Introduction 82

Executive Overview 84

Business Environment 87

Critical Accounting Policies 88

Fair Value 88

Goodwill and Identifiable Intangible Assets 96

Use of Estimates 98

Results of Operations 98

Financial Overview 99

Segment Operating Results 104

Geographic Data 111

Off-Balance-Sheet Arrangements 112

Equity Capital 113

Contractual Obligations 118

Market Risk 120

Credit Risk 125

Derivatives 126

Liquidity and Funding Risk 130

Recent Accounting Developments 137

Cautionary Statement Pursuant to the U.S. Private Securities Litigation Reform Act of 1995 138

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 in the fourth quarter of 2009. Fiscal 2009 began on December 27, 2008 and will end on December 31, 2009.

In "Results of Operations" below, we compare the three and nine month periods, as applicable, ended September 25, 2009 with the previously reported three and nine month periods ended August 29, 2008. Financial information for the three and nine months ended September 26, 2008 has not been included in this Form 10-Q for the following reasons: (i) the three and nine months ended August 29, 2008 provide a meaningful comparison for the three and nine months ended September 25, 2009; (ii) there are no significant factors, seasonal or other, that would impact the comparability of information if the results for the three and nine months ended September 26, 2008 were presented in lieu of results for the three and nine months ended August 29, 2008; and (iii) it was not practicable or cost justified to prepare this information.

All references to September 2009 and August 2008, unless specifically stated otherwise, refer to our fiscal periods ended, or the dates, as the context requires, September 25, 2009 and August 29, 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 September 2009 versus August 2008. Our diluted earnings per common share were $5.25 for the third quarter ended September 25, 2009 compared with $1.81 for the third quarter ended August 29, 2008. Annualized return on average common shareholders' equity (ROE) (1) was 21.4% for the third quarter of 2009. During the quarter, book value per common share increased 4% to $110.75 and tangible book value per common share increased 5% to $101.39. On July 22, 2009, we repurchased in full from the U.S. Department of the Treasury (U.S. Treasury) the warrant to purchase 12.2 million shares of common stock that was issued to the U.S. Treasury pursuant to its TARP Capital Purchase Program. The purchase price paid to the U.S. Treasury for this warrant was $1.1 billion and was recorded as a reduction to common shareholders' equity. Excluding this repurchase, book value and tangible book value per common share (2) increased 6% and 7%, respectively, during the quarter.

Our Tier 1 capital ratio under Basel I (3) was 14.5% at the end of the third quarter of 2009, up from 13.8% at the end of the second quarter of 2009. Our Tier 1 common ratio (3) under Basel I was 11.6% at the end of the third quarter of 2009, up from 10.9% at the end of the second quarter of 2009.

Our results for the third quarter of 2009 reflected significantly higher net revenues in Trading and Principal Investments. The increase in Trading and Principal Investments reflected strong results in Fixed Income, Currency and Commodities (FICC), Equities and Principal Investments, which were each significantly higher compared with a very weak third quarter of 2008. The increase in FICC reflected strong performances in credit products and mortgages, which were significantly higher compared with a difficult third quarter of 2008. Net revenues in interest rate products were also strong and significantly higher compared with the third quarter of 2008, while net revenues in commodities and currencies were lower compared with the same prior year period. During the quarter, FICC operated in an environment characterized by solid client activity levels, tighter credit spreads and a general improvement in asset values. The increase in Equities reflected strong net revenues in derivatives, which were significantly higher compared with the third quarter of 2008, as well as a solid performance in shares. In addition, net revenues in principal strategies improved significantly compared with a difficult third quarter of 2008. Commissions declined compared with the third quarter of 2008. During the quarter, Equities operated in an environment generally characterized by a significant increase in global equity prices, favorable market opportunities and a decline in volatility levels. Results in Principal Investments included a gain of $977 million from corporate principal investments, a gain of $344 million related to our investment in the ordinary shares of Industrial and Commercial Bank of China Limited (ICBC) and a loss of $66 million from real estate principal investments.

Net revenues in Asset Management and Securities Services declined significantly compared with the third quarter of 2008, due to significantly lower net revenues in Securities Services, as well as lower net revenues in Asset Management. The decrease in Securities Services primarily reflected the impact of lower customer balances. The decrease in Asset Management primarily reflected the impact of changes in the composition of assets managed.

Net revenues in Investment Banking declined significantly compared with the third quarter of 2008, reflecting significantly lower net revenues in Financial Advisory, as well as lower net revenues in Underwriting. The decrease in Financial Advisory primarily reflected a significant decline in industry-wide completed mergers and acquisitions. The decrease in Underwriting was due to significantly lower net revenues in debt underwriting, partially offset by higher net revenues in equity underwriting. The decrease in debt underwriting primarily reflected a decline in net revenues from leveraged loans. The increase in equity underwriting primarily reflected an increase in industry-wide initial public offerings. Our investment banking transaction backlog increased significantly during the quarter. (4)

Nine Months Ended September 2009 versus August 2008. Our diluted earnings per common share were $13.74 for the nine months ended September 25, 2009 compared with $9.62 for the nine months ended August 29, 2008. Annualized ROE (1) was 19.2% for the first nine months of 2009.

