Goldman Sachs 2015 Annual Report Download - page 71

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
Provision for Taxes
The effective income tax rate for 2015 was 30.7%, down
from 31.4% for 2014. The decline compared with 2014
reflected reductions related to a change in the mix of
earnings, the impact of changes in tax law on deferred tax
assets, settlements of tax audits and the determination that
certain non-U.S. earnings would be permanently reinvested
abroad, and an increase related to the impact of non-
deductible provisions for mortgage-related litigation and
regulatory matters.
The effective income tax rate for 2014 was 31.4%,
essentially unchanged compared with 31.5% for 2013.
On December 18, 2015, U.S. federal legislation was enacted
to permanently defer U.S. tax on certain non-repatriated
active financing income. This legislation did not have a
material impact on our effective tax rate for the year ended
December 2015, and we do not expect it will have a
material impact on our effective tax rate for 2016.
New York State enacted executive budget legislation for the
2015-2016 fiscal year which makes changes to the income
taxation of corporations doing business in New York City.
This change did not have a material impact on our effective
tax rate for 2015, and we do not expect this legislation will
have a material impact on our effective tax rate for 2016.
In November 2015, the United Kingdom government
enacted a budget which contained several changes that
impact our subsidiaries operating in the U.K., including:
(i) an 8 percentage point surcharge on banking profits
effective in 2016, (ii) a 1 percentage point reduction in
corporate income tax rates effective in 2017, (iii) a further 1
percentage point reduction in corporate tax rates effective
in 2020, and (iv) a phased-in reduction from 2016 through
2021 in the U.K. Bank Levy rate (for which the related
expense is included in our non-compensation expenses).
During the fourth quarter of 2015, we recognized a benefit
related to the revaluation of deferred income tax assets.
Beginning in 2016, the new legislation will increase our
effective income tax rate and the impact will depend on the
level and mix of our earnings.
Segment Operating Results
The table below presents the net revenues, operating
expenses and pre-tax earnings of our segments.
Year Ended December
$ in millions 2015 2014 2013
Investment Banking
Net revenues $ 7,027 $ 6,464 $ 6,004
Operating expenses 3,713 3,688 3,479
Pre-tax earnings $ 3,314 $ 2,776 $ 2,525
Institutional Client Services
Net revenues $15,151 $15,197 $15,721
Operating expenses 113,938 10,880 11,792
Pre-tax earnings $ 1,213 $ 4,317 $ 3,929
Investing & Lending
Net revenues $ 5,436 $ 6,825 $ 7,018
Operating expenses 2,402 2,819 2,686
Pre-tax earnings $ 3,034 $ 4,006 $ 4,332
Investment Management
Net revenues $ 6,206 $ 6,042 $ 5,463
Operating expenses 4,841 4,647 4,357
Pre-tax earnings $ 1,365 $ 1,395 $ 1,106
Total net revenues $33,820 $34,528 $34,206
Total operating expenses 225,042 22,171 22,469
Total pre-tax earnings $ 8,778 $12,357 $11,737
1. Includes provisions of $3.37 billion recorded during 2015 for the agreement
in principle with the RMBS Working Group. See Note 27 to the consolidated
financial statements for further information about this agreement in principle.
2. Includes charitable contributions that have not been allocated to our
segments of $148 million for 2015, $137 million for 2014 and $155 million for
2013.
Net revenues in our segments include allocations of interest
income and interest expense to specific securities,
commodities and other positions in relation to the cash
generated by, or funding requirements of, such underlying
positions. See Note 25 to the consolidated financial
statements for further information about our business
segments.
The cost drivers of Goldman Sachs taken as a whole —
compensation, headcount and levels of business activity —
are broadly similar in each of our business segments.
Compensation and benefits expenses within our segments
reflect, among other factors, the overall performance of
Goldman Sachs as well as the performance of individual
businesses. Consequently, pre-tax margins in one segment
of our business may be significantly affected by the
performance of our other business segments. A description
of segment operating results follows.
Goldman Sachs 2015 Form 10-K 59