regulation and accounting - changing landscape credit markets (may 2010)

For Professional Investors only

GS Credit Structuring Prepared for UCI

For Discussion Purposes Only

GS Credit Structuring

Goldman Sachs does not represent that this information is accurate or complete, and it should not be relied upon as such. We are not soliciting any action based upon it.

Regulation and Accounting: Changing Landscape

This is not research and is not intended as such. This has been prepared by

individuals on the sales/trading desks of the Securities Division. This material

does not represent a formal or official view of Goldman Sachs as the views

expressed herein are solely those of the author(s), which may differ from those of

Global Investment Research

All information and ideas within is based on current advice from consultation papers and proposed

banking regulation framework changes which have not been finalized, hence the analysis within is

subject to change and may be different to what the final advice is

Strictly Private and Confidential No disclosure may be made to third parties regarding any information disclosed in this

presentation without the prior permission of Goldman Sachs

May 2010

For Professional Investors Only

Not for Onward Distribution





Goldman Sachs does not represent that this information is accurate or complete, and it should not be relied upon as such. We are not soliciting any action based upon it. You should consult your own accounting, tax, investment and legal advisors before investing. GS is acting as an arm’s-length contractual counterparty and not as an advisor or fiduciary.

1 1 1

EXECUTIVE SUMMARY

BANKING REGULATION CHANGES

Legislative Environment

Current Regulatory Framework

Banking Regulation Overview

Liability Side Impact

Asset Side Impact

ACCOUNTING CHANGES

Accounting Considerations

Impact of Accounting Regulation

IMPLEMENTATION TIMELINE

APPENDIX

State of the Market

Proposed Changes to Basel II Framework

Source Documents

I

III

IV

II

Table of Contents

V






I- Executive Summary






3 3

Executive Summary

In the wake of the financial crisis, the banking industry finds itself in a state of unprecedented change, with regulatory overhaul at

almost every level of the financial system

In an attempt to reduce the likelihood of future bailouts, regulators are pressing for significant reform, particularly as it relates

to bank capital, liquidity management, accounting and disclosure. These changes are likely to have a lasting and profound

impact on the banking industry

Proposed reforms by the Basel Committee will likely lead to increased risk weights on the asset side and higher-quality

capital on the liability side

Simultaneously, regulators are working on harmonizing capital requirements for European insurers through the introduction of

Solvency II

Potential future accounting changes may simplify classification and measurement, but may lead to increased P&L and balance

sheet volatility going forward as some assets no longer qualify for Available for Sale and Amortized Cost treatment

Since the proposed regulatory changes define capital instruments more strictly (i.e. innovative Tier 1 capital is being phased

out), banks will more likely focus on the risk weighted asset (RWA) side to optimize their capital ratios

Given the surge in asset prices brought about by improving market sentiment and support from government programs, banks

and insurers may seek to reduce exposures to asset classes that have a comparatively less favorable capital and accounting

treatment

Additionally, some price support for these assets may seize as government programs are being phased out

Impending regulatory and accounting changes create significant uncertainty regarding the future efficiency of holding certain

existing portfolios. As a result, banks and insurers may change their investment / divestment behavior with potentially

significant knock-on effects across asset markets

Executive Summary

Potential

Impacts

Changes in the

Regulatory

Environment






II- Banking Regulation Changes






5 5

Banking Regulation Changes Legislative Environment

Bank Regulatory Framework

Goldman Sachs does not provide tax, accounting, regulatory or legal advice to our clients Investors are advised to consult with their tax, accounting, or legal advisers regarding any potential investment

US Regulatory Framework European Regulatory Framework

Basel Committee on Banking Supervision (BCBS)

Revisions to the Basel II market risk

framework

Enhancements to the Basel II

framework

Strengthening the resilience of the

banking sector

International framework for liquidity risk

measurement, standards and monitoring

December 31, 2010 December 31, 2010 December 31, 2012 December 31, 2012

Current Situation

European banks currently report under Basel II

In the European Union, Basel II is implemented through the Capital

Requirements Directive (CRD)

