Goldman Sachs 2009 Annual Report Download - page 52

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investments and $501million from corporate principal
investments, partially offset by a gain of $228million related
to our investment in the ordinary shares of ICBC. Results
in FICC included a loss in credit products of approximately
$1billion (net of hedges) related to non-investment-grade
credit origination activities, primarily re ecting a writedown
of approximately $850million related to the bridge and bank
loan facilities held in LyondellBasell Finance Company. In
addition, results in mortgages included a loss of approximately
$625million (excluding hedges) on commercial mortgage
loans and securities. Interest rate products, currencies and
commodities each produced strong results for the month of
December 2008. During the month of December, although
market opportunities were favorable for certain businesses,
FICC operated in an environment generally characterized by
continued weakness in the broader credit markets. Results in
Equities re ected lower commission volumes and lower net
revenues from derivatives compared with average monthly
levels in 2008, as well as weak results in principal strategies.
During the month of December, Equities operated in an
environment characterized by continued weakness in global
equity markets and continued high levels of volatility.
Net revenues in Investment Banking were $135million for the
month of December and re ected very low levels of activity
in industry-wide completed mergers and acquisitions, as well
as continued challenging market conditions across equity
and leveraged  nance markets, which adversely affected our
Underwriting business.
Net revenues in Asset Management and Securities Services
were $555million for the month of December, re ecting Asset
Management net revenues of $319million and Securities
Services net revenues of $236million. During the calendar
month of December, assets under management increased
$19billion to $798billion due to $13billion of market
appreciation, primarily in  xed income and equity assets,
and $6billion of net in ows. Net in ows re ected in ows
in money market assets, partially offset by out ows in  xed
income, equity and alternative investment assets. Net revenues
in Securities Services re ected favorable changes in the
composition of securities lending balances, but were negatively
impacted by a decline in total average customer balances.
OPERATING EXPENSES
Our operating expenses are primarily in uenced
by compensation, headcount and levels of business activity.
Compensation and bene ts expenses includes salaries,
discretionary compensation, amortization of equity awards
and other items such as payroll taxes, severance costs and
bene ts. Discretionary compensation is signi cantly impacted
by, among other factors, the level of net revenues, prevailing
labor markets, business mix and the structure of our share-
based compensation programs. Our ratio of compensation
and bene ts to net revenues was 35.8% for 2009 and
represented our lowest annual ratio of compensation
and bene ts to net revenues. While net revenues for 2009 were
only 2% lower than our record net revenues in 2007, total
compensation and bene ts expenses for 2009 were 20% lower
than 2007. For 2008, our ratio of compensation and bene ts
(excluding severance costs of approximately $275million
in the fourth quarter of 2008) to net revenues was 48.0%.
Our compensation expense can vary from year to year and is
based on our performance, prevailing labor markets and other
factors. Our record low compensation ratio for 2009 re ects
both very strong net revenues and the broader environment in
which we currently operate.
On December 9, 2009, the United Kingdom proposed
legislation that would impose a non-deductible 50% tax
on certain  nancial institutions in respect of discretionary
bonuses in excess of £25,000 awarded under arrangements
made between December 9, 2009 and April 5, 2010 to
“relevant banking employees.” We are currently evaluating
the impact of the draft legislation on our results of operations.
However, since this legislation is in draft form, certain details
surrounding the tax have not been  nalized. The impact of the
tax will be recorded when the legislation is enacted, which is
currently expected to occur in the second quarter of 2010.
Goldman Sachs 2009 Annual Report
50
Management’s Discussion and Analysis