Our results for the first nine months of 2009 reflected significantly higher net revenues in Trading and Principal Investments. The increase in Trading and Principal Investments reflected significantly higher net revenues in FICC, which were more than double the amount in the first nine months of 2008, as well as significantly higher net revenues in Equities. Results in Principal Investments were also significantly higher compared with a difficult first nine months of 2008. The increase in FICC reflected particularly strong performances in credit products, mortgages and interest rate products, which were each significantly higher compared with the first nine months of 2008. During the first nine months of 2009, mortgages included a loss of approximately $1.6 billion on commercial mortgage loans. Net revenues in commodities were strong and higher compared with the first nine months of 2008. Net revenues in currencies were solid, but lower compared with the first nine months of 2008. During the first nine months of 2009, FICC operated in a generally favorable environment characterized by strong client-driven activity, particularly in more liquid products. In addition, during our second and third quarters of 2009, asset values generally improved and corporate credit spreads tightened. The increase in Equities reflected particularly strong net revenues in derivatives, which were significantly higher compared with the first nine months of 2008. In addition, net revenues in principal strategies improved significantly compared with a difficult first nine months of 2008. Net revenues in shares were solid, but essentially unchanged compared with the first nine months of 2008. Commissions declined significantly compared with the first nine months of 2008. During the first nine months of 2009, Equities operated in an environment characterized by a significant increase in global equity prices, favorable market opportunities and a significant decline in volatility levels. In the first nine months of 2009, results in Principal Investments included a gain of $1.14 billion related to our investment in the ordinary shares of ICBC, a gain of $699 million from corporate principal investments and a loss of $1.21 billion from real estate principal investments.

Net revenues in Asset Management and Securities Services decreased significantly compared with the first nine months of 2008, reflecting significantly lower net revenues in both Securities Services and Asset Management. The decrease in Securities Services primarily reflected the impact of lower customer balances. The decrease in Asset Management primarily reflected the impact of changes in the composition of assets managed.

Net revenues in Investment Banking decreased significantly compared with the first nine months of 2008, reflecting significantly lower net revenues in Financial Advisory, as well as lower net revenues in Underwriting. The decrease in Financial Advisory reflected a significant decline in industry-wide completed mergers and acquisitions. The decrease in Underwriting reflected significantly lower net revenues in debt underwriting, partially offset by higher net revenues in equity underwriting. The decrease in debt underwriting was primarily due to a decline in net revenues from leveraged loans.

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 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 the TARP Series H preferred stock (calculated as the difference between the carrying value and the redemption value of the preferred stock) in the second quarter of 2009 was not annualized in the calculation of annualized net earnings applicable to common shareholders for the nine months ended September 2009 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) 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 (RSUs) 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. In addition, we believe that presenting the change in book value and tangible book value per common share excluding the one-time impact of the repurchase of our TARP warrant provides a meaningful period-to-period comparison of these measures.

The following table sets forth the reconciliation of total shareholders' equity to tangible common shareholders' equity:

                                                                           As of September 2009
                                                                              Add back:            Excluding
                                                                              impact of            impact of
                                                               As           TARP warrant          TARP warrant
                                                            reported         repurchase            repurchase
                                                                               (in millions)
Total shareholders' equity                                 $ 65,354         $     1,100           $   66,454
Deduct:     Preferred stock                                  (6,957 )                 -               (6,957 )

Common shareholders' equity                                  58,397               1,100               59,497
Deduct:     Goodwill and identifiable intangible assets      (4,934 )                 -               (4,934 )

Tangible common shareholders' equity                       $ 53,463         $     1,100           $   54,563

(3) As a bank holding company, we are subject to consolidated regulatory capital requirements administered by the Federal Reserve Board. We are reporting our capital ratios 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 Tier 1 capital ratio equals Tier 1 capital divided by total risk-weighted assets. The Tier 1 common ratio equals Tier 1 capital less preferred stock and junior subordinated debt issued to trusts, divided by risk-weighted assets. See "- Equity Capital - Capital Ratios and Metrics" below for further information regarding our capital ratios.

(4) 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 generally improved during our third quarter of fiscal 2009 as real gross domestic product (GDP) increased in most economies. Most global equity markets increased significantly during our third quarter and volatility levels across fixed income and equity markets generally declined. In addition, corporate and mortgage credit spreads tightened during our third quarter. The U.S. dollar depreciated against the Euro and the Japanese yen, but appreciated against the British pound. In investment banking, industry-wide mergers and acquisitions activity remained weak. Industry-wide equity and equity-related offerings declined during our third quarter as the second quarter included significant activity in the financial sector. However, industry-wide initial public offerings increased during our third quarter.