While the CRD is not binding on EU banks, European supervisors

such as the Financial Services Authority (FSA) in the UK are

required to implement the rules in their jurisdiction

Changes to the CRD must be voted on by the European Parliament

Status of the Proposals

Impact studies currently underway by the European Commission and

the Committee of European Banking Supervisors (CEBS)

Vote on the directives implementing the 2010 changes are expected

later this year

Current Situation

US banks currently under Basel I

Most core banks (total assets of greater than USD 250bn and least

USD 10bn of on-balance sheet foreign exposures) are currently in the

process of transitioning to Basel II (parallel run with Basel I

requirements still binding)

Core banks must start a three-year transition period no later than April

1, 2011 (a floor based on the Basel I charge applies)

To modify existing rules, the Federal Reserve issues an Advance

Notice of Proposed Rule Making (ANPR), which is followed by a

comment period. Vote by Congress is not required for implementation

Status of the Proposals

ANPR has not yet been released

BCBS only issues recommendations on banking laws and regulations. It is up to individual countries to transform these into law.






6

Banking Book Capital Requirement = Notional x Risk Weight (RW) x 8%

6

Capital held against the risk of entity-

specific losses on positions (credit and

equities) held in the banking book

Banking Regulation Changes Current Regulatory Framework I

Evolution of Banking Book Capital Requirements


Asset Class RW

Corporate 100%

Bank 20%

OECD Sovereign 0%

Ba

se

l I

Bas

el II

*

Bas

el II

I

Rating Corporates Securitizations

AAA – AA 20% 20%

A 50% 50%

BBB 100% 100%

BB 100% 350%

B and below 150% Deduct

Total Capital

Credit Risk (Banking Book) Market Risk (mostly Trading Book) Operational Risk + +

Risk of losses arising from movements in

market prices of positions held in the

trading book

Capital held against the risk of loss from

failed internal processes, people,

systems, or external events

Basel proposals increase RWs in the banking book:

July proposals (effective December 31, 2010):

Resecuritization RWs captured separately from

securitization RWs (up to 200% increase)

December proposals (effective Dec 31, 2012):

Greater charges for financial exposures

Potentially higher probabilities of default for

Internal Ratings-Based (IRB) banks

Stricter definitions of the capital base

Supplementary risk measures addressing

leverage and liquidity * Sample charges under Basel II for a Standardized bank






7

Trading Book Capital Requirement (Interest Rate, Equity, FX and Commodities Risk)

7

Banking Regulation Changes Current Regulatory Framework II

Evolution of Trading Book Capital Requirements


Basel I*

Basel II*

Basel III

Credit Risk (Banking Book) Market Risk (mostly Trading Book) Operational Risk + +

The July proposal revamps the Market Risk Framework:

Introduction of a stressed VaR requirement:

CapitalGMR = Max[ VaRt-1, mc • VaRavg(60) ]

+ Max[ sVaRt-1, ms • sVaRavg(60) ] where 3 ≤ mc, ms ≤ 4

Expand Incremental Risk Charge to capture migration risk in addition to

default risk, now at a 1-year 99.9th percentile risk horizon

Substitute a more capital-intensive Comprehensive Risk Charge for the

Incremental Risk Charge for correlation trading positions (floor applies)

Substitute the banking book risk charges for the Specific Risk charge for

securitization exposures, which are not correlation trading positions

* Capital requirements for a bank computing market risk charges under the Internal Models Approach

The Basel II market risk framework remains unchanged from Basel I:

General market risk: risk due to changes in broad market

parameters

CapitalGMR = Max[ VaRt-1, m • VaRavg(60) ] where 3 ≤ m ≤ 4

Specific risk: risk specific to the issuer of the security

CapitalSR = Specific risk captured in VaR model +

Incremental Risk Charge capturing default risk (estimate of

10-day 99th percentile risk)

Po

sit

ion

Ris

k

Co

un

terp

art

y R

isk

The capital charge is calculated as in the banking book using:

PD and LGD: as modelled in the banking book

Exposure at Default (EAD): the bank models an Expected

Effective Expected Positive Exposure (Effective EPE) of the

derivative and multiplies it by the scaling factor Alpha (α ≥ 1.2) to

adjust for correlation, wrong-way risk, etc.

