Introduction 82

Executive Overview 84

Business Environment 87

Critical Accounting Policies 88

Fair Value 88

Goodwill and Identifiable Intangible Assets 97

Use of Estimates 99

Results of Operations 99

Financial Overview 100

Segment Operating Results 106

Geographic Data 113

Off-Balance-Sheet Arrangements 113

Equity Capital 114

Contractual Obligations 119

Market Risk 121

Credit Risk 126

Derivatives 127

Liquidity and Funding Risk 131

Recent Accounting Developments 138

Cautionary Statement Pursuant to the U.S. Private Securities Litigation Reform Act of 1995 139

The Goldman Sachs Group, Inc. (Group Inc.) is a leading global financial services firm providing investment banking, securities and investment management services to a substantial and diversified client base that includes corporations, financial institutions, governments and high-net-worth individuals. Founded in 1869, the firm is headquartered in New York and maintains offices in London, Frankfurt, Tokyo, Hong Kong and other major financial centers around the world.

Our activities are divided into three segments:

• Investment Banking. We provide a broad range of investment banking services to a diverse group of corporations, financial institutions, investment funds, governments and individuals.

• Trading and Principal Investments. We facilitate client transactions with a diverse group of corporations, financial institutions, investment funds, governments and individuals and take proprietary positions through market making in, trading of and investing in fixed income and equity products, currencies, commodities and derivatives on these products. In addition, we engage in market-making and specialist activities on equities and options exchanges, and we clear client transactions on major stock, options and futures exchanges worldwide. In connection with our merchant banking and other investing activities, we make principal investments directly and through funds that we raise and manage.

• Asset Management and Securities Services. We provide investment advisory and financial planning services and offer investment products (primarily through separately managed accounts and commingled vehicles, such as mutual funds and private investment funds) across all major asset classes to a diverse group of institutions and individuals worldwide and provide prime brokerage services, financing services and securities lending services to institutional clients, including hedge funds, mutual funds, pension funds and foundations, and to high-net-worth individuals worldwide.

This Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our Annual Report on Form 10-K for the fiscal year ended November 28, 2008. References herein to our Annual Report on Form 10-K are to our Annual Report on Form 10-K for the fiscal year ended November 28, 2008.

When we use the terms "Goldman Sachs," "we," "us" and "our," we mean Group Inc., a Delaware corporation, and its consolidated subsidiaries.

In connection with becoming a bank holding company, we were required to change our fiscal year-end from November to December. This change in our fiscal year-end resulted in a one-month transition period that began on November 29, 2008 and ended on December 26, 2008. Financial information for this fiscal transition period is included in our Quarterly Report on Form 10-Q for the quarter ended March 27, 2009. On April 13, 2009, the Board of Directors of Group Inc. (the Board) approved a change in our fiscal year-end from the last Friday of December to December 31, beginning with fiscal 2009. Fiscal 2009 began on December 27, 2008 and will end on December 31, 2009. Our third fiscal quarter in 2009 will end on the last Friday of September. Beginning in the fourth quarter of 2009, our fiscal year will end on December 31.

In "Results of Operations" below, we compare the three and six month periods, as applicable, ended June 26, 2009 with the previously reported three and six month periods ended May 30, 2008. Financial information for the three and six months ended June 27, 2008 has not been included in this Form 10-Q for the following reasons: (i) the three and six months ended May 30, 2008 provide a meaningful comparison for the three and six months ended June 26, 2009; (ii) there are no significant factors, seasonal or other, that would impact the comparability of information if the results for the three and six months ended June 27, 2008 were presented in lieu of results for the three and six months ended May 30, 2008; and (iii) it was not practicable or cost justified to prepare this information.

All references to June 2009 and May 2008, unless specifically stated otherwise, refer to our three-month fiscal periods ended, or the dates, as the context requires, June 26, 2009 and May 30, 2008, respectively. All references to November 2008, unless specifically stated otherwise, refer to our fiscal year ended, or the date, as the context requires, November 28, 2008. All references to 2009, unless specifically stated otherwise, refer to our fiscal year ending, or the date, as the context requires, December 31, 2009.

Three Months Ended June 2009 versus May 2008. Our diluted earnings per common share were $4.93 for the second quarter ended June 26, 2009 compared with $4.58 for the second quarter ended May 30, 2008. Annualized return on average common shareholders' equity (ROE) (1) was 23.0% for the second quarter of 2009. During the quarter, the firm repurchased the preferred stock that was issued to the U.S. Department of the Treasury (U.S. Treasury) pursuant to its TARP Capital Purchase Program for an aggregate purchase price of $10.04 billion (including accrued dividends). The repurchase resulted in a one-time preferred dividend of $426 million, which is included in our results for the second quarter of 2009. Excluding this one-time preferred dividend, diluted earnings per common share were $5.71 (2) and annualized ROE was 23.8% (2) for the second quarter of 2009. In addition, the firm completed a public offering of common stock for proceeds of $5.75 billion. During the quarter, book value per common share increased approximately 8% to $106.41 and tangible book value per common share (3) increased approximately 10% to $96.94. Our Tier 1 capital ratio under Basel I (4) was 13.8% at the end of the second quarter of 2009, up from 13.7% at the end of the first quarter of 2009. Our Tier 1 capital ratio under Basel II (4) was 16.1% at the end of the second quarter of 2009, up from 16.0% at the end of the first quarter of 2009.

