Goldman Sachs 2007 Annual Report Download - page 58

Management’s Discussion and Analysis
2006 VERSUS 2005. Net revenues in Investment Banking of
$5.63 billion for 2006 increased 53% compared with 2005.
Net revenues in Financial Advisory of $2.58 billion increased
35% compared with 2005, primarily reflecting strong growth in
industry-wide completed mergers and acquisitions. Net revenues
in our Underwriting business of $3.05 billion increased 73%
compared with 2005. Net revenues were significantly higher in
equity underwriting, reflecting increased client activity. Net
revenues were also significantly higher in debt underwriting,
primarily due to a significant increase in leveraged finance
activity and, to a lesser extent, an increase in investment-grade
activity. Our investment banking transaction backlog at the
end of 2006 was at its highest level since 2000.
(1)
Operating expenses of $4.06 billion for 2006 increased 25%
compared with 2005, substantially all of which was due to
increased compensation and benefits expenses resulting from
higher levels of discretionary compensation. Pre-tax earnings
were $1.57 billion in 2006 compared with $413 million in 2005.
The following table sets forth the operating results of our Investment Banking segment:
Investment Banking Operating Results
Year Ended November
(in millions) 2007 2006 2005
Financial Advisory $4,222 $2,580 $1,905
Equity underwriting 1,382 1,365 704
Debt underwriting 1,951 1,684 1,062
Total Underwriting 3,333 3,049 1,766
Total net revenues 7,555 5,629 3,671
Operating expenses 4,985 4,062 3,258
Pre-tax earnings $2,570 $1,567 $ 413
The following table sets forth our financial advisory and underwriting transaction volumes:
Goldman Sachs Global Investment Banking Volumes
(1)
Year Ended November
(in billions) 2007 2006 2005
Announced mergers and acquisitions $1,494 $1,104 $747
Completed mergers and acquisitions 1,424 864 584
Equity and equity-related offerings
(2) 71 80 49
Debt offerings
(3)
312 320 270
(1) Source: Thomson Financial. Announced and completed mergers and acquisitions volumes are based on full credit to each of the advisors in a transaction. Equity and
equity-related offerings and debt offerings are based on full credit for single book managers and equal credit for joint book managers. Transaction volumes may not be
indicative of net revenues in a given period.
(2) Includes Rule 144A and public common stock offerings, convertible offerings and rights offerings.
(3) Includes non-convertible preferred stock, mortgage-backed securities, asset-backed securities and taxable municipal debt. Includes publicly registered and Rule 144A issues.
(1) 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.
2007 VERSUS 2006. Net revenues in Investment Banking of
$7.56 billion for 2007 increased 34% compared with 2006.
Net revenues in Financial Advisory of $4.22 billion increased
64% compared with 2006, primarily reflecting growth in industry-
wide completed mergers and acquisitions. Net revenues in our
Underwriting business of $3.33 billion increased 9% compared
with 2006, due to higher net revenues in debt underwriting,
primarily reflecting strength in leveraged finance during the first
half of 2007. Net revenues in equity underwriting were also
strong, but essentially unchanged from 2006. Our investment
banking transaction backlog at the end of 2007 was higher
than at the end of 2006.
(1)
Operating expenses of $4.99 billion for 2007 increased 23%
compared with 2006, primarily due to increased compensation
and benefits expenses resulting from higher discretionary
compensation and growth in employment levels. Pre-tax earnings
of $2.57 billion in 2007 increased 64% compared with 2006.
56 Goldman Sachs 2007 Annual Report