The December proposal increases capital held for counterparty risk:

The Effective EPE becomes the higher of the currently calculated value

and a value based on data from a period of stress, and the floor on the

scaling factor is increased (α ≥ 1.4)

An additional capital charge to address CVA risk is incorporated

More onerous modelling (longer holding period) for large netting sets






8 8

Banking Regulation Changes ‟Basel III‟ Likely to Affect Composition of Both Assets and Liabilities


Trading book assets now also subject to a

stressed value-at-risk (VaR) capital charge

Additional charges for counterparty risk also

apply to derivatives not cleared centrally

Punitive specific risk charges apply to illiquid

securitization positions held in the trading book

Correlation trading positions are carved out but a

more involved Comprehensive Risk Charge

replaces the Incremental Risk Charge

Increased holdings of highly liquid securities to

comply with the Liquidity Coverage Ratio

Capital charges for resecuritizations increase

Higher capital charges for financial exposures in

the banking book as correlation assumptions

increase by a factor of 1.25

Discussion of higher, stressed probabilities of

default (PDs) may lead to increased risk weights

(RWs) for banking book assets

Key Changes on the Asset / RWA Side Key Changes on the Liability / Capital Side

The Net Stable Funding Ratio and

requirements for increased liquidity

monitoring imply a greater focus on

the debt maturity term structure

The capital proposals aim to improve

the quality, consistency and

transparency of the capital base by

simplifying and harmonizing the rules

Tier 3 capital is abolished

Tier 2 or gone concern capital is

harmonized (subordinated with

original maturity of at least 5 years)

Innovative capital is abolished, and

Tier 1s must have non-cumulative,

deferrable distributions

Paid in capital plus retained earnings

become the predominant form of

Tier 1. Regulatory adjustments to be

taken from Core Tier 1

In addition to the Core Tier 1, Tier 1 and Tier 2 ratios of X%, Y% and Z% (still to be calibrated), a non-risk based leverage measure will apply

Increased disclosure requirements mandated on both the asset side (securitization positions) and the liability side (capital calculations)

Core Tier 1

(X%)

Tier 1

(Y%)

Tier 2

(Z%)

Tier 3

Senior Debt

Other Banking

Book Assets

Financial

Exposures

Ban

kin

g B

oo

k

Tra

din

g B

oo

k

Trading Book

Assets

Securitization

Exposures

Securitization

Exposures

Highly Liquid

Securities

Not to scale

Cap

ital

Deb

t

Source: Goldman Sachs






9 9

The proposed capital rules call for a series of regulatory

deductions from Core Tier 1 capital that are meant to

ensure that this type of capital is truly loss-absorbing

These changes will likely have a large effect on reported

Core Tier 1 ratios

The key drivers include

Deduction of insurance subsidiaries: investments

in financial institutions outside the scope of regulatory

consolidation are deducted from Core Tier 1

Minority interest: minority interests are eligible for

inclusion in Tier 1 but not Core Tier 1 capital

Deferred tax assets: deferred tax assets are not

recognized as capital as their realization relies on the

future profitability of the bank

Unrealized available-for-sale losses: unrealized

accounting losses can no longer be added back for

regulatory capital purposes (only relevant for

countries that currently neutralize unrealized

accounting losses under AFS – e.g. UK, France,

Netherlands, Sweden, Norway, etc.)