Our results for the second quarter of 2009 reflected significantly higher net revenues in Trading and Principal Investments compared with the second quarter of 2008, partially offset by significantly lower net revenues in Asset Management and Securities Services and lower net revenues in Investment Banking. The increase in Trading and Principal Investments reflected particularly strong results in Fixed Income, Currency and Commodities (FICC) and Equities, which were both significantly higher than the second quarter of 2008. The increase in FICC reflected particularly strong performances in credit products, interest rate products and currencies, reflecting strength in the client franchise. In addition, net revenues in both mortgages and commodities were higher compared with the second quarter of 2008. In the second quarter of 2009, mortgages included a loss of approximately $700 million on commercial mortgage loans. During the quarter, FICC operated in an environment characterized by strong client-driven activity, particularly in more liquid products, favorable market opportunities and tighter corporate credit spreads. The increase in Equities reflected significantly higher net revenues in derivatives and, to a lesser extent, principal strategies. In addition, net revenues in shares were solid, but essentially unchanged compared with the second quarter of 2008. Commissions declined compared with the second quarter of 2008. During the quarter, Equities operated in an environment characterized by solid client-driven activity, favorable market opportunities, a significant increase in global equity prices and a decline in volatility levels. Results in Principal Investments were also higher compared with the second quarter of 2008, and included a gain of $948 million related to our investment in the ordinary shares of Industrial and Commercial Bank of China Limited (ICBC), a gain of $343 million from corporate principal investments and a loss of $499 million from real estate principal investments.

The decline in Asset Management and Securities Services reflected significantly lower net revenues in both Asset Management and Securities Services compared with the second quarter of 2008. The decrease in Securities Services primarily reflected the impact of lower customer balances compared with the second quarter of 2008. The decrease in Asset Management principally reflected the impact of lower assets under management, due to market depreciation since the end of the second quarter of 2008. During the quarter, assets under management increased $48 billion to $819 billion, due to $42 billion of market appreciation, primarily in equity and fixed income assets, and $6 billion of net inflows.

The decline in Investment Banking reflected significantly lower net revenues in Financial Advisory, partially offset by significantly higher net revenues in Underwriting compared with the second quarter of 2008. The decrease in Financial Advisory reflected a significant decline in industry-wide completed mergers and acquisitions. The increase in Underwriting reflected significantly higher net revenues in equity underwriting, which achieved its highest quarterly performance, as well as higher net revenues in debt underwriting. The increase in equity underwriting reflected very strong client activity. The increase in debt underwriting primarily reflected higher net revenues from investment-grade and municipal activity. Our investment banking transaction backlog decreased during the quarter. (5)

Six Months Ended June 2009 versus May 2008. Our diluted earnings per common share were $8.42 for the six months ended June 26, 2009 compared with $7.81 for the six months ended May 30, 2008. Annualized ROE (1) was 18.3% for the first half of 2009. Excluding the one-time preferred dividend of $426 million related to the repurchase of our TARP preferred stock, diluted earnings per common share were $9.23 (2) and annualized ROE was 19.2% (2) for the first half of 2009.

Our results for the first half of 2009 reflected significantly higher net revenues in Trading and Principal Investments, partially offset by significantly lower net revenues in Asset Management and Securities Services, and Investment Banking. The increase in Trading and Principal Investments reflected significantly higher net revenues in FICC, which were more than double the amount in the first half of 2008, as well as higher net revenues in Equities, partially offset by weak results in Principal Investments. The increase in FICC reflected particularly strong results in credit products, interest rate products and, to a lesser extent, commodities, reflecting strength in the client franchise. In addition, results in mortgages were significantly higher compared with a difficult first half of 2008, while net revenues in currencies were solid, but lower compared with the first half of 2008. In the first half of 2009, mortgages included a loss of approximately $1.5 billion on commercial mortgage loans. During the first half of 2009, FICC operated in an environment characterized by strong client-driven activity, particularly in more liquid products, and favorable market opportunities. The increase in Equities reflected particularly strong net revenues in derivatives, as well as higher results in principal strategies. These increases were partially offset by lower net revenues in shares compared with the first half of 2008. Commissions declined compared with the first half of 2008. During the first half of 2009, Equities operated in an environment generally characterized by an increase in global equity prices (principally during our second quarter) and high, but declining, levels of volatility. In the first half of 2009, results in Principal Investments reflected net losses of $1.14 billion from real estate principal investments and $278 million from corporate principal investments, partially offset by a gain of $797 million related to our investment in the ordinary shares of ICBC.

