Goldman Sachs 2015 Annual Report Download - page 68

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
2015 versus 2014
Net revenues on the consolidated statements of earnings
were $33.82 billion for 2015, 2% lower than 2014,
reflecting significantly lower other principal transactions
revenues and net interest income, largely offset by higher
market-making revenues and investment banking revenues,
as well as slightly higher investment management revenues.
Commissions and fees were essentially unchanged
compared with 2014.
During 2015, the operating environment for market-
making activities was positively impacted by diverging
central bank monetary policies in the United States and the
Euro area in the first quarter, as increased volatility levels
contributed to strong client activity levels in currencies,
interest rate products and equity products. However,
during the remainder of the year, concerns about global
growth and uncertainty about the U.S. Federal Reserve’s
interest rate policy, along with lower global equity prices,
widening high-yield credit spreads and declining
commodity prices, contributed to lower levels of client
activity, particularly in mortgages and credit, and more
difficult market-making conditions. The operating
environment for investment banking activities for 2015
reflected strong industry-wide mergers and acquisitions
activity. In addition, investment management reflected an
environment generally characterized by strong client net
inflows, which more than offset the declines in equity and
fixed income asset prices. Although other principal
transactions for 2015 benefited from favorable company-
specific events, including sales, initial public offerings and
financings, a decline in global equity prices and widening
high-yield credit spreads during the second half of the year
impacted results. If macroeconomic concerns continue over
the long term, and market-making activity levels,
investment banking activity levels or assets under
supervision decline, or if asset prices continue to decline, net
revenues would likely be negatively impacted. See “Segment
Operating Results” below for further information about
material trends and uncertainties that may impact our
results of operations.
Non-Interest Revenues. Investment banking revenues on
the consolidated statements of earnings were $7.03 billion
for 2015, 9% higher than 2014, due to significantly higher
revenues in financial advisory, reflecting strong client
activity, particularly in the United States. Industry-wide
completed mergers and acquisitions increased significantly
compared with the prior year. Revenues in underwriting
were lower compared with a strong 2014. Revenues in debt
underwriting were lower compared with 2014, reflecting
significantly lower leveraged finance activity. Revenues in
equity underwriting were also lower, reflecting significantly
lower revenues from initial public offerings and convertible
offerings, partially offset by significantly higher revenues
from secondary offerings.
Investment management revenues on the consolidated
statements of earnings were $5.87 billion for 2015, 2%
higher than 2014, due to slightly higher management and
other fees, primarily reflecting higher average assets under
supervision, and higher transaction revenues.
Commissions and fees on the consolidated statements of
earnings were $3.32 billion for 2015, essentially unchanged
compared with 2014.
Market-making revenues on the consolidated statements of
earnings were $9.52 billion for 2015, 14% higher than
2014. Excluding a gain of $289 million in 2014 related to
the extinguishment of certain of our junior subordinated
debt, market-making revenues were 18% higher than 2014,
reflecting significantly higher revenues in interest rate
products, currencies, equity cash products and equity
derivatives. These increases were partially offset by
significantly lower revenues in mortgages, commodities and
credit products.
Other principal transactions revenues on the consolidated
statements of earnings were $5.02 billion for 2015, 24%
lower than 2014. This decrease was primarily due to lower
revenues from investments in equities, principally reflecting
the sale of Metro International Trade Services (Metro) in
the fourth quarter of 2014 and lower net gains from
investments in private equities, driven by corporate
performance. In addition, revenues in debt securities and
loans were significantly lower, reflecting lower net gains
from investments.
Net Interest Income. Net interest income on the
consolidated statements of earnings was $3.06 billion for
2015, 24% lower than 2014. The decrease compared with
2014 was due to lower interest income resulting from a
reduction in interest income related to financial instruments
owned, at fair value, partially offset by the impact of an
increase in total average loans receivable. The decrease in
interest income was partially offset by a decrease in interest
expense, which primarily reflected lower interest expense
related to financial instruments sold, but not yet purchased,
at fair value and other interest-bearing liabilities, partially
offset by higher interest expense related to long-term
borrowings. See “Supplemental Financial Information —
Statistical Disclosures — Distribution of Assets, Liabilities
and Shareholders’ Equity” for further information about
our sources of net interest income.
56 Goldman Sachs 2015 Form 10-K