Issuance of common shares likely as reported Core Tier

1 ratios fall

UK

Nordic

Benelux

Germany France

Spain Italy

(3.0)% (1.6)%

(2.0)% (0.6)%

(0.9)% (0.2)%

(4.8)%

(1.4)%

(3.7)%

(1.3)%

(1.9)% (1.2)%

(0.9)% (0.1)%

Median Impact on Core Tier 1

Median Impact on Total Capital

Core Tier 1 and Total Capital Changes


Source: Goldman Sachs. Estimated capital impact for sample of European banks

Austria

(3.0)%

(0.5)%

Banking Regulation Changes Liability Side Impact I






10 10

In addition, there is increased focus on term-matched

funding of assets, potentially requiring banks to extend

their debt maturity profile

Initial analysis suggests that issuance of EUR 1.7tr will

be required to reach a NSF Ratio of 100% across

banks in Europe alone (assuming asset composition

remains unchanged)

UK

Nordic

Benelux

Austria/

Germany France

Spain Italy

Banking Regulation Changes Liability Side Impact II

83%

Median NSF Ratio Estimate

Net Stable Funding Factor


Source: Goldman Sachs. NSF Factor estimates for a sample of European banks

76%

75%

95%

85% 91%

85%

Available Stable

Funding (ASF)

Required Stable Funding

(RSF)

ASF Factor of 100%

- Capital (Tier 1 and Tier 2)

- Preferred shares

- Liabilities with effective

maturities greater than one

year

The portion of deposits

that could be expected to

remain with the bank for

one year

100% for loans and long-term

assets

85% for loans to retail clients

with a residual maturity of less

than one year

50% for listed equities, gold,

liquid corporate bonds rated A-

or better with a remaining

maturity of more than one year

20% for highly liquid corporate

bonds rated AA or better

5% for bonds of sovereigns or

equivalent

0% for cash and securities with

a maturity of less than one year






11 11

Risk weights for a wide variety of assets held in both the banking and the trading book will see increases under the Basel III proposals1

Trading books will require significantly more capital:

Trading positions will now attract an additional stressed VaR charge

Additionally, debt instruments are subject to more stringent issuer-specific risk charges

The most punitive impact is expected for structured credit products (in particular those held in the trading book):

Securitization positions will attract specific risk charges equal to those in the banking book (unless they qualify for the correlation carve-out)

The large impact is partially a result of the limited benefit that is given for positional netting (exposures must offset exactly)

1 Indicative only. Exact impact will depend on particular models and approaches used. Analysis assumes trading portfolios contain some economically offsetting positions 2 Separate counterparty risk charges apply both for CDS exposures in the trading book and in the banking book

Banking Book (Internal Ratings-Based) Trading Book (Internal Models Approach)

Portfolio Impact Key Drivers Impact Key Drivers

(%age change in capital requirement) (%age change in capital requirement)

Senior Financial Debt 15-30% Increase in correlation assumptions 100-200% Stressed VaR and Incremental Risk Charge

Senior Corporate Debt TBD Possible effect due to use of stressed PDs 100-200% Stressed VaR and Incremental Risk Charge

Negative Basis Package2 0% Credit Risk Mitigation still applies [50-150%] Stressed VaR applies

Liquid Synthetic CDOs 0% No changes to securitizations (under review) [250-500%] Comprehensive risk charge and floor may apply

RMBS Portfolio 0% No changes to securitizations [Up to 1,500%] Standardized securitization charge applies

CDO of RMBS 10-200% Increase in RWAs for resecuritizations [Up to 1,700%] Standardized resecuritization charge applies

Indicative Impact Assessment for Credit Assets

Banking Regulation Changes Asset Side Impact








III- Accounting Changes






13 13

Accounting Changes Overview of Proposed Changes to IAS 39

1 Other Comprehensive Income 2 The business model is to collect cash flows rather than sell the instruments prior to maturity to realise fair value

The IASB is in the process of introducing changes to Financial Instruments accounting guidance. The process to replace IAS 39 has been split into:

Phase I: Classification and Measurement (IFRS 9)

Phase II: Impairment Methodology – Move from incurred loss to expected loss framework

Phase III: Hedge Accounting

IFRS 9: Financial Instruments has been released for optional adoption by IFRS filers for 2009 and onwards, with mandatory adoption in 2013

The EU has not yet endorsed IFRS 9. EU companies are able to apply IFRS 9 only if / when endorsement happens.

