Goldman Sachs 2015 Annual Report Download - page 74

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
Equities. Includes client execution activities related to
making markets in equity products and commissions and
fees from executing and clearing institutional client
transactions on major stock, options and futures exchanges
worldwide, as well as OTC transactions. Equities also
includes our securities services business, which provides
financing, securities lending and other prime brokerage
services to institutional clients, including hedge funds,
mutual funds, pension funds and foundations, and
generates revenues primarily in the form of interest rate
spreads or fees.
The table below presents the operating results of our
Institutional Client Services segment.
Year Ended December
$ in millions 2015 2014 2013
Fixed Income, Currency and
Commodities Client Execution $ 7,322 $ 8,461 $ 8,651
Equities client execution 13,028 2,079 2,594
Commissions and fees 3,156 3,153 3,103
Securities services 1,645 1,504 1,373
Total Equities 7,829 6,736 7,070
Total net revenues 15,151 15,197 15,721
Operating expenses 13,938 10,880 11,792
Pre-tax earnings $ 1,213 $ 4,317 $ 3,929
1. Net revenues related to the Americas reinsurance business were
$317 million for 2013. In April 2013, we completed the sale of a majority
stake in our Americas reinsurance business and no longer consolidate this
business.
2015 versus 2014. Net revenues in Institutional Client
Services were $15.15 billion for 2015, essentially
unchanged compared with 2014.
Net revenues in Fixed Income, Currency and Commodities
Client Execution were $7.32 billion for 2015, 13% lower
than 2014. Excluding a gain of $168 million in 2014
related to the extinguishment of certain of our junior
subordinated debt, net revenues in Fixed Income, Currency
and Commodities Client Execution were 12% lower than
2014, reflecting significantly lower net revenues in
mortgages, credit products and commodities. The decreases
in mortgages and credit products reflected challenging
market-making conditions and generally low levels of
activity during 2015. The decline in commodities primarily
reflected less favorable market-making conditions
compared with 2014, which included a strong first quarter
of 2014. These decreases were partially offset by
significantly higher net revenues in interest rate products
and currencies, reflecting higher volatility levels which
contributed to higher client activity levels, particularly
during the first quarter of 2015.
Net revenues in Equities were $7.83 billion for 2015, 16%
higher than 2014. Excluding a gain of $121 million
($30 million and $91 million included in equities client
execution and securities services, respectively) in 2014
related to the extinguishment of certain of our junior
subordinated debt, net revenues in Equities were 18%
higher than 2014, primarily due to significantly higher net
revenues in equities client execution across the major
regions, reflecting significantly higher results in both
derivatives and cash products, and higher net revenues in
securities services, reflecting the impact of higher average
customer balances and improved securities lending spreads.
Commissions and fees were essentially unchanged
compared with 2014.
The firm elects the fair value option for certain unsecured
borrowings. The fair value net gain attributable to the
impact of changes in our credit spreads on these borrowings
was $255 million ($214 million and $41 million related to
Fixed Income, Currency and Commodities Client
Execution and equities client execution, respectively) for
2015, compared with a net gain of $144 million
($108 million and $36 million related to Fixed Income,
Currency and Commodities Client Execution and equities
client execution, respectively) for 2014.
During 2015, the operating environment for Institutional
Client Services 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, and market-
making conditions improved. 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. If macroeconomic concerns continue over the
long term and activity levels decline, net revenues in
Institutional Client Services would likely be negatively
impacted.
Operating expenses were $13.94 billion for 2015, 28%
higher than 2014, due to significantly higher net provisions
for mortgage-related litigation and regulatory matters,
partially offset by decreased compensation and benefits
expenses. Pre-tax earnings were $1.21 billion in 2015, 72%
lower than 2014.
62 Goldman Sachs 2015 Form 10-K