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Goldman Sachs Group 8-K 2008

Documents found in this filing:

  1. 8-K
  2. Ex-99.1
  3. Graphic
  4. Graphic
8-K
Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 OR 15(d) of The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported):
December 15, 2008
THE GOLDMAN SACHS GROUP, INC.
(Exact name of registrant as specified in its charter)
         
Delaware   No. 001-14965   No. 13-4019460
         
(State or other jurisdiction   (Commission   (IRS Employer
of incorporation)   File Number)   Identification No.)
     
85 Broad Street    
New York, New York   10004
     
(Address of principal executive offices)   (Zip Code)
Registrant’s telephone number, including area code: (212) 902-1000
N/A
 
(Former name or former address, if changed since last report.)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
o   Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o   Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o   Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o   Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))



 


TABLE OF CONTENTS

Item 2.02 Results of Operations and Financial Condition.
Item 5.02 Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain
Officers; Compensatory Arrangements of Certain Officers.
Item 5.03 Amendments to Articles of Incorporation or Bylaws; Change in Fiscal Year.
Item 8.01 Other Events.
Item 9.01 Financial Statements and Exhibits.
Signature
EX-99.1: PRESS RELEASE


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Item 2.02 Results of Operations and Financial Condition.
On December 16, 2008, The Goldman Sachs Group, Inc. (Group Inc. and, together with its consolidated subsidiaries, the firm) reported its earnings for its fiscal fourth quarter and fiscal year ended November 28, 2008. A copy of Group Inc.’s press release containing this information is being furnished as Exhibit 99.1 to this Report on Form 8-K and is incorporated herein by reference.
The information furnished pursuant to this Item 2.02, including Exhibit 99.1, shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 (the Exchange Act) or otherwise subject to the liabilities under that Section and shall not be deemed to be incorporated by reference into any filing of Group Inc. under the Securities Act of 1933 or the Exchange Act.
Item 5.02 Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.
(e) On December 15, 2008, Group Inc.’s Board of Directors, upon the recommendation of its Compensation Committee, approved the termination of Group Inc.’s Non-Qualified Deferred Compensation Plan for U.S. Participating Managing Directors (the NQDC Plan). The NQDC Plan was described in Group Inc.’s proxy statement dated March 7, 2008. No payments under the NQDC Plan will be accelerated for any of Group Inc.’s current named executive officers in connection with this termination.
Item 5.03 Amendments to Articles of Incorporation or Bylaws; Change in Fiscal Year.
(b) On December 15, 2008, Group Inc.’s Board of Directors determined to change Group Inc.’s fiscal year end from the last Friday of November to the last Friday of December, beginning with fiscal 2009. Fiscal 2009 will begin on December 27, 2008 and will end on December 25, 2009. Information on the one-month transition period beginning on November 29, 2008 and ending on December 26, 2008 will be included in Group Inc.’s Quarterly Report on Form 10-Q for the three months ended March 27, 2009.
Item 8.01 Other Events.
On December 16, 2008, Group Inc. reported net revenues of $22.22 billion and net earnings of $2.32 billion for the year ended November 28, 2008. Diluted earnings per common share were $4.47 compared with $24.73 for the year ended November 30, 2007. Return on average tangible common shareholders’ equity (1) (ROTE) was 5.5% and return on average common shareholders’ equity (ROE) was 4.9% for 2008.
Group Inc. reported fourth quarter negative net revenues of $1.58 billion and a net loss of $2.12 billion. The diluted loss per common share was $4.97 compared with diluted earnings per common share of $7.01 for the fourth quarter of 2007 and $1.81 for the third quarter of 2008.