Proposed Changes Current Classifications

Measu

rem

en

t C

lassif

icati

on

C

rite

ria

Sourc

e: G

old

man S

achs

Measu

rem

en

t C

lassif

icati

on

C

rite

ria

Sourc

e: G

old

man S

achs

Amortised Cost

Loans &

Receivables

Debt instruments,

not traded in active

market

Held To

Maturity

Available

for Sale

Fair Value

Through P&L

Fair Value

Through OCI1

Fair Value

Through P&L

Debt instruments,

must have intent

and ability to hold

to maturity

Debt or Equity

instruments,

not classified in

other three

categories

Debt or Equity

instruments,

that are traded,

or elected via fair

value option

Fair Value

Through OCI

Fair Value

Through P&L

Fair Value

Through OCI1

Fair Value

Through P&L

Equity

instruments

- specific holdings

(not traded)

- classification is

irrevocable

Debt or Equity

instruments,

not classified in

other two

categories

Amortised

Cost

Amortised

Cost

Debt instruments:

- vanilla features

(or senior tranche)

- managed collect

cash flows2

Overview of Proposed Changes to IAS 39


Reclassification (July 2008)

SIV restructuring (Late 2007)






14 14

Impact of Accounting Regulation Impact of IFRS9 Implementation

14

Change in Balance Sheet Volatility More

Ch

an

ge

in

P&

L V

ola

tili

ty

More AFS FVTPL

Non-senior cash securitizations

Occasionally managed government and

corporate bonds

Quoted equity

Amortised Cost FVTPL

Non-senior cash securitizations

Senior cash securitizations with synthetic buckets

Structured rate investments

Unquoted equity instruments

Assets subject to ongoing P&L volatility.

Potentially significant negative impact for such

investments currently held at artificially high

levels (also subsequent hit to Tier 1 capital)

AFS Amortised Cost

Occasionally managed government and

corporate bonds

Reclassification at historic levels can have a

positive capital impact if the assets were

carried below cost under AFS

No or little change

Derivatives including synthetic

securitizations

Assets held for trading

Vanilla debt instruments

Quoted and unquoted equities

Amortised Cost FVOCI

Unquoted equity instruments previously held at

cost that are elected to FVTOCI

FVTPL Amortised Cost

Government and corporate bonds held to

collect contractual cash flows

Senior cash securitizations previously held in

trading book for regulatory capital reasons

may be reclassified to historic costs given the

onerous trading book capital treatment under

Basel III (if regulators allow)

Reclassification to historic levels can have a

positive capital impact if the assets

previously incurred P&L losses

FVTPL FVTOCI

Quoted equity instruments

Less

Amortized Cost treatment may lead to volatility if the

expected loss framework is implemented Goldman Sachs does not provide tax, accounting, regulatory or legal advice to our clients

Investors are advised to consult with their tax, accounting, or legal advisers regarding any potential investment

Sourc

e: G

old

man S

achs






IV- Implementation Timeline






16 16

Implementation Timeline Adoption of Regulatory and Accounting Changes

1Q10 2Q10 3Q10 4Q10 2011 2012

Timeline

2013

1st Half 2010: Quantitative

impact study for capital and

liquidity standards

2nd Half 2010: Review of

minimum capital standards and

calibration of levels / form

Apr-2010: End of

comment period

31-Dec-2010: Implementation of

enhancements to market risk

and securitization frameworks

Jul-2010: Next Basel

meeting to discuss

contingent capital

31-Dec-2012:

Implementation of

global reforms

Post 2012:

Grandfathering /

transition period TBD

Basel III

IFR

S9

Mar-2010:

