Goldman Sachs 2009 Annual Report Download - page 36

during the fourth quarter of 2008, as well as lower incentive
fees. During the year ended December31, 2009, assets under
management increased $73billion to $871billion, due to
$76billion of market appreciation, primarily in  xed income
and equity assets, partially offset by $3billion of net out ows.
Out ows in money market assets were offset by in ows in  xed
income assets.
Net revenues in Investment Banking decreased compared
with 2008, re ecting signi cantly lower net revenues in
Financial Advisory, partially offset by higher net revenues in
our Underwriting business. The decrease in Financial Advisory
re ected a decline in industry-wide completed mergers and
acquisitions. The increase in Underwriting re ected higher net
revenues in equity underwriting, primarily re ecting an increase
in industry-wide equity and equity-related offerings. Net revenues
in debt underwriting were slightly lower than in 2008. Our
investment banking transaction backlog increased signi cantly
during the twelve months ended December31, 2009.
(1)
Our business, by its nature, does not produce predictable
earnings. Our results in any givenperiod can be materially
affected by conditions in global  nancial markets, economic
conditions generally and other factors. For a further discussion
of the factors that may affect our future operating results, see
“— Certain Risk Factors That May Affect Our Businesses”
below as well as “Risk Factors” in PartI, Item 1A of our
Annual Report on Form10-K.
Business Environment
Our  nancial performance is highly dependent on the
environment in which our businesses operate. During 2009,
the economies of the U.S., Europe and Japan experienced a
recession. Business activity across a wide range of industries
and regions was greatly reduced, re ecting a reduction in
consumer spending and low levels of liquidity across credit
markets. In addition, unemployment continued to rise in
2009. However, economic conditions became generally more
favorable during the second half of the year as real gross
domestic product (GDP) growth turned positive in most
major economies and growth in emerging markets improved.
In addition, equity and credit markets were characterized
by increasing asset prices, lower volatility and improved
liquidity during the last nine months of the year. For a further
discussion of how market conditions affect our businesses, see
“— Certain Risk Factors That May Affect Our Businesses”
below as well as “Risk Factors” in PartI, Item 1A of our
Annual Report on Form10-K. A further discussion of the
business environment in 2009 is set forth below.
Global. The global economy weakened during 2009, as evidenced
by declines in real GDP in the major economies. In addition,
economic growth in emerging markets slowed during the year,
especially among those economies most reliant upon international
trade. Volatility levels across  xed income and equity markets
declined during the year and corporate credit spreads generally
tightened, particularly in the second half of the year. In addition,
global equity markets increased signi cantly during our  scal year.
The U.S. Federal Reserve, The Bank of Japan and The People’s
Bank of China left interest rates unchanged during 2009, while
central banks in the Eurozone and the United Kingdom lowered
interest rates during the  rst half of the year. After a signi cant
decline in the second half of calendar year 2008, the price of crude
oil increased signi cantly during 2009. The U.S. dollar weakened
against the British pound and the Euro, but strengthened against
the Japanese yen. In investment banking, industry-wide mergers
and acquisitions activity remained weak, while industry-wide
debt offerings and equity and equity-related offerings increased
signi cantly compared with 2008.
United States. Real GDP in the U.S. declined by an estimated
2.4% in calendar year 2009, compared with an increase of
0.4% in 2008. The recession in the U.S., which started near the
beginning of our 2008  scal year, appeared to end in the third
quarter of 2009, as real GDP increased during the second half
of the year. Exports declined signi cantly in the  rst half of the
year, but improved during the second half of the year. Consumer
expenditure declined during 2009, despite signi cant support
from the federal government’s  scal stimulus package. Business
and consumer con dence improved during the year, but remained
at low levels. The rate of in ation decreased during the year,
re ecting an increase in unemployment and signi cant excess
production capacity, which caused downward pressure on wages
and prices. The U.S. Federal Reserve maintained its federal funds
rate at a target range of zero to 0.25% during the year. In addition,
the Federal Reserve purchased signi cant amounts of mortgage-
backed securities, as well as U.S. Treasury and federal agency debt
in order to improve liquidity and expand the availability of credit.
The yield on the 10-year U.S. Treasury noteincreased by 169 basis
points to 3.85% during our  scal year. The NASDAQ Composite
Index, the S&P 500 Index and the Dow Jones Industrial Average
ended our  scal year higher by 48%, 28% and 22%, respectively.
(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.
Goldman Sachs 2009 Annual Report
34
Management’s Discussion and Analysis