From right:
HENRY M. PAULSON, JR.
Chairman and Chief Executive Officer
JOHN A. THAIN
President and Co-Chief Operating Officer
JOHN L. THORNTON
President and Co-Chief Operating Officer
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It was a challenging year for Goldman Sachs. The business environment
was perhaps the most difficult in recent history, marked by weak or
negative growth throughout much of the world, international uncertainty,
the third consecutive year of broad equities market declines and the
continued aftermath of the technology/telecommunications bubble
collapse.
As a firm, we cannot control the external forces that shape the business
climate. What we can control is how we manage our business and execute
our strategy. On those terms, Goldman Sachs' 2002 results demonstrated
the firm's resilience and ability to produce a solid performance for
shareholders.
Net earnings for the year were $2.11 billion, on total net revenues of
$13.99 billion. Earnings per diluted share were $4.03, down 5% from
2001. Return on shareholders' equity was 11% for the year, and return on
tangible shareholders' equity was 15%. Evident in this performance were
both the strength and diversity of the Goldman Sachs franchise and our
discipline concerning expense reduction. This performance also
reflected, as it has throughout the 133 years since the firm's founding,
in good times and bad, the quality of the people of Goldman Sachs and
their ability to develop and execute business.
BUSINESS RESULTS
Investment banking activity and net revenues for the industry declined
throughout the year. Those declines are clearly seen in our investment
banking results, although relative performance remained strong. Once
again, Goldman Sachs ranked first in announced and completed global
mergers and acquisitions, and we advised on seven of the ten largest
deals completed during 2002.(1)
We were also the leading underwriter of
global public equity offerings in 2002, and ranked second in global
initial public offerings.(1)
Within our Trading and Principal Investments business, Fixed Income,
Currency and Commodities (FICC) produced record net revenues for the
firm, demonstrating the ability to serve clients and take risk
prudently. In particular, we were able to avoid significant credit
losses as the business environment deteriorated and spreads widened.
Performance was strong across most of our FICC businesses, particularly
in currencies, mortgages and fixed income derivatives. Net revenues
declined in our Equities trading business, reflecting weaknesses in
global equities markets in what continues to be a very difficult
environment. At the same time, however, we continued to strengthen our
equities franchise in the most important trading centers across the
globe. And, as a result of the fuller integration of Spear, Leeds &
Kellogg, we are truly at the cutting edge of technology-driven
innovation and efficiency. Principal Investments had another
disappointing year, with further declines in the value of several
technology and telecom investments more than offsetting favorable
results from the real estate portfolio. During the year, however, we
were successful at finding a number of very attractive investments in
which to participate, and we continue to believe this is a particularly
good time to be an active investor.
Asset Management and Securities Services continued its strong
performance in 2002. Despite significant equities market depreciation,
assets under management declined only slightly, reflecting net inflows.
This is, we believe, an affirmation of our investment track record as
well as our focus on client service.
MANAGEMENT DISCIPLINE
In response to the difficult operating environment, we reduced operating
expenses by 11% from the prior year's level. Non-compensation expenses
were pared back and we made painful but necessary reductions to our
workforce, taking great care not to impair our ability to compete today
or in the future. Compensation is, of course, our largest expense and we
imposed rigorous discipline in making 2002 bonus awards. Most
professionals saw reductions in total compensation, starting with the
firm's senior management.
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