Exposure draft:

Hedge Accounting

Jun-2010: Possible

revised exposure

draft: Derecognition

Dec-2010: Final

Standard: Amortized

Cost and Impairment

Dec-2010: Final

Standard: Hedge

Accounting

Dec-2010: Final

Standard:

Derecognition


2013: Mandatory

adoption of IFRS 9

(assuming EU endorses)

2H09

Nov-2009:

IFRS Phase I

completed

2010: EU considering endorsement of

IFRS9 Phase I: Classification and

Measurement

2011: Potential EU

adoption (could even be

2010) if EU endorses

Dec-2009:

Consultative

Document:

Liquidity and

capital changes

Jul-2009: Final

Document:

Market risk and

securitization

changes


So

lven

cy II

2011: Solvency II

shadow application

Oct-2012: Formal

implementation

1-Apr-2011: deadline for US

Core banks to commence

Basel II transition period

2010: Solvency II

QIS5 (test run)






V- Appendix

State of the Market






18 18

Appendix State of the Market

0

50

100

150

200

250

300

Oct-07 Feb-08 Jun-08 Oct-08 Feb-09 Jul-09 Nov-09 Mar-10

Sp

read

(b

ps)

5Y iTraxx 5Y CDX

Investment Grade Spreads

0

500

1000

1500

2000

2500


Sw

ap

Sp

read

(b

ps)

ALL CMBS AAA Float (3-5) ALL CMBS AA Float (3-5)

European CMBS Swap Spreads

High Yield Spreads

UK RMBS Swap Spreads

0

400

800

1200

1600

2000


Sp

read

(b

ps)

5Y iTraxx Xover 5Y CDXHY

0

200

400

600

800


Sw

ap

Sp

read

(b

ps)

Perm Master Issuer 2007 1 2007-13A EUR

Holmes Master Issuer 13 A2 EUR


Past performance is not indicative of future results. Source: Goldman Sachs

Past performance is not indicative of future results.

Source: Markit


Source: Markit







V- Appendix







20 20

Strengthening the Resilience of the Banking Sector

Summary of

Proposed

Changes:

Five Basic

Measures

Goldman Sachs does not provide tax, accounting, regulatory or legal advice to our clients. Investors are advised to consult with their tax, accounting, or legal advisers regarding any potential investment.

1) Improvement of the quality, consistency, and transparency of the capital base and capital ratio calculation by

simplifying and harmonizing Tier 1 and Tier 2 capital definitions

Ensure Tier 1 Capital is available to support financial institutions on a going-concern basis

The proposal is likely have a very significant effect on reported Tier 1 ratios

2) Strengthening of capital requirements for counterparty credit risk

Reduce the risk of shocks being transmitted from one financial institution to another

Higher capital requirements for counterparty credit risk

3) Introduction of a non-risk based leverage ratio as a non-model based simple measure of capital requirement

Contain model risk and ensure that attempts to arbitrage the risk-based Basel II capital requirements will not be

successful

Highly leveraged institutions may be very significantly affected

4) Mitigation against pro-cyclicality and building of capital buffers during high earnings periods

Ensure that financial institutions do not enter into high-loss periods with minimal capital buffers

Potential payout to equity stakeholders and employees in the banking sector is reduced for banks close to the

regulatory capital minimum

5) Introduction of a global minimum liquidity standard

Ensure short and medium term liquidity requirements will not lead to failures of otherwise solvent banks

Treasuries and highly rated and liquid paper (possibly including corporates) are likely to benefit from the liquidity

requirements


Strengthening the Resilience of the Banking Sector






21 21


Quality, Consistency, and Transparency of the Capital Base

Capital Definitions

Elements

of

Capital


Total Capital will consist of the sum of the following elements:

1. Tier 1 Capital (going-concern capital)

Common Equity (effectively paid in capital plus retained earnings)

Additional Going-Concern Capital (will help the bank avoid payment default through payments being

discretionary, and must be able to bear losses while the firm remains a going-concern)

