Goldman Sachs 2015 Annual Report Download - page 5

Goldman Sachs 2015 Annual Report 3
Also as a result of structural changes, we have embraced
opportunities to sell businesses and investments that were
not core to our client franchise and were no longer the
best use of shareholder capital relative to the returns.
The loss in net revenues due to these sales has been offset
by growth in our Investment Banking and Investment
Management businesses. Last year, these two businesses
accounted for 39 percent of our net revenues, compared
to only 30 percent in 2012. Investment Banking was
approximately one-half the size of Fixed Income,
Currency and Commodities Client Execution (FICC) four
years ago; today, our business mix is more balanced.
This does not mean we are moving away from FICC.
Rather, we remain committed to meeting the needs of
our clients, while managing to structural and cyclical
headwinds. For example, we have reduced risk-weighted
assets within FICC significantly over the past four years,
largely in response to structural changes resulting from
new regulations.
On the cost side, we have continued to find ways to
improve our operating efficiency. Headcount across
the firm is up 11 percent over the last four years, largely
to meet regulatory compliance needs. However, through
a combination of shifting to a greater percentage of
junior employees and relocating some of our footprint
to lower-cost locations, we have managed our
expenses well.
More specifically, we have increased the number of
analysts, associates and vice presidents at the firm by
17 percent since the beginning of 2012, while our partner
and managing director populations have decreased by
two percent. Approximately 25 percent of our total staff
is now in lower-cost locations such as Salt Lake City,
Dallas, Irving, Warsaw, Singapore and Bengaluru. As
a result, while total staff levels are up over the four-year
period, overall compensation and benefits expenses
have declined by approximately $270 million.
Looking ahead, we will continue to pursue ways to be
more cost effective by assessing our expense structure
while ensuring we meet the needs of our clients. Whether
we are adjusting to structural or cyclical dynamics, we
will carefully balance our expense management efforts
against our ability to capture future market share and
growth opportunities.
Investment Banking
Our leading Investment Banking franchise allowed us to
capture significant market share in 2015. The business
achieved its second-highest net revenues in 2015, driven
by a strong environment for mergers and acquisitions
(M&A). Industry-wide volumes for announced M&A
transactions increased by more than 45 percent in 2015,
while the firm’s volumes increased by approximately
80 percent. We ended the year ranked first in global
announced and completed M&A, with completed
M&A volumes that were more than $350 billion higher
than our next-closest competitor — a record gap since
the firm went public.
By most measures, 2015 was a robust year for
M&A. However, volumes as a percentage of market
capitalization are still below prior-cycle peak levels.
We see this as a sign that there is still some room to run
for M&A activity, particularly when equity markets
show signs of sustained stabilization. We also see
consolidation opportunities in sectors such as industrials,
energy, mining, food, media and telecommunications.
While total underwriting revenues declined in 2015,
we performed relatively well in the context of softer
equity and debt markets in the second half of the year.
We finished 2015 ranked first in global equity and
equity-related and common stock offerings. Similar to
the dynamics we see in the M&A market, we believe
there may be pent-up demand among our corporate
clients to tap into public equity markets when conditions
improve, particularly given that private financing
conditions have generally tightened. A decline in debt
underwriting net revenues in 2015 was largely due to
a drop in leveraged finance activity.