Goldman Sachs 2009 Annual Report Download - page 35

(1) ROE is computed by dividing net earnings applicable to common shareholders
by average monthly common shareholders’ equity. See “— Results of
Operations — Financial Overview” below for further information regarding our
calculation of ROE.
(2) Tangible common shareholders’ equity equals total shareholders’ equity
less preferred stock, goodwill and identi able intangible assets. Tangible
book valueper common share is computed by dividing tangible common
shareholders’ equity by the number of common shares outstanding, including
restricted stock units (RSUs) granted to employees with no future service
requirements. We believe that tangible common shareholders’ equity is
meaningful because it is one of the measures that we and investors use to
assess capital adequacy. See “— Equity Capital — Capital Ratios and Metrics”
below for further information regarding tangible common shareholders’ equity.
(3) As a bank holding company, we are subject to consolidated regulatory capital
requirements administered by the Board of Governors of the Federal Reserve
System (Federal Reserve Board). We are reporting our Tier1 capital ratios
calculated in accordance with the regulatory capital requirements currently
applicable to bank holding companies, which are based on the Capital Accord
of the Basel Committee on Banking Supervision (Basel
I ). The Tier1 capital
ratio equals Tier1 capital divided by total risk-weighted assets (RWAs).
The Tier1 common ratio equals Tier1 capital less preferred stock and
junior subordinated debt issued to trusts, divided by RWAs. See “— Equity
Capital — Consolidated Capital Requirements” below for further information
regarding our capital ratios.
Executive Overview
Our diluted earningsper common share were $22.13 for the
year ended December31, 2009, compared with $4.47 for
the year ended November 28, 2008. Return on average
common shareholders’ equity (ROE) (1) was 22.5% for 2009.
Net revenues for 2009 were $45.17billion, more than double
the amount in 2008. Our ratio of compensation and bene ts to
net revenues for 2009 was 35.8% and represented our lowest
annual ratio of compensation and bene ts to net revenues.
In addition, compensation was reduced by $500million to
fund a charitable contribution to Goldman Sachs Gives, our
donor-advised fund. This contribution of $500million was
part of total commitments to charitable and small business
initiatives during the year in excess of $1billion. During the
twelve months ended December31,2009, book valueper
common share increased 23% to $117.48 and tangible
book valueper common share (2) increased 27% to $108.42.
During the year, the  rm repurchased the preferred stock and
associated warrant that were issued to the U.S. Department of
the Treasury (U.S. Treasury) pursuant to the U.S. Treasury’s
TARP Capital Purchase Program. The  rm’s cumulative
payments to the U.S. Treasury related to this program totaled
$11.42billion, including the return of the U.S. Treasury’s
$10.0billion investment, $318million in preferred dividends
and $1.1billion related to the warrant repurchase. In addition,
in 2009 the  rm completed a public offering of common
stock for proceeds of $5.75billion. Our Tier1 capital ratio
under Basel I (3) was 15.0% as of December31, 2009 and
our Tier1 common ratio under Basel I (3) was 12.2% as of
December31,2009.
Net revenues in Trading and Principal Investments were
signi cantly higher compared with 2008, re ecting a
very strong performance in Fixed Income, Currency and
Commodities (FICC) and signi cantly improved results
in Principal Investments, as well as higher net revenues in
Equities. During 2009, FICC operated in an environment
characterized by strong client-driven activity, particularly
in more liquid products. In addition, asset values generally
improved and corporate credit spreads tightened signi cantly
for most of the year. Net revenues in FICC were signi cantly
higher compared with 2008, re ecting particularly strong
performances in credit products, mortgages and interest rate
products, which were each signi cantly higher than 2008.
Net revenues in commodities were also particularly strong
and were slightly higher than 2008, while net revenues
in currencies were strong, but lower than a particularly
strong 2008. During 2009, mortgages included a loss of
approximately $1.5billion (excluding hedges) on commercial
mortgage loans. Results in 2008 were negatively impacted
by asset writedowns across non-investment-grade credit
origination activities, corporate debt, private and public
equities, and residential and commercial mortgage loans and
securities. The increase in Principal Investments re ected gains
on corporate principal investments and our investment in the
ordinary shares of Industrial and Commercial Bank of China
Limited (ICBC) compared with net losses in 2008. In2009,
results in Principal Investments included a gain of $1.58billion
related to our investment in the ordinary shares of ICBC, a
gain of $1.31billion from corporate principal investments and
a loss of $1.76billion from real estate principal investments.
Net revenues in Equities for 2009 re ected strong results in
the client franchise businesses. However, results in the client
franchise businesses were lower than a strong 2008 and
included signi cantly lower commissions. Results in principal
strategies were positive compared with losses in 2008. During
2009, Equities operated in an environment characterized by a
signi cant increase in global equity prices, favorable market
opportunities and a signi cant decline in volatility levels.
Net revenues in Asset Management and Securities Services
decreased signi cantly compared with 2008, re ecting
signi cantly lower net revenues in Securities Services, as well
as lower net revenues in Asset Management. The decrease
in Securities Services primarily re ected the impact of lower
customer balances, re ecting lower hedge fund industry assets
and reduced leverage. The decrease in Asset Management
primarily re ected the impact of changes in the composition of
assets managed, principally due to equity market depreciation
Goldman Sachs 2009 Annual Report
33
Management’s Discussion and Analysis