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Net Revenues
Investment Banking
Full Year
Net revenues in Investment Banking were $5.19 billion for the year, 31% lower than 2007. Net revenues in Financial Advisory were $2.66 billion, 37% lower than particularly strong net revenues in 2007, primarily reflecting a decline in industry-wide completed mergers and acquisitions. Net revenues in the firm’s Underwriting business were $2.53 billion, 24% lower than 2007, principally due to significantly lower net revenues in debt underwriting. The decrease in debt underwriting was primarily due to a decline in leveraged finance and mortgage-related activity, reflecting difficult market conditions. Net revenues in equity underwriting were slightly lower compared with 2007, reflecting a decrease in industry-wide equity and equity-related offerings.
Fourth Quarter
Net revenues in Investment Banking were $1.03 billion, 48% lower than the fourth quarter of 2007 and 20% lower than the third quarter of 2008. Net revenues in Financial Advisory were $574 million, 54% lower than a particularly strong fourth quarter of 2007, primarily reflecting a decline in industry-wide completed mergers and acquisitions. Net revenues in the firm’s Underwriting business were $460 million, 37% lower than the fourth quarter of 2007. Net revenues in both debt and equity underwriting were significantly lower, reflecting lower levels of activity.
The firm’s investment banking transaction backlog decreased during the quarter and ended the year significantly lower than at the end of 2007. (2)
Trading and Principal Investments
Full Year
Net revenues in Trading and Principal Investments were $9.06 billion for the year, 71% lower than 2007.
Net revenues in Fixed Income, Currency and Commodities (FICC) were $3.71 billion for the year, 77% lower than 2007, primarily reflecting losses in credit products, which included a loss of approximately $3.1 billion (net of hedges) related to non-investment-grade credit origination activities and losses from investments, including corporate debt and private and public equities. Results in mortgages included net losses of approximately $1.7 billion on residential mortgage loans and securities and approximately $1.4 billion on commercial mortgage loans and securities. Interest rate products, currencies and commodities each produced particularly strong results and net revenues were higher compared with 2007. During 2008, although client-driven activity was generally solid, FICC operated in a challenging environment characterized by broad-based declines in asset values, wider mortgage and corporate credit spreads, reduced levels of liquidity and broad-based investor deleveraging.

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Net revenues in Equities were $9.21 billion for the year, 19% lower than a particularly strong 2007, reflecting losses in principal strategies, partially offset by higher net revenues in the client franchise businesses. Commissions were particularly strong and were higher than 2007. During 2008, Equities operated in an environment characterized by a significant decline in global equity prices, broad-based investor deleveraging and very high levels of volatility, particularly in the second half of the year.
Principal Investments recorded a net loss of $3.86 billion for 2008. These results included net losses of $2.53 billion from corporate principal investments and $949 million from real estate principal investments, as well as a $446 million loss related to the firm’s investment in the ordinary shares of Industrial and Commercial Bank of China Limited (ICBC).
Fourth Quarter
Trading and Principal Investments recorded negative net revenues of $4.36 billion, compared with net revenues of $6.93 billion for the fourth quarter of 2007 and $2.70 billion for the third quarter of 2008.
FICC recorded negative net revenues of $3.40 billion compared with net revenues of $3.30 billion for the fourth quarter of 2007. The negative net revenues for FICC in the quarter were due to losses from investments, including corporate debt and private and public equities, and trading in credit products. These results were adversely impacted by unprecedented weakness across the broader credit markets, reflecting broad-based declines in asset values, substantially reduced levels of liquidity and dislocation between prices for cash instruments and the related derivative contracts and between credit indices and the underlying single names. Credit products also included a loss of approximately $1.3 billion ($1 billion, net of hedges) related to non-investment-grade credit origination activities and mortgages included a net loss of approximately $700 million on commercial mortgage loans and securities. Net revenues in commodities and currencies were solid, but lower compared with the fourth quarter of 2007. Interest rate products had strong results, which were significantly higher compared with the fourth quarter of 2007.
Net revenues in Equities were $2.64 billion, 2% higher than the fourth quarter of 2007, primarily reflecting significantly higher net revenues in derivatives, partially offset by losses in principal strategies. Commissions were particularly strong and were higher compared with the fourth quarter of 2007. During the quarter, Equities operated in an environment characterized by a significant decline in global equity prices, a significant increase in volatility levels and generally strong client-driven activity.

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Principal Investments recorded a net loss of $3.60 billion for the fourth quarter of 2008. These results included net losses of $2.00 billion from corporate principal investments and $961 million from real estate principal investments, as well as a $631 million loss related to the firm’s investment in the ordinary shares of ICBC.
Asset Management and Securities Services
Full Year
Net revenues in Asset Management and Securities Services were $7.97 billion for the year, 11% higher than 2007.
Asset Management net revenues were $4.55 billion for the year, 1% higher than 2007. During the year, assets under management decreased $89 billion to $779 billion, due to $123 billion of market depreciation, primarily in equity assets, partially offset by $34 billion of net inflows. Net inflows reflected inflows in money market, fixed income and alternative investment assets, partially offset by outflows in equity assets.
Securities Services net revenues were $3.42 billion for the year, 26% higher than 2007, reflecting the impact of changes in the composition of securities lending customer balances, as well as higher total average customer balances.
Fourth Quarter
Net revenues in Asset Management and Securities Services were $1.74 billion, 5% lower than the fourth quarter of 2007 and 15% lower than the third quarter of 2008.
Asset Management net revenues were $945 million, 19% lower than the fourth quarter of 2007, primarily due to lower management and other fees, principally due to market depreciation and net outflows in equity assets. During the quarter, assets under management decreased $84 billion to $779 billion, due to $90 billion of market depreciation, primarily in equity assets, partially offset by $6 billion of net inflows. Net inflows reflected inflows in money market and alternative investment assets, partially offset by outflows in equity and fixed income assets.
Securities Services net revenues were $799 million, 19% higher than the fourth quarter of 2007. The increase in net revenues reflected the impact of changes in the composition of securities lending customer balances, partially offset by the impact of lower total average customer balances.

