For nearly two years Zero Hedge (and others) have badgered Goldman Sachs for being purposefully opaque in its reporting structure to not allow any transparency in the split between flow and prop trading revenues, instead lumping everything into the ubiquitous "Trading and Principal Investments" segment of which FICC (fixed income, currency, commodity) has always been the dominant vertical for the taxpayer sponsored hedge fund. This is about to change. In a just released 67 page report titled Report of the Business Standards Committee, Goldman announces that going forward this key trading group will now be split into two separate segments: "Institutional Client Services" and "Investing & Lending" which will provide much more detail on how the firm determines its trading revenue, and will allow objective, third party analysts to determine just how much risk the firm takes on from both a principal (taxpayer funded) and agent (dumb mutual fund money) capacity, something which should have been the case long ago, and which we railed about for two years now. We are happy that our railing on this most important topic has been met with success.
Goldman org chart before:
Here is Goldman's clarification on the new breakdown:
The four proposed business segments are:
Investment Banking: This segment will include the firm’s revenues from its activities as an advisor together with its debt and equity underwriting activities and revenues associated with derivative transactions directly related to an advisory or underwriting assignment.
Institutional Client Services: This new segment will include the firm’s revenues from client execution activities related to making markets in various products, which form an important part of the firm’s client franchise businesses. These activities are currently included in the Trading and Principal Investments segment. Institutional Client Services will also include the firm’s Securities Services business, which, under the existing segment construct, is aggregated into the “Asset Management and Securities Services” segment.
Investing & Lending: This new segment will include the firm’s revenues from investing and lending activities across various asset classes, primarily including debt and equity securities, loans, private equity and real estate. These activities include both direct investing and investing through funds. Under the existing segment construct, these activities are currently included in the Trading and Principal Investments segment.
Investment Management: This new segment will include the firm’s fee revenues earned in connection with its asset and wealth management businesses, including Goldman Sachs Asset Management (GSAM), Private Wealth Management and the firm’s merchant banking funds. In addition to management and incentive fee revenues, this segment will also include transaction revenues related to the firm’s Private Wealth Management business, including commissions and spreads.
There is some other fluff in the report, but most of it is irrelevant.We look forward to reading the first adjusted quarterly financial statements following the rearrangement of the firm.
Full report (pdf):