2. Tier 2 Capital (gone-concern capital)

Must be issued and paid-in, subordinated to depositors and general creditors of the bank, does not have any

guarantees or equivalent increasing the seniority of the instrument, must have original maturity of at least 5

years, cannot be callable for 5 years, cannot have a built-in incentive to be called, and can only be callable by

issuer (not investor)

For each of the three categories above (1a, 1b, and 2) there will be a single set of criteria, which instruments are required to

meet, before inclusion in the relevant category, but regulatory adjustments must be applied to Tier I capital only, in an effort to

harmonize currently different treatments across the globe

Common Equity, Tier 1 Capital and Total Capital must always exceed explicit minima of x%, y% and z% of risk-weighted

assets

The size of x%, y%, and z% will be calibrated following the impact assessment

The predominant form of Tier 1 Capital must be Common Equity

The Basel Committee will consider which role contingent capital, convertible securities, and instruments with write-down

features will have going forward during the July 2010 meetings

Banks will be required to provide extensive disclosures of the capital base and capital calculations in addition to reconciling

the capital base calculation back to the balance sheet in the audited financial statements






22 22



Regulatory Adjustments (1)

Key

Regulatory

Adjustments

to

Balance

Sheet Items


Stock Surplus – Share premium will only be permitted to be included in the Common Equity component of Tier 1 if the shares

giving rise to the stock surplus are also permitted to be included in the Common Equity component of Tier 1

Minority Interest – Will not be eligible for inclusion in the Common Equity component of Tier 1

Unrealized Gains and Losses on Debt Instruments, Loans and Receivables, etc. – No adjustment will be applied to remove

unrealised gains or losses recognised on the balance sheet from the Common Equity component of Tier 1, although the

Committee will continue to review the appropriate treatment of unrealized gains

Goodwill and Other Intangibles – Goodwill and other intangibles will be deducted from the Common Equity component of Tier 1

Deferred Tax Assets – Deferred tax assets, which rely on future profitability of the bank to be realized, will be deducted from the

Common Equity component of Tier 1

Investments in Own Shares – All of a bank‟s investments in its own common shares will be deducted from the Common Equity

component of Tier 1

Investment in the Capital of Certain Financial Institutions Outside the Regulatory Scope of Consolidation – All holdings of

capital which form part of a reciprocal cross holding agreement or are investments in affiliated institutions (e.g. sister companies)

are to be deducted in full on a corresponding basis. For all other holdings, the corresponding deduction approach will apply when

the holdings exceed certain thresholds. For holdings of common stock the thresholds work as follows:

If the bank has holdings of common stock in a financial institution which exceed 10% of the common stock of the financial institution

then the full amount of this holding (not just the amount above 10%) will be deducted from the bank‟s common equity

If the bank has holdings of common stock in other financial institutions which in aggregate exceed 10% of the bank‟s common equity

(after applying all other regulatory adjustments to common equity) then the amount above 10% is required to be deducted






23 23



Regulatory Adjustments (2)

Key

Regulatory

Adjustments

to

Balance

Sheet Items


Shortfall of the Provisions to Expected Losses – The deduction from capital in respect of a shortfall of the stock of

provisions to expected losses under the internal ratings-based (IRB) approach will be made 100% from the Common Equity

component of Tier 1 capital

Cash-Flow Hedge Reserve – Remove the positive and negative cash flow hedge reserve from the Common Equity

component of Tier 1 where it relates to the hedging of projected cash flows which are not recognised on the balance sheet

Cumulative Gains and Losses due to Changes in Own Credit Risk on Fair Valued Financial Liabilities – Filter out from

the Common Equity component of Tier 1 all gains and losses resulting from changes in the fair value of liabilities which are

due to changes in the bank‟s own credit risk

Defined Benefit Pensions Fund Assets and Liabilities – Apply no filter to defined benefit pension fund liabilities and

deduct the value of any defined benefit pension fund asset from the Common Equity component of Tier 1. Assets in the fund

to which the bank has unrestricted and unfettered access can, with supervisory approval, offset the deduction. Such offsetting

assets will be given the risk weight they would receive if they were owned directly by the bank