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Expenses
Operating expenses were $19.89 billion for 2008, 30% lower than 2007.
Compensation and Benefits
Compensation and benefits expenses (including salaries, bonuses, amortization of prior year equity awards and other items such as payroll taxes and benefits) were $10.93 billion for 2008, 46% lower than 2007, reflecting lower levels of discretionary compensation due to lower net revenues. The ratio of compensation and benefits (excluding severance costs of approximately $275 million in the fourth quarter of 2008) to net revenues was 48.0% for 2008. The ratio of compensation and benefits to net revenues was 43.9% for 2007. Employment levels decreased 1% compared with the end of 2007, reflecting an 8% decrease during the fourth quarter.
Non-Compensation Expenses
Full Year
Non-compensation expenses were $8.95 billion for 2008, 9% higher than 2007. Excluding consolidated entities held for investment purposes (3), non-compensation expenses were 5% higher than 2007. The majority of this increase was attributable to higher brokerage, clearing, exchange and distribution fees, principally reflecting higher activity levels in Equities and FICC.
Fourth Quarter
Non-compensation expenses were $2.51 billion, 4% higher than the fourth quarter of 2007 and 15% higher than the third quarter of 2008. Excluding consolidated entities held for investment purposes (3), non-compensation expenses were 4% lower than the fourth quarter of 2007 and 9% higher than the third quarter of 2008. The decrease compared with the fourth quarter of 2007 was due to lower occupancy and market development expenses. The decrease in occupancy expenses was attributable to exit costs incurred during the fourth quarter of 2007 related to the firm’s office space. The decrease in market development expenses primarily reflected lower levels of business activity during the fourth quarter of 2008.
Provision for Taxes
The effective income tax rate was approximately 1% for 2008, down from 25.1% for the first nine months of 2008 and down from 34.1% for fiscal year 2007. The decreases in the effective income tax rate were primarily due to an increase in permanent benefits as a percentage of lower earnings and changes in geographic earnings mix.
Capital
As of November 28, 2008, total capital was $232.59 billion, consisting of $64.37 billion in total shareholders’ equity (common shareholders’ equity of $47.90 billion and preferred stock of $16.47 billion) and $168.22 billion in unsecured long-term borrowings.

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Book value per common share was $98.68, an increase of 9% compared with the end of 2007 and essentially unchanged from the end of the third quarter of 2008. Tangible book value per common share (1) was $88.00, an increase of 12% compared with the end of 2007 and essentially unchanged from the end of the third quarter of 2008. Book value and tangible book value per common share are based on common shares outstanding, including restricted stock units granted to employees with no future service requirements, of 485.4 million at period end.
On September 29, 2008, Group Inc. completed a public offering of 46.7 million common shares at $123.00 per share for proceeds of $5.75 billion.
On October 1, 2008, Group Inc. issued to Berkshire Hathaway Inc. and certain affiliates 50,000 shares of 10% Cumulative Perpetual Preferred Stock, Series G (Series G Preferred Stock), and a five-year warrant to purchase 43.5 million common shares at an exercise price of $115.00 per share, for aggregate proceeds of $5.00 billion.
On October 28, 2008, under the U.S. Treasury’s TARP Capital Purchase Program, Group Inc. issued to the U.S. Treasury 10.0 million shares of Fixed Rate Cumulative Perpetual Preferred Stock, Series H (Series H Preferred Stock), and a ten-year warrant to purchase 12.2 million common shares at an exercise price of $122.90 per share, for aggregate proceeds of $10.00 billion. Cumulative dividends on the Series H Preferred Stock are payable at a rate of 5% annually through November 15, 2013 and at a rate of 9% annually thereafter.
The firm repurchased 10.5 million shares of its common stock during 2008 at an average cost per share of $193.18, for a total cost of $2.04 billion. The remaining share authorization under the firm’s existing share repurchase program is 60.9 million shares.
The firm’s Tier 1 Ratio (4) was 15.6% as of November 28, 2008.
Other Balance Sheet and Liquidity Metrics
  Total assets (5) were $885 billion as of November 28, 2008, down 18% from August 29, 2008.
 
