This summary is based on the fourth quarter fiscal 2007 earnings call conducted by Goldman Sachs Group Inc. (GS: chart) on December 18, 2007.

Executive Vice President and Chief Financial Officer: David A. Viniar
Director of Investor Relations: Dane Holmes

Key Investors Issues

- Earnings per share increased to $7.01 as against $6.59 in the previous year quarter.
- Quarterly revenue rose from $10.2 billion in last year to $10.7 billion.
- For fiscal 2007, the net earnings were $11.6 billion, on net revenue of $46 billion.

Fourth Quarter Fiscal 2007 Financial Highlights

For the fourth quarter, net revenues were $10.7 billion, net earnings were $3.2 billion, and earnings per diluted share were $7.01. The record results in 2007 were not driven by the outperformance of any individual business, but rather by the cumulative impact of record performances across each of the company’s businesses.

Compensation and benefits expense in the quarter was $3.3 billion. This results in a full year compensation to net revenue ratio of 43.9%. Non-compensation expenses were $2.4 billion in the fourth quarter, up 12% sequentially. This increase was primarily due to market development and occupancy costs, as the firm continues to expand its global footprint. Occupancy costs included $128 million of exit costs related to the firm’s office space.

Headcount at the end of the fourth quarter was approximately 30,500 up 15% over 2006 and 2% from the third quarter.

During the quarter, the firm repurchased 11.6 million shares for approximately $2.7 billion. The firm currently has approximately 71 million shares remaining under its existing authorization. This includes 60 million shares of an increased authorization recently approved by the board.

Performance Analysis of Business Segments

Investment Banking

The segment posted its second best quarter with net revenues of $2 billion, down 8% from the record third quarter.

The fourth quarter advisory revenues were $1.2 billion, down 12% from the record third quarter. Goldman Sachs once again ranked first in announced M&A globally for calendar 2007 through November. The firm advised on a number of important transactions that closed in the fourth quarter, including the €72.1 billion sale of ABN Amro to a consortium led by Royal Bank of Scotland; Norsk Hydro’s $32 billion sale to Statoil and TransOcean’s $17.4 billion acquisition of Global Santa Fe. The firm was also advisor in a number of significant announced transactions, including Commerce Bank Corp’s $8.6 billion sale to Toronto Dominion Bank, ICBC’s $5.6 billion acquisition of a 20% stake in South Africa’s Standard Bank, and Abu Dhabi National Energy’s $4.6 billion acquisition of PrimeWest Energy Trust.

The underwriting net revenues were $733 million, unchanged from the third quarter as equity underwriting revenues grew 14% to $403 million and debt underwriting declined 13% to $330 million. While global equity markets revolved over much of the quarter, the strength in equity underwriting was driven by a robust and diversified portfolio of transactions. Debt underwriting revenues declined given continued dislocation in leverage finance markets. During the fourth quarter, Goldman Sachs participated in many noteworthy underwriting transactions, including Bovespa’s $3.7 billion IPO, NearStar’s $2.5 billion IPO and Freddie Mac’s $6 billion preferred share offer.

While the management cannot predict the environment for Investment Banking in 2008, the current level of strategic dialogue with its clients remains high. However, continued capital market dislocation and concerns about the broader economic environment, could impact the pace of Investment Banking business in 2008. Underwriting activity has remained robust as global equity assurances offset recent weakness in leverage finance markets. The backlog declined during the fourth quarter, but remains higher than year end 2006 levels and is well diversified by both geography and sector.

Trading and Principal Investments

The segment comprises of FICC, Equities and Principal Investments. Net revenues were $6.9 billion in the fourth quarter, down 16% from the third quarter.

FICC quarterly net revenues of $3.3 billion were down 32% from the record third quarter. The operating environment for FICC was less favorable for much of the fourth quarter due to lower levels of client activity, particularly in the month of November. Wider credit spreads, heightened volatility, and reduced market liquidity kept many market participants on the sidelines. Credit revenues decreased sequentially as gains on certain equity investments. The sequential decline was reduced by gains of approximately $500 million related to the leverage finance business in the fourth quarter. Commodities net revenues were up sequentially, driven largely by approximately $800 million in gains associated with the partial sale of the Cogentrix Power Plant portfolio. Currencies, rates and mortgages continued to be solid, though down from the record third quarter.

In Equities, net revenues for the fourth quarter were $2.6 billion, down 17%, reflecting declines in both principal activities and customer franchise compared to a record third quarter. Equities commissions were down 7% from the record third quarter to $1.2 billion. The average daily value at risk in the fourth quarter was $151 million, compared to $139 million for the third quarter. The increase in VAR was driven by higher volatility across mortgage and equity markets.

Principal Investments produced net revenues of $1 billion in the fourth quarter. The investment in ICBC produced $163 million gain and the firm generated $838 million in gains and overrides from a diverse portfolio of corporate real estate Principal Investments.