Goldman Sachs 2002 Annual Report Download - page 37

V E R S U S 2001
Net revenues in Trading and Principal Investments were
$5.25 billion for the year compared with $6.35 billion in
2001. FICC net revenues of $4.47 billion increased 10%
compared with 2001, reflecting strong performances in
our currencies, mortgages, fixed income derivatives, and
investment-grade credit businesses, partially offset by
decreased net revenues in commodities and leveraged
finance. Net revenues in Equities were $1.01 billion com-
pared with $2.92 billion for 2001, primarily reflecting
lower net revenues in our global shares businesses, which
were affected by the continued weakness in the equities
markets, the transfer of the Nasdaq fee-based business
into Commissions and the negative effect of a single
block trade in the first quarter of 2002. In addition, net
revenues in equity derivatives and equity arbitrage were
lower than the prior year. Principal Investments recorded
negative net revenues of $229 million, primarily due to
declines in the value of certain investments in the high
technology and telecommunications sectors, partially off-
set by real estate and energy sector disposition gains.
Operating expenses decreased 17% , primarily due to
decreased compensation and benefits expenses, the
transfer of the Nasdaq fee-based business to
Commissions and the elimination of goodwill amortiza-
tion. Communications and technology and market
development expenses also decreased in 2002, reflecting
the continued impact of expense reduction initiatives
first implemented in 2001, reduced employment levels
and lower levels of business activity. For a further dis-
cussion of operating expenses and our expense reduction
initiatives, see “—Operating Expenses” below. Pre-tax
earnings were $976 million in 2002 compared with
$1.22 billion in 2001.
V E R S U S 2000
Net revenues in Trading and Principal Investments were
$6.35 billion for 2001 compared with $6.63 billion in
2000, as negative net revenues in Principal Investments
and declines in Equities were partially offset by higher net
revenues in FICC. Net revenues in FICC were $4.05 bil-
lion, up 35% compared with 2000, as we capitalized on
lower interest rates, increased volatility and strong cus-
tomer demand. This increase in net revenues was driven
by strong performances in commodities, currencies, our
credit-sensitive businesses (which include high-yield debt,
bank loans and investment-grade corporate debt) and
fixed income derivatives. Equities net revenues were
$2.92 billion compared with $3.49 billion in 2000,
primarily reflecting declining volatility and customer
flow, the introduction of decimalization and lower net
revenues in equity arbitrage, partially offset by the con-
tribution from SLK. Principal Investments experienced
negative net revenues of $621 million for 2001 due to
mark-to-market losses on both private and public invest-
ments, primarily in the high technology and tele-
communications sectors.
Operating expenses increased 22% , primarily due to
increased compensation and benefits expenses, higher
brokerage, clearing and exchange fees, higher amortiza-
tion of goodwill and identifiable intangible assets, and
increased communications and technology, depreciation
and occupancy expenses. These increases were princi-
pally due to the inclusion of SLK and the growth in
employment levels in 2000, partially offset by lower dis-
cretionary compensation and the effect of expense reduc-
tion initiatives implemented in 2001. For a further
discussion of operating expenses and our expense reduc-
tion initiatives, see “—Operating Expenses” below. Pre-
tax earnings were $1.22 billion in 2001 compared with
$2.43 billion in 2000.
Asset Management and Securities Services
The components of our Asset Management and Securities
Services segment are set forth below:
•AS S E T M A N A G E M E N T –Asset Management gener-
ates management fees by providing investment
advisory services to a diverse client base of institu-
tions and individuals;
•S E C U R I T I E S S E R V I C E S –Securities Services includes
prime brokerage, financing services and securities
lending, and our matched book businesses, all of
which generate revenues primarily in the form of
interest rate spreads or fees; and
•C O M M I S S I O N S –Commissions includes fees from
executing and clearing client transactions on major
stock, options and futures markets worldwide.
Commissions also includes revenues from the
increased share of the income and gains derived from
our merchant banking funds when the return on a
fund’s investments exceeds certain threshold returns.
Managem ent’s D iscussion and A nalysis
GO L D M A N SA CH S 2002 A N N UAL R EPO RT 35