Goldman Sachs 2007 Annual Report Download - page 57

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Management’s Discussion and Analysis
Investment Banking
Our Investment Banking segment is divided into two
components:
■
FINANCIAL ADVISORY.
Financial Advisory includes advisory
assignments with respect to mergers and acquisitions, divestitures,
corporate defense activities, restructurings and spin-offs.
■
UNDERWRITING.
Underwriting includes public offerings and
private placements of a wide range of securities and other
financial instruments.
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 16
to the consolidated financial statements for further information
regarding 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 business units. Consequently, pre-tax
margins in one segment of our business may be significantly
affected by the performance of our other business segments.
A discussion of segment operating results follows.
Segment Operating Results
The following table sets forth the net revenues, operating expenses and pre-tax earnings of our segments:
Segment Operating Results
Year Ended November
(in millions) 2007 2006 2005
Investment Banking Net revenues $ 7,555 $ 5,629 $ 3,671
Operating expenses 4,985 4,062 3,258
Pre-tax earnings $ 2,570 $ 1,567 $ 413
Trading and Principal Investments Net revenues $31,226 $25,562 $16,818
Operating expenses 17,998 14,962 10,600
Pre-tax earnings $13,228 $10,600 $ 6,218
Asset Management and Securities Services Net revenues $ 7,206 $ 6,474 $ 4,749
Operating expenses 5,363 4,036 3,070
Pre-tax earnings $ 1,843 $ 2,438 $ 1,679
Total Net revenues $45,987 $37,665 $25,238
Operating expenses
(1) 28,383 23,105 16,965
Pre-tax earnings $17,604 $14,560 $ 8,273
(1) Operating expenses include net provisions for a number of litigation and regulatory proceedings of $37 million, $45 million and $37 million for the years ended
November 2007, November 2006 and November 2005, respectively, that have not been allocated to our segments.
55Goldman Sachs 2007 Annual Report