  Level 3 assets (6) were approximately $66 billion as of November 28, 2008 (down from $68 billion as of August 29, 2008) and represented 7.5% of total assets.
 
  Average global core excess (7) liquidity was $111.43 billion for the fourth quarter of 2008 and $96.73 billion for the year ended November 28, 2008.

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Dividends and Other Matters
The Board of Directors of Group Inc. (the Board) approved a change in the firm’s fiscal year end from the last Friday of November to the last Friday of December. The change is effective for the firm’s 2009 fiscal year.
The Board declared a dividend of $0.4666666 per common share to be paid on March 26, 2009 to common shareholders of record on February 24, 2009. The dividend of $0.4666666 per common share is reflective of a four month period (December 2008 through March 2009), due to the change in the firm’s fiscal year end. The Board also declared dividends of $239.58, $387.50, $255.56 and $255.56 per share of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock, respectively (represented by depositary shares, each representing a 1/1,000th interest in a share of preferred stock), to be paid on February 10, 2009 to preferred shareholders of record on January 26, 2009. In addition, the Board declared dividends of $2,500 per share of Series G Preferred Stock to be paid on February 10, 2009 to preferred shareholders of record on January 26, 2009 and dividends of $14.8611111 per share of Series H Preferred Stock to be paid on February 17, 2009 to preferred shareholders of record on January 31, 2009.
 
Cautionary Note Regarding Forward-Looking Statements
This Report on Form 8-K contains “forward-looking statements” within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements are not historical facts but instead represent only the firm’s beliefs regarding future events, many of which, by their nature, are inherently uncertain and outside of the firm’s control. It is possible that the firm’s actual results and financial condition may differ, possibly materially, from the anticipated results and financial condition indicated in these forward-looking statements. For a discussion of some of the risks and important factors that could affect the firm’s future results and financial condition, see “Risk Factors” in Part I, Item 1A of the firm’s Annual Report on Form 10-K for the fiscal year ended November 30, 2007 and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of the firm’s Annual Report on Form 10-K for the fiscal year ended November 30, 2007.
Certain of the information regarding the firm’s Tier 1 Ratio, total assets, level 3 assets and global core excess liquidity consist of preliminary estimates; these estimates are forward-looking statements and are subject to change, possibly materially, as the firm completes its annual financial statements.
Statements about the firm’s investment banking transaction backlog also may constitute forward-looking statements. Such statements are subject to the risk that the terms of these transactions may be modified or that they may not be completed at all; therefore, the net revenues,

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if any, that the firm actually earns from these transactions may differ, possibly materially, from those currently expected. Important factors that could result in a modification of the terms of a transaction or a transaction not being completed include, in the case of underwriting transactions, a decline or continued weakness in general economic conditions, outbreak of hostilities, volatility in the securities markets generally or an adverse development with respect to the issuer of the securities and, in the case of financial advisory transactions, a decline in the securities markets, an inability to obtain adequate financing, an adverse development with respect to a party to the transaction or a failure to obtain a required regulatory approval. For a discussion of other important factors that could adversely affect the firm’s investment banking transactions, see “Risk Factors” in Part I, Item 1A of the firm’s Annual Report on Form 10-K for the fiscal year ended November 30, 2007 and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of the firm’s Annual Report on Form 10-K for the fiscal year ended November 30, 2007.

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THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
SEGMENT NET REVENUES
(UNAUDITED)

$ in millions
                         
    Year Ended     % Change From  
    Nov. 28,     Nov. 30,     Nov. 30,  
    2008     2007     2007  
Investment Banking
                       
Financial Advisory
  $ 2,656     $ 4,222       (37 )%
 
                       
Equity underwriting
    1,353       1,382       (2 )
Debt underwriting
    1,176       1,951       (40 )
 
                 
Total Underwriting
    2,529       3,333       (24 )
 
                       
 
                 
Total Investment Banking
    5,185       7,555       (31 )
 
                 
 
                       
Trading and Principal Investments
                       
FICC
    3,713       16,165       (77 )
 
                       
Equities trading
    4,208       6,725       (37 )
Equities commissions
    4,998       4,579       9  
 
                 
Total Equities
    9,206       11,304       (19 )
 
                       
ICBC
    (446 )     495       N.M.  
Other corporate and real estate gains and losses
    (3,480 )     2,785       N.M.  
Overrides
    70       477       (85 )
 
                 
Total Principal Investments
    (3,856 )     3,757       N.M.  
 
