Goldman Sachs Group on Tuesday announced it's changing the way it discloses financial information, breaking up the unit known as trading and principal investments that has dominated revenue in recent years.
A new division called institutional client services will report revenue and pretax earnings from bond, currency, commodity and stock trading as well as prime brokerage, Goldman Sachs said in a report. A unit called investing and lending will show results from investments with the firm's own money.
Under the previous reporting system, Goldman Sachs said third-quarter 2010 pretax earnings from trading and principal investments were $2.37 billion, or 84% of the company's total net income. Under the new reporting system, institutional client services accounted for $1.5 billion of pretax earnings, and investing and lending accounted for $846 million, Goldman Sachs said in a regulatory filing Tuesday.
Fixed income, currencies and commodities, known as FICC, the company's largest revenue source, shrinks under the new reporting system, the disclosure shows. Revenue from FICC that was reported as $3.77 billion under the old disclosure would now be only $2.69 billion, the filing shows.
Equities-trading revenue increased to $1.98 billion under the new disclosures, from $1.86 billion when it was reported in October under the old system. Investment banking revenue changes to $1.16 billion from the $1.12 billion under the old reporting system.
The changes were part of a series of recommendations prepared by a committee of employees created after the SEC sued the firm for fraud last year. The report makes 39 recommendations about how Goldman Sachs should change its business practices.
“We act in many capacities, including as an adviser, fiduciary, market maker and underwriter,” the report said. “We must be clear to ourselves and our clients about the capacity in which we are acting and the responsibilities we have assumed.”
The recommendations emerged eight months after the firm established a Business Standards Committee to review business standards following the fraud lawsuit. The company settled the matter in July by agreeing to pay $550 million, and said it made a “mistake” in omitting disclosure to investors.
In addition to changing revenue and profit reporting, Goldman Sachs also will begin providing a simplified balance sheet that shows assets by business unit and activity, the report said. Also, the firm will begin providing more detail on credit risk, operational risk and capital adequacy.