The decline in Asset Management and Securities Services reflected significant decreases in both Asset Management and Securities Services. The decrease in Asset Management primarily reflected the impact of lower assets under management, due to market depreciation during the second half of 2008. The decrease in Securities Services primarily reflected the impact of lower customer balances.

The decline in Investment Banking primarily reflected significantly lower net revenues in Financial Advisory, due to a significant decline in industry-wide completed mergers and acquisitions. Net revenues in Underwriting were slightly lower compared with the first half of 2008, primarily due to lower net revenues in debt underwriting, reflecting a decrease in leveraged finance activity. Net revenues in equity underwriting were essentially unchanged compared with the first half of 2008.

Our business, by its nature, does not produce predictable earnings. Our results in any given period can be materially affected by conditions in global financial markets and economic conditions generally. For a further discussion of the factors that may affect our future operating results, see "Risk Factors" in

(1) Annualized return on average common shareholders' equity (ROE) is computed by dividing annualized net earnings applicable to common shareholders by average monthly common shareholders' equity. The one-time preferred dividend of $426 million related to the repurchase of our TARP preferred stock (calculated as the difference between the carrying value and the redemption value of the preferred stock) was not annualized in the calculation of annualized net earnings applicable to common shareholders since it has no impact on other quarters in the year. See "- Results of Operations - Financial Overview" below for further information regarding our calculation of ROE.

(2) We believe that presenting our results excluding the impact of the one-time preferred dividend of $426 million related to the repurchase of our TARP preferred stock is meaningful because it increases the comparability of period-to-period results. See "- Results of Operations - Financial Overview" below for further information regarding our calculation of diluted earnings per common share and ROE excluding the impact of this one-time dividend.

(3) Tangible common shareholders' equity equals total shareholders' equity less preferred stock, goodwill and identifiable intangible assets. Tangible book value per common share is computed by dividing tangible common shareholders' equity by the number of common shares outstanding, including restricted stock units granted to employees with no future service requirements. We believe that tangible common shareholders' equity is meaningful because it is one of the measures that we and investors use to assess capital adequacy. See "- Equity Capital - Capital Ratios and Metrics" below for further information regarding tangible common shareholders' equity.

(4) As a bank holding company, we are subject to consolidated regulatory capital requirements administered by the Federal Reserve Board. We are reporting our Tier 1 capital ratio calculated in accordance with the regulatory capital requirements currently applicable to bank holding companies, which are based on the Capital Accord of the Basel Committee on Banking Supervision (Basel I). The calculation of our Tier 1 capital ratio under Basel I includes certain market risk measures that are under review by the Federal Reserve Board, as part of our transition to bank holding company status. The calculation of our Tier 1 capital ratio has not been reviewed with the Federal Reserve Board and, accordingly, may be revised in subsequent filings. We also continue to disclose our Tier 1 capital ratio calculated in accordance with the capital guidelines applicable to us when we were regulated by the SEC as a Consolidated Supervised Entity (CSE). These guidelines were generally consistent with those set out in the Revised Framework for the International Convergence of Capital Measurement and Capital Standards issued by the Basel Committee on Banking Supervision (Basel II). See "- Equity Capital" below for a further discussion of our capital ratios.

(5) Our investment banking transaction backlog represents an estimate of our future net revenues from investment banking transactions where we believe that future revenue realization is more likely than not.

Global economic conditions remained weak, but showed some signs of stabilization during our second quarter of fiscal 2009. Although real gross domestic product (GDP) continued to decline in most major economies, the decline was significantly less than in the first quarter of fiscal 2009, and economic activity in a number of emerging economies improved. Global equity markets increased significantly during our second quarter, and volatility levels generally declined. In addition, corporate credit spreads tightened during our second quarter. The price of crude oil increased, but remained well below the levels reached in fiscal 2008. The U.S. dollar depreciated against the British pound, the Euro and the Japanese yen. In investment banking, industry-wide mergers and acquisitions activity remained weak, while industry-wide equity and equity-related offerings increased significantly during our second quarter, particularly in the financial sector.

In the U.S., real GDP continued to decline during our second quarter, although at a slower pace compared with our first quarter. Residential investment continued to contract due to ongoing weakness in the housing market and the rate of unemployment continued to rise at a rapid pace. However, the fiscal stimulus package contributed to an increase in government expenditure. The rate of inflation declined during our second quarter, reflecting rising excess production capacity. The U.S. Federal Reserve maintained its federal funds rate at a target range of zero to 0.25% during our second quarter. The 10-year U.S. Treasury note yield ended our second quarter 74 basis points higher at 3.52%. In equity markets, the NASDAQ Composite Index, the S&P 500 Index and the Dow Jones Industrial Average increased by 19%, 13% and 9%, respectively, during our second quarter.

