Goldman Sachs 2012 Annual Report Download - page 60

Management’s Discussion and Analysis
During the first half of 2011, Investment Management
operated in an environment generally characterized by
improved asset prices and a shift in investor assets away
from money markets in favor of asset classes with
potentially higher risk and returns. However, during the
second half of 2011, asset prices declined, particularly in
equities, in part driven by increased uncertainty regarding
the global economic outlook. Declining asset prices and
economic uncertainty contributed to investors shifting
assets away from asset classes with potentially higher risk
and returns to asset classes with lower risk and returns.
Operating expenses were $4.02 billion for 2011, 2% lower
than 2010. Pre-tax earnings were $1.01 billion in 2011, 9%
higher than 2010.
Geographic Data
See Note 25 to the consolidated financial statements for a
summary of our total net revenues, pre-tax earnings and net
earnings by geographic region.
Regulatory Developments
The U.S. Dodd-Frank Wall Street Reform and Consumer
Protection Act (Dodd-Frank Act), enacted in July 2010,
significantly altered the financial regulatory regime within
which we operate. The implications of the Dodd-Frank Act
for our businesses will depend to a large extent on the rules
that will be adopted by the Federal Reserve Board, the
Federal Deposit Insurance Corporation (FDIC), the SEC,
the U.S. Commodity Futures Trading Commission (CFTC)
and other agencies to implement the legislation, as well as
the development of market practices and structures under
the regime established by the legislation and the
implementing rules. Other reforms have been adopted or
are being considered by other regulators and policy makers
worldwide and these reforms may affect our businesses. We
expect that the principal areas of impact from regulatory
reform for us will be:
‰the Dodd-Frank prohibition on “proprietary trading”
and the limitation on the sponsorship of, and investment
in, hedge funds and private equity funds by banking
entities, including bank holding companies, referred to as
the “Volcker Rule”;
‰increased regulation of and restrictions on
over-the-counter (OTC) derivatives markets and
transactions; and
‰increased regulatory capital requirements.
In October 2011, the proposed rules to implement the
Volcker Rule were issued and included an extensive request
for comments on the proposal. The proposed rules are
highly complex, and many aspects of the Volcker Rule
remain unclear. The full impact of the rule on us will
depend upon the detailed scope of the prohibitions,
permitted activities, exceptions and exclusions, and will not
be known with certainty until the rules are finalized and
market practices and structures develop under the final
rules. Currently, companies are expected to be required to
be in compliance by July 2014 (subject to
possible extensions).
58 Goldman Sachs 2012 Annual Report