In the U.S., real GDP increased during our third quarter. A slowing in the pace of inventory liquidation, an increase in residential construction and continued fiscal stimulus helped support economic growth. However, unemployment levels continued to rise, although at a slower pace compared with the first half of the year. Measures of core inflation continued to decline during our third quarter, reflecting significant excess production capacity. The U.S. Federal Reserve maintained its federal funds rate at a target range of zero to 0.25% during our third quarter. The 10-year U.S. Treasury note yield ended our third quarter 18 basis points lower at 3.34%. In equity markets, the Dow Jones Industrial Average increased by 15% and the NASDAQ Composite Index and the S&P 500 Index each increased by 14% during our third quarter.

In the Eurozone economies, real GDP appeared to increase during our third quarter due to a slowing in the pace of inventory liquidation and an improvement in industrial output. In addition, surveys of business and consumer confidence continued to improve. The rate of inflation declined during our third quarter. The European Central Bank kept its main refinancing operations rate at 1.00% and the Euro appreciated by 4% against the U.S. dollar. In the U.K., economic conditions also appeared to improve during our third quarter, partially due to stronger exports. The Bank of England maintained its official bank rate at 0.50% during the quarter and the British pound depreciated by 4% against the U.S. dollar. Equity markets in both the U.K. and continental Europe increased significantly, while long-term government bond yields decreased during our third quarter.

In Japan, real GDP appeared to increase during our third quarter. Growth was driven by strong public sector investment spending and an increase in exports, partially offset by continued weak capital investment spending. Consumer spending increased slightly despite an increase in unemployment and declining average wages. Measures of inflation continued to decline. The Bank of Japan left its target overnight call rate unchanged at 0.10%, while the yield on 10-year Japanese government bonds decreased during the quarter. The Japanese yen appreciated by 6% against the U.S. dollar and the Nikkei 225 Index increased 4% during our third quarter.

In China, real GDP growth remained strong during our third quarter. Growth was driven by strong consumption and fixed investment spending, partially due to rapid credit growth. 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 decreased 3% during our third quarter. Equity markets in Hong Kong and Korea ended the quarter significantly higher. In India, economic growth remained solid, supported by solid business investment and consumer spending. The Indian rupee appreciated slightly against the U.S. dollar during our third quarter and equity markets in India ended the quarter significantly higher.

Fair Value

The use of fair value to measure financial instruments, with related 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). Financial assets are marked to bid prices and financial liabilities are marked to offer prices. Fair value measurements do not include transaction costs.

Substantially all trading assets and trading liabilities are reflected in our condensed consolidated statements of financial condition at fair value. 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 September 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                                           $ 241,752         $    85,252        $ 186,231         $    57,143
ICBC                                                                   6,875  (1)              -            5,496  (1)              -
SMFG                                                                   1,091               1,091  (4)       1,135               1,134  (4)
Other principal investments                                           14,205  (2)              -           15,126  (2)              -

Principal investments                                                 22,171               1,091           21,757               1,134

Cash instruments                                                     263,923              86,343          207,988              58,277
Exchange-traded                                                        5,336               3,147            6,164               8,347
Over-the-counter                                                      82,931              60,893          124,173             109,348

Derivative contracts                                                  88,267  (3)         64,040  (5)     130,337  (3)        117,695  (5)

Total                                                              $ 352,190         $   150,383        $ 338,325         $   175,972

(1) Includes interests of $4.35 billion and $3.48 billion as of September 2009 and November 2008, respectively, held by investment funds managed by Goldman Sachs. The fair value of our investment in the ordinary shares of ICBC, which trade on The Stock Exchange of Hong Kong, includes the effect of foreign exchange revaluation for which we maintain an economic currency hedge.

(2) The following table sets forth the principal investments (in addition to our investments in ICBC and Sumitomo Mitsui Financial Group, Inc. (SMFG)) included within the Principal Investments component of our Trading and Principal Investments segment:

                         As of September 2009                       As of November 2008
                Corporate     Real Estate      Total       Corporate     Real Estate      Total
                                                  (in millions)

     Private    $ 10,283      $    1,703     $ 11,986      $ 10,726      $    2,935     $ 13,661
     Public        2,170              49        2,219         1,436              29        1,465

     Total      $ 12,453      $    1,752     $ 14,205      $ 12,162      $    2,964     $ 15,126

(3) Net of cash received pursuant to credit support agreements of $126.82 billion and $137.16 billion as of September 2009 and November 2008, respectively.

(4) Represents an economic hedge on the shares of common stock underlying our investment in the convertible preferred stock of SMFG.

(5) Net of cash paid pursuant to credit support agreements of $16.83 billion . . .