                       
 
                 
Total Trading and Principal Investments
    9,063       31,226       (71 )
 
                 
 
                       
Asset Management and Securities Services
                       
Management and other fees
    4,321       4,303        
Incentive fees
    231       187       24  
 
                 
Total Asset Management
    4,552       4,490       1  
 
                       
Securities Services
    3,422       2,716       26  
 
                       
 
                 
Total Asset Management and Securities Services
    7,974       7,206       11  
 
                 
 
                       
 
                 
Total net revenues
  $ 22,222     $ 45,987       (52 )
 
                 

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THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
SEGMENT NET REVENUES
(UNAUDITED)

$ in millions
                                         
    Three Months Ended     % Change From  
    Nov. 28,     Aug. 29,     Nov. 30,     Aug. 29,     Nov. 30,  
    2008     2008     2007     2008     2007  
Investment Banking
                                       
Financial Advisory
  $ 574     $ 619     $ 1,240       (7) %     (54) %
 
                                       
Equity underwriting
    273       292       403       (7 )     (32 )
Debt underwriting
    187       383       330       (51 )     (43 )
 
                             
Total Underwriting
    460       675       733       (32 )     (37 )
 
                                       
 
                             
Total Investment Banking
    1,034       1,294       1,973       (20 )     (48 )
 
                             
 
                                       
Trading and Principal Investments
                                       
FICC
    (3,403 )     1,595       3,304       N.M.       N.M.  
 
                                       
Equities trading
    1,325       354       1,348       N.M.       (2 )
Equities commissions
    1,318       1,208       1,243       9       6  
 
                             
Total Equities
    2,643       1,562       2,591       69       2  
 
                                       
ICBC
    (631 )     106       163       N.M.       N.M.  
Other corporate and real estate gains and losses
    (2,965 )     (581 )     769       N.M.       N.M.  
Overrides
          22       104       (100 )     (100 )
 
                             
Total Principal Investments
    (3,596 )     (453 )     1,036       N.M.       N.M.  
 
                                       
 
                             
Total Trading and Principal Investments
    (4,356 )     2,704       6,931       N.M.       N.M.  
 
                             
 
                                       
Asset Management and Securities Services
                                       
Management and other fees
    930       1,115       1,134       (17 )     (18 )
Incentive fees
    15       14       31       7       (52 )
 
                             
Total Asset Management
    945       1,129       1,165       (16 )     (19 )
 
                                       
Securities Services
    799       916       672       (13 )     19  
 
                                       
 
                             
Total Asset Management and Securities Services
    1,744       2,045       1,837       (15 )     (5 )
 
                             
 
                                       
 
                             
Total net revenues
  $ (1,578 )   $ 6,043     $ 10,741       N.M.       N.M.  
 
                             

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THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)

In millions, except per share amounts
                         
    Year Ended     % Change From  
    Nov. 28,     Nov. 30,     Nov. 30,  
    2008     2007     2007  
Revenues
                       
Investment banking
  $ 5,179     $ 7,555       (31 )%
Trading and principal investments
    8,095       29,714       (73 )
Asset management and securities services
    4,672       4,731       (1 )
Interest income
    35,633       45,968       (22 )
 
                 
Total revenues
    53,579       87,968       (39 )
 
                       
Interest expense
    31,357       41,981       (25 )
 
                 
 
                       
Revenues, net of interest expense
    22,222       45,987       (52 )
 
                 
 
                       
Operating expenses
                       
Compensation and benefits
    10,934  (8)     20,190       (46 )
 
                       
Brokerage, clearing, exchange and distribution fees
    2,998       2,758       9  
Market development
    485       601       (19 )
Communications and technology
    759       665       14  
Depreciation and amortization
    1,022       624       64  
Amortization of identifiable intangible assets
    240       195       23  
Occupancy
    960       975       (2 )
Professional fees
    779       714       9  
Other expenses
    1,709       1,661       3  
 
                 
Total non-compensation expenses
    8,952       8,193       9  
 
                       
 
                 
Total operating expenses
    19,886       28,383       (30 )
 
