Goldman Sachs 2015 Annual Report Download - page 61

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
Executive Overview
2015 versus 2014. The firm generated net earnings of
$6.08 billion and diluted earnings per common share of
$12.14 for 2015, a decrease of 28% and 29%, respectively,
compared with $8.48 billion and $17.07 per share for
2014. Return on average common shareholders’ equity
(ROE) was 7.4% for 2015, compared with 11.2% for
2014. During 2015, the firm recorded provisions for the
agreement in principle with the RMBS Working Group 1of
$3.37 billion ($2.99 billion after-tax), which reduced
diluted earnings per common share by $6.53 and ROE by
3.8 percentage points.
Book value per common share was $171.03 as of
December 2015, 5% higher compared with the end of
2014. During the year, the firm repurchased 22.1 million
shares of its common stock for a total cost of $4.20 billion.
Net revenues were $33.82 billion for 2015, 2% lower than
2014, as significantly lower net revenues in Investing &
Lending were largely offset by higher net revenues in
Investment Banking and slightly higher net revenues in
Investment Management. Net revenues in Institutional
Client Services were essentially unchanged compared with
2014.
Operating expenses were $25.04 billion for 2015, 13%
higher than 2014, due to significantly higher non-
compensation expenses, primarily reflecting significantly
higher net provisions for mortgage-related litigation and
regulatory matters. Compensation and benefits expenses
were essentially unchanged compared with the prior year.
We continued to maintain strong capital ratios and
liquidity. As of December 2015, our Common Equity Tier 1
ratio 2as computed in accordance with the Standardized
approach and the Basel III Advanced approach, in each case
reflecting the applicable transitional provisions, was 13.6%
and 12.4%, respectively. In addition, our global core liquid
assets 3were $199 billion as of December 2015.
2014 versus 2013. The firm generated net earnings of
$8.48 billion and diluted earnings per common share of
$17.07 for 2014, an increase of 5% and 10%, respectively,
compared with $8.04 billion and $15.46 per share for
2013. ROE was 11.2% for 2014, compared with 11.0%
for 2013. Book value per common share was $163.01 as of
December 2014, 7% higher compared with the end of
2013.
Net revenues were $34.53 billion for 2014, essentially
unchanged compared with 2013, as higher net revenues in
both Investment Management and Investment Banking,
reflecting strong performances in these businesses, were
largely offset by slightly lower net revenues in both
Institutional Client Services and Investing & Lending.
Operating expenses were $22.17 billion for 2014,
essentially unchanged compared with 2013. Non-
compensation expenses were slightly lower compared with
the prior year, primarily reflecting lower net provisions for
litigation and regulatory proceedings, while compensation
and benefits expenses were essentially unchanged.
During 2014, as part of a firmwide initiative to reduce
activities with lower returns, total assets were reduced by
$55 billion to $856 billion as of December 2014, while pre-
tax margin improved approximately 150 basis points to
35.8%.
We also maintained strong capital ratios and liquidity,
while returning $6.52 billion of capital to shareholders
during 2014. During 2014, the firm repurchased
31.8 million shares of its common stock for a total cost of
$5.47 billion and paid common dividends of $1.05 billion.
Our Common Equity Tier 1 ratio 2was 12.2% as of
December 2014, under the Basel III Advanced approach
reflecting the applicable transitional provisions. In
addition, our global core liquid assets 3were $183 billion as
of December 2014.
See “Results of Operations — Segment Operating Results”
below for information about net revenues and pre-tax
earnings for each of our business segments.
1. On January 14, 2016, the firm announced an agreement in principle, subject to the negotiation of definitive documentation, to resolve the ongoing investigation of
the Residential Mortgage-Backed Securities Working Group of the U.S. Financial Fraud Enforcement Task Force (RMBS Working Group). See Note 27 to the
consolidated financial statements for further information about this agreement in principle.
2. See Note 20 to the consolidated financial statements for further information about our capital ratios.
3. See “Risk Management — Liquidity Risk Management” below for further information about our global core liquid assets.
Goldman Sachs 2015 Form 10-K 49