In the Eurozone economies, real GDP declined during our second quarter, as business investment, exports and consumer spending remained weak. Labor markets also remained weak, with the rate of unemployment rising in the major economies. However, surveys of business and consumer confidence recovered from the very low levels during our first quarter. In response to a continued challenging economic outlook and declining inflation, the European Central Bank further lowered its main refinancing operations rate by 50 basis points to 1.00%. The Euro appreciated by 6% against the U.S. dollar. In the U.K., real GDP appeared to decline during the quarter, due to weaker consumer and business investment spending, partially offset by stronger exports. The Bank of England maintained its official bank rate at 0.50% during the quarter. After a period of sustained weakness over the previous two quarters, the British pound appreciated by 15% against the U.S. dollar. Equity markets in both the U.K. and continental Europe increased significantly during our second quarter, while long-term government bond yields increased.

In Japan, real GDP appeared to increase during our second quarter, after a significant decline in the first quarter. A recovery in exports and consumer spending more than offset continued weakness in business investment. Business confidence improved slightly but remained at low levels and the rate of unemployment continued to rise. Measures of inflation declined during the quarter. The Bank of Japan left its target overnight call rate unchanged at 0.10%, while the yield on 10-year Japanese government bonds increased slightly during the quarter. The Japanese yen appreciated by 3% against the U.S. dollar and the Nikkei 225 Index increased 14% during our second quarter.

In China, real GDP growth accelerated during our second quarter as strong domestic demand, led by high levels of consumption and fixed investment spending, helped to offset weak export demand. Measures of inflation continued to decline during the quarter. The People's Bank of China left its one-year benchmark lending rate unchanged at 5.31%. The Chinese yuan remained essentially unchanged against the U.S. dollar and the Shanghai Composite Index increased 23% during our second quarter. Equity markets in Hong Kong and Korea also ended the quarter significantly higher. In India, the pace of economic growth also accelerated due to an increase in business investment and consumer spending. The Indian rupee appreciated by 5% against the U.S. dollar during our second quarter and equity markets in India ended the quarter significantly higher.

Fair Value

The use of fair value to measure financial instruments, with related unrealized gains or losses generally recognized in "Trading and principal investments" in our condensed consolidated statements of earnings, is fundamental to our financial statements and our risk management processes and is our most critical accounting policy. The fair value of a financial instrument is the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (i.e., the exit price) in accordance with SFAS No. 157, "Fair Value Measurements." Financial assets are marked to bid prices and financial liabilities are marked to offer prices.

In October 2008, the Financial Accounting Standards Board (FASB) issued FASB Staff Position (FSP) No. FAS 157-3, "Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Active," which specifies that it is acceptable to use inputs based on management estimates or assumptions, or for management to make adjustments to observable inputs, to determine fair value when markets are not active and relevant observable inputs are not available. In April 2009, the FASB issued FSP No. FAS 157-4, "Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly," which provides additional guidance for estimating fair value when the volume and level of activity for an asset or liability have decreased significantly. Our fair value measurement policies are consistent with the guidance in both FSP No. FAS 157-3 and FSP No. FAS 157-4. See Note 2 to the condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for further information regarding FSP No. FAS 157-4.

Substantially all trading assets and trading liabilities are reflected in our condensed consolidated statements of financial condition at fair value, pursuant principally to:

• SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities;"

• specialized industry accounting for broker-dealers and investment companies;

• SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities;" or

• the fair value option under either SFAS No. 155, "Accounting for Certain Hybrid Financial Instruments - an amendment of FASB Statements No. 133 and 140," or SFAS No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities," (i.e., the fair value option).

In determining fair value, we separate our "Trading assets, at fair value" and "Trading liabilities, at fair value" into two categories: cash instruments and derivative contracts, as set forth in the following table:

                        Trading Instruments by Category
                                 (in millions)


                                                                            As of June 2009                    As of November 2008
                                                                      Trading            Trading           Trading            Trading
                                                                     Assets, at      Liabilities, at      Assets, at      Liabilities, at
                                                                     Fair Value        Fair Value         Fair Value        Fair Value
Cash trading instruments                                           $ 244,617         $    77,819        $ 186,231         $    57,143
ICBC                                                                   6,269  (1)              -            5,496  (1)              -
SMFG                                                                   1,330               1,327  (4)       1,135               1,134  (4)
Other principal investments                                           13,009  (2)              -           15,126  (2)              -
. . .