Goldman Sachs 2012 Annual Report Download - page 49

Management’s Discussion and Analysis
Commissions and fees
Although global equity prices increased during 2012,
commissions and fees reflected an operating environment
characterized by lower market volumes primarily due to
lower volatility levels, concerns about the outlook for the
global economy and continued political uncertainty. If
macroeconomic concerns continue and result in lower
market volumes, commissions and fees would likely
continue to be negatively impacted.
2012 versus 2011. Commissions and fees on the
consolidated statements of earnings were $3.16 billion for
2012, 16% lower than 2011, reflecting lower
market volumes.
2011 versus 2010. Commissions and fees on the
consolidated statements of earnings were $3.77 billion for
2011, 6% higher than 2010, primarily reflecting higher
market volumes, particularly during the third quarter
of 2011.
Market making
During 2012, market-making revenues reflected an
operating environment generally characterized by
continued broad market concerns and uncertainties,
although positive developments helped to improve market
conditions. These developments included certain central
bank actions to ease monetary policy and address funding
risks for European financial institutions. In addition, the
U.S. economy posted stable to improving economic data,
including favorable developments in unemployment and
housing. These improvements resulted in tighter credit
spreads, higher global equity prices and lower levels of
volatility. However, concerns about the outlook for the
global economy and continued political uncertainty,
particularly the political debate in the United States
surrounding the fiscal cliff, generally resulted in client risk
aversion and lower activity levels. Also, uncertainty over
financial regulatory reform persisted. If these concerns and
uncertainties continue over the long term, market-making
revenues would likely be negatively impacted.
2012 versus 2011. Market-making revenues on the
consolidated statements of earnings were $11.35 billion for
2012, 22% higher than 2011, primarily reflecting
significantly higher revenues in mortgages and higher
revenues in interest rate products, credit products and
equity cash products, partially offset by significantly lower
revenues in commodities. In addition, market-making
revenues included significantly higher revenues in securities
services compared with 2011, reflecting a gain of
approximately $500 million on the sale of our hedge fund
administration business.
2011 versus 2010. Market-making revenues on the
consolidated statements of earnings were $9.29 billion for
2011, 32% lower than 2010. Although activity levels
during 2011 were generally consistent with 2010 levels, and
results were solid during the first quarter of 2011, the
environment during the remainder of 2011 was
characterized by broad market concerns and uncertainty,
resulting in volatile markets and significantly wider credit
spreads, which contributed to difficult market-making
conditions and led to reductions in risk by us and our
clients. As a result of these conditions, revenues across most
of our major market-making activities were lower during
2011 compared with 2010.
Other principal transactions
During 2012, other principal transactions revenues
reflected an operating environment characterized by tighter
credit spreads and an increase in global equity prices.
However, concerns about the outlook for the global
economy and uncertainty over financial regulatory reform
persisted. If equity markets decline or credit spreads widen,
other principal transactions revenues would likely be
negatively impacted.
2012 versus 2011. Other principal transactions revenues
on the consolidated statements of earnings were
$5.87 billion and $1.51 billion for 2012 and 2011,
respectively. Results for 2012 included a gain from our
investment in the ordinary shares of ICBC, net gains from
other investments in equities, primarily in private equities,
net gains from debt securities and loans, and revenues
related to our consolidated investment entities.
2011 versus 2010. Other principal transactions revenues
on the consolidated statements of earnings were
$1.51 billion and $6.93 billion for 2011 and 2010,
respectively. Results for 2011 included a loss from our
investment in the ordinary shares of ICBC and net gains
from other investments in equities, primarily in private
equities, partially offset by losses from public equities. In
addition, revenues in other principal transactions included
net losses from debt securities and loans, primarily
reflecting approximately $1 billion of unrealized losses
related to relationship lending activities, including the effect
of hedges, partially offset by net gains from other debt
securities and loans. Results for 2011 also included
revenues related to our consolidated investment entities.
Results for 2010 included a gain from our investment in the
ordinary shares of ICBC, net gains from other investments
in equities, net gains from debt securities and loans, and
revenues related to consolidated investment entities.
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