This is a summary of the third quarter fiscal 2007 earnings call conducted by Goldman Sachs Group, Inc. (GS: chart) on September 20th, 2007.

Management:
IR: Samuel Robinson
CFO: David Viniar

Key Investor Issues

- Net revenues were $12.3 billion, the company’s second-highest result ever.
- Net earnings were $2.9 billion and earnings per diluted share were $6.13.
- Return on tangible equity was 36.6% and return on common equity was 31.6%.

Investment banking produced record net revenues of $2.1 billion in the quarter.

Third quarter advisory revenues were a record $1.4 billion, nearly double last quarter''s performance. These results, which were 64% better than the previous record, reflect contributions from a significant number of deals that closed during the quarter. These included:
- the Bank of New York''s $16 billion merger with Mellon Financial;
- Kinder Morgan''s $27 billion management-led buyout;
- and Metamune’s $15 billion acquisition by AstraZeneca.

Goldman Sachs is also advisor on a number of important announced transactions, including BlackStone''s $27 billion acquisition of Hilton Hotels, Siemens Automotive''s EUR 11 billion acquisition by Continental and AG Edwards $7 billion acquisition by Wachovia. Goldman Sachs again retained its leadership in mergers, ranking first in global announced M&A for the calendar year-to-date.

Underwriting revenues were $733 million, 28% below the record second quarter.

- Equity underwriting revenues were $355 million, down 1% on a sequential basis while debt underwriting revenues fell 42% from the record second quarter to $378 million.
- Equity financing activity remained active throughout most of the third quarter. The significant decline in debt underwriting is mainly attributable to the dislocation in the leveraged finance markets.

During the quarter, the company participated in a number of significant transactions including the $4.6 billion equity issuance by ICICI, one of India''s largest banks; Schering Plough''s combination financing of $2.5 billion of convertible preferred and $1.6 billion of common equity; and Apollo''s $900 million 144-A offering, the second offering on GS True Platform.

Investment Banking backlog declined from the record second quarter, but remains higher than year-end 2006 levels.

Assuming that global economic growth does not dramatically slow, the management remains optimistic about the outlook for Investment Banking.

Net revenues in trading and principal investments segment were $8.2 billion in the third quarter, up 24% from the second quarter.

- FICC net revenues were a record $4.9 billion, 45% above the second quarter.
- Currencies, rates and mortgages all had record quarters and although not a record, commodities revenues were also strong and up sequentially.

Currencies, rates and commodities all benefited from higher volatility, strong price trends and increased customer activity.

The credit business produced solid results and benefited from considerable customer flow driven by high volatility and uncertainty. In addition, credit recorded substantial gains from equity investments including a gain of approximately $900 million related to the disposition of Horizon Wind. Credit also included a loss of $1.7 billion net of fees, $1.5 million net of fees and hedges, related to leverage lending activities.

Recent conditions in the leveraged loan market have made it difficult to execute many non-investment grade funding transactions, including many that Goldman Sachs is committed to finance. As an investment bank, the company uses fair value accounting and therefore losses on lending commitments and funded loans are included in each quarter''s results. Whether a commitment is funded or not is irrelevant to its impact on P&L.

The mortgage sector continues to be challenged and there was a broad decline in the value of mortgage inventory during the quarter.

As a result, the company took significant markdowns on its long inventory positions during the quarter as the company had in the previous two quarters. However, the risk bias in that market was to be short and that net short position was profitable.

There has been much speculation and commentary that it is impossible to mark many mortgage positions to market. The management believes that not only is it possible, it is absolutely essential for market participants to understand the value of what they hold so they can manage the associated risks. While it is certainly more challenging to value many of these positions because of the current lack of liquidity, there is in fact a significant amount of evidence available.