Goldman Sachs 2015 Annual Report Download - page 73

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
Our investment banking transaction backlog represents an
estimate of our future net revenues from investment
banking transactions where we believe that future revenue
realization is more likely than not. We believe changes in
our investment banking transaction backlog may be a
useful indicator of client activity levels which, over the long
term, impact our net revenues. However, the time frame for
completion and corresponding revenue recognition of
transactions in our backlog varies based on the nature of
the assignment, as certain transactions may remain in our
backlog for longer periods of time and others may enter and
leave within the same reporting period. In addition, our
transaction backlog is subject to certain limitations, such as
assumptions about the likelihood that individual client
transactions will occur in the future. Transactions may be
cancelled or modified, and transactions not included in the
estimate may also occur.
2014 versus 2013. Net revenues in Investment Banking
were $6.46 billion for 2014, 8% higher than 2013.
Net revenues in Financial Advisory were $2.47 billion,
25% higher than 2013, reflecting an increase in industry-
wide completed mergers and acquisitions, primarily in the
United States. Net revenues in Underwriting were
$3.99 billion, essentially unchanged compared with a
strong 2013, as industry-wide activity levels remained high.
Net revenues in debt underwriting were slightly lower
compared with 2013, reflecting lower net revenues from
commercial mortgage-related activity, while net revenues in
equity underwriting were slightly higher, principally from
initial public offerings.
During 2014, Investment Banking operated in an
environment generally characterized by strong industry-
wide underwriting activity in both equity and debt, and an
increase in industry-wide completed mergers and
acquisitions activity compared with 2013. Industry-wide
announced mergers and acquisitions activity significantly
increased compared with 2013.
Operating expenses were $3.69 billion for 2014, 6% higher
than 2013, primarily due to increased compensation and
benefits expenses, reflecting higher net revenues. Pre-tax
earnings were $2.78 billion in 2014, 10% higher than
2013.
As of December 2014, our investment banking transaction
backlog was significantly higher compared with the end of
2013, due to a significant increase in estimated net revenues
from potential advisory transactions. Estimated net
revenues from potential underwriting transactions were
lower compared with the end of 2013, as a significant
decrease in estimated net revenues from potential equity
underwriting transactions, particularly in initial public
offerings, was partially offset by an increase in estimated
net revenues from potential debt underwriting transactions,
reflecting increases across most products.
Institutional Client Services
Our Institutional Client Services segment is comprised of:
Fixed Income, Currency and Commodities Client
Execution. Includes client execution activities related to
making markets in interest rate products, credit products,
mortgages, currencies and commodities.
‰Interest Rate Products. Government bonds, money
market instruments, treasury bills, repurchase agreements
and other highly liquid securities and instruments, as well
as interest rate swaps, options and other derivatives.
‰Credit Products. Investment-grade corporate securities,
high-yield securities, credit derivatives, bank and bridge
loans, municipal securities, emerging market and
distressed debt, and trade claims.
‰Mortgages. Commercial mortgage-related securities,
loans and derivatives, residential mortgage-related
securities, loans and derivatives (including U.S.
government agency-issued collateralized mortgage
obligations, other prime, subprime and Alt-A securities
and loans), and other asset-backed securities, loans and
derivatives.
‰Currencies. Most currencies, including growth-market
currencies.
‰Commodities. Crude oil and petroleum products,
natural gas, base, precious and other metals, electricity,
coal, agricultural and other commodity products.
Goldman Sachs 2015 Form 10-K 61