Goldman Sachs 2015 Annual Report Download - page 75

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
2014 versus 2013. Net revenues in Institutional Client
Services were $15.20 billion for 2014, 3% lower than
2013. Results for 2014 included a gain of $289 million
($270 million of which was recorded at extinguishment in
the third quarter) related to the extinguishment of certain of
our junior subordinated debt, of which $168 million was
included in Fixed Income, Currency and Commodities
Client Execution and $121 million in Equities ($30 million
and $91 million included in equities client execution and
securities services, respectively).
Net revenues in Fixed Income, Currency and Commodities
Client Execution were $8.46 billion for 2014, 2% lower
than 2013. Excluding the gain related to the
extinguishment of debt in 2014 and a gain of $211 million
on the sale of a majority stake in our European insurance
business in 2013, net revenues in Fixed Income, Currency
and Commodities Client Execution were slightly lower
compared with 2013. This decline reflected significantly
lower net revenues in credit products and slightly lower net
revenues in both interest rate products and mortgages. The
decrease in credit products primarily reflected difficult
market-making conditions, particularly during the second
half of 2014, and generally low levels of activity. These
results were largely offset by significantly higher net
revenues in commodities and higher net revenues in
currencies. The increase in commodities reflected more
favorable market-making conditions in certain energy
products, primarily during the first quarter of 2014. The
increase in currencies reflected a stronger performance
towards the end of 2014, as activity levels improved and
volatility was higher.
Net revenues in Equities were $6.74 billion for 2014, 5%
lower than 2013. Excluding the gain related to the
extinguishment of debt in 2014 and net revenues of
$317 million related to the sale of a majority stake in our
Americas reinsurance business in 2013, net revenues in
Equities were slightly lower compared with 2013. This
decline reflected lower net revenues in derivatives, partially
offset by slightly higher commissions and fees and slightly
higher net revenues in securities services. The increase in
securities services net revenues reflected the impact of
higher average customer balances. The increase in
commissions and fees was due to higher commissions and
fees in both Europe and the United States, reflecting
generally higher client activity, consistent with increases in
listed cash equity market volumes in these regions.
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 $144 million ($108 million and $36 million related to
Fixed Income, Currency and Commodities Client
Execution and equities client execution, respectively) for
2014, compared with a net loss of $296 million
($220 million and $76 million related to Fixed Income,
Currency and Commodities Client Execution and equities
client execution, respectively) for 2013.
During 2014, Institutional Client Services continued to
operate in a challenging environment, as economic
uncertainty contributed to subdued risk appetite for our
clients and generally low levels of activity, particularly in
credit products, interest rate products and mortgages. In
addition, volatility levels remained low, although volatility
increased in certain businesses towards the end of the year.
Debt markets were also impacted by the widening of high-
yield credit spreads and the decline in oil prices during the
second half of the year, which contributed to low liquidity,
particularly in credit. Equity markets, however, generally
increased during the year.
Operating expenses were $10.88 billion for 2014, 8%
lower than 2013, due to decreased compensation and
benefits expenses, reflecting lower net revenues, lower net
provisions for litigation and regulatory proceedings, and
lower expenses as a result of the sale of a majority stake in
our Americas reinsurance business. Pre-tax earnings were
$4.32 billion in 2014, 10% higher than 2013.
Goldman Sachs 2015 Form 10-K 63