation and
benefits expenses, primarily resulting from lower net
revenues, and lower expenses as a result of the sale of a
majority stake in our Americas reinsurance business in
April 2013. These decreases were partially offset by
increased net provisions for litigation and regulatory
proceedings, primarily comprised of net provisions for
mortgage-related matters, and higher brokerage, clearing,
exchange and distribution fees. Pre-tax earnings were
$3.94 billion in 2013, 30% lower than 2012.
2012 versus 2011. Net revenues in Institutional Client
Services were $18.12 billion for 2012, 5% higher
than 2011.
Net revenues in Fixed Income, Currency and Commodities
Client Execution were $9.91 billion for 2012, 10% higher
than 2011. These results reflected strong net revenues in
mortgages, which were significantly higher compared with
2011 in both residential and commercial products. In
addition, net revenues in credit products and interest rate
products were solid and higher compared with 2011. The
increase in mortgages, credit products and interest rates
primarily reflected the impact of improved market-making
conditions, including tighter credit spreads, compared with
2011. These increases were partially offset by significantly
lower net revenues in commodities and slightly lower net
revenues in currencies. The decrease in commodities
primarily reflected more challenging market-making
conditions, in part driven by lower levels of
market volatility.
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.
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