                 
 
                       
Pre-tax earnings
    2,336       17,604       (87 )
Provision for taxes
    14       6,005       (100 )
 
                 
Net earnings
    2,322       11,599       (80 )
 
                       
Preferred stock dividends
    281       192       46  
 
                 
Net earnings applicable to common shareholders
  $ 2,041     $ 11,407       (82 )
 
                 
 
                       
Earnings per common share
                       
Basic
  $ 4.67     $ 26.34       (82 )%
Diluted
    4.47       24.73       (82 )
 
                       
Average common shares outstanding
                       
Basic
    437.0       433.0       1  
Diluted
    456.2       461.2       (1 )

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Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
In millions, except per share amounts and employees
                                         
    Three Months Ended     % Change From  
    Nov. 28,     Aug. 29,     Nov. 30,     Aug. 29,     Nov. 30,  
    2008     2008     2007     2008     2007  
Revenues
                                       
Investment banking
  $ 1,034     $ 1,294     $ 1,974       (20 )%     (48 )%
Trading and principal investments
    (4,461 )     2,440       6,823       N.M.       N.M.  
Asset management and securities services
    936       1,174       1,219       (20 )     (23 )
Interest income
    6,173       8,717       11,518       (29 )     (46 )
 
                             
Total revenues
    3,682       13,625       21,534       (73 )     (83 )
 
                                       
Interest expense
    5,260       7,582       10,793       (31 )     (51 )
 
                             
 
                                       
Revenues, net of interest expense
    (1,578 )     6,043       10,741       N.M.       N.M.  
 
                             
 
                                       
Operating expenses
                                       
Compensation and benefits
    (490 )     2,901       3,272       N.M.       N.M.  
 
                                       
Brokerage, clearing, exchange and distribution fees
    733       734       774             (5 )
Market development
    96       119       177       (19 )     (46 )
Communications and technology
    188       192       184       (2 )     2  
Depreciation and amortization
    418       251       207       67       102  
Amortization of identifiable intangible assets
    70       49       41       43       71  
Occupancy
    253       237       343       7       (26 )
Professional fees
    248       168       204       48       22  
Other expenses
    505       432       484       17       4  
 
                             
Total non-compensation expenses
    2,511       2,182       2,414       15       4  
 
                                       
 
                             
Total operating expenses
    2,021       5,083       5,686       (60 )     (64 )
 
                             
 
                                       
Pre-tax earnings / (loss)
    (3,599 )     960       5,055       N.M.       N.M.  
Provision / (benefit) for taxes
    (1,478 )     115       1,840       N.M.       N.M.  
 
                             
Net earnings / (loss)
    (2,121 )     845       3,215       N.M.       N.M.  
 
                                       
Preferred stock dividends
    166       35       49       N.M.       N.M.  
 
                             
Net earnings / (loss) applicable to common shareholders
  $ (2,287 )   $ 810     $ 3,166       N.M.       N.M.  
 
                             
 
                                       
Earnings / (loss) per common share
                                       
Basic
  $ (4.97 )   $ 1.89     $ 7.49       N.M. %     N.M. %
Diluted
    (4.97 )     1.81       7.01       N.M.       N.M.  
 
                                       
Average common shares outstanding
                                       
Basic
    459.9       427.6       422.9       8       9  
Diluted
    459.9       448.3       451.7       3       2  
 
                                       
Selected Data
                                       
Employees at period end (9)
    30,067       32,569       30,522       (8 )     (1 )

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Table of Contents

NON-COMPENSATION EXPENSES
(UNAUDITED)

$ in millions
                                                          
    Year Ended     % Change From              
    Nov. 28,     Nov. 30,     Nov. 30,                  
    2008     2007     2007                  
Non-compensation expenses of consolidated investments (3)
  $ 779     $ 446       75 %                
 
                                       
Non-compensation expenses excluding consolidated investments
                                       
Brokerage, clearing, exchange and distribution fees
    2,998       2,758       9                  
Market development
    475       593       (20 )                
Communications and technology
    754       661       14                  
Depreciation and amortization
    631       509       24                  
Amortization of identifiable intangible assets
    233       189       23                  
Occupancy
    861       892       (3 )                
Professional fees
    770       711       8                  
Other expenses
    1,451       1,434       1                  
 
                                 
Subtotal
    8,173       7,747       5                  
 
                                       
 
                                 
Total non-compensation expenses, as reported
  $ 8,952     $ 8,193       9