Remaining 50:50 (Tier 1 / Tier 2) Deductions – All remaining regulatory adjustments which are currently deducted 50%

from Tier 1 and 50% from Tier 2, and which are not addressed elsewhere in the proposal, will receive a 1250% risk weight

instead of the current deduction from capital






24 24


Capital Requirements for Counterparty Credit Risk

Changes to Counterparty Credit Risk (1)

Series

of Measures

to

Address

Counterparty

Credit Risk


Require that the counterparty exposure be the higher of the Effective Expected Positive Exposure (Effective EPE) metric be

calculated on data that includes a period of stress and the Effective EPE as currently calculated

Incorporate a simple bond-equivalent of the counterparty exposure to better capture CVA risk that recognizes a clearly defined set

of hedges (CDS hedges only)

Improve monitoring for general (macro based) wrong way risk and implement an explicit Pillar 1 capital charge for specific (issuer

specific) wrong-way risk

Apply a multiplier of 1.25 to the asset value correlation of exposures to regulated financial firms (with assets of at least $25 billion)

and to all exposures to unregulated financial firms such as hedge funds (regardless of size). The resulting capital requirement will

increase by up to approximately 35%

Extend the margin period of risk to 20 days for OTC derivatives and securities financing transactions (SFTs) netting sets that are

large (i.e. over 5,000 trades), have illiquid collateral, or represent hard-to-replace derivatives. The requirements would double the

margin period of risk for netting sets which have recently experienced a material number of extended disputes

Update the “shortcut method” (used by banks that cannot model margin agreements along with exposures) to recognize that

some of the simplifying assumptions related to collateral management and margining did not reflect actual practice, in particular

margin disputes






25 25


Capital Requirements for Counterparty Credit Risk

Changes to Counterparty Credit Risk (2)

Series

of Measures

to

Address

Counterparty

Credit Risk


Implement various improvements in the calculation of exposure at default (EAD) to promote more robust collateral management

practices (e.g. failure to address the risk of downgrade triggers and the inability of some banks to model collateral jointly with

exposures) and in the operations and risk analysis supporting the collateral management process (e.g. re-use of collateral)

Create a separate supervisory haircut category for repo-style transactions using securitisation collateral and prohibit re-

securitisations as eligible financial collateral for regulatory capital treatment purposes

Increase the incentives to use Central Counterparty Clearing Houses (CCPs) for OTC derivatives and recognise that collateral

and mark-to-market exposures to CCPs could have a zero percent risk weight if they comply with the stricter CPSS/IOSCO

recommendations for CCPs

Enhance counterparty credit risk management requirements by:

Addressing general wrong-way risk;

Making the qualitative requirements for stress testing more explicit;

Revising the model validation standards; and

Issuing supervisory guidance for sound back-testing practices of CCR

Place additional constraints on firms‟ own estimates of Alpha (the multiplier, minimum 1.2 applied to EPE to determine exposure

at default) to avoid misspecification of the risk and promote greater consistency across firms






26 26


Non-Risk Based Leverage Measure

The Non-Risk Based Leverage Measure

Leverage

Ratio

=

Capital

Measure

÷

Exposure


Definition of Capital: Tier 1 Common or Tier 1 Capital. Exact definition will be determined by impact study which will also collect

data on the use of Total Capital (as opposed to Tier 1) for the leverage ratio requirements:

Items which are deducted completely from capital do not contribute to leverage, and should therefore also be deducted

from the measure of exposure to avoid double counting

If a subsidiary is included in accounting consolidation but not in regulatory consolidation, the holding will be deducted from

capital for the purpose of calculating the capital measure in the leverage ratio

Definition of Exposure: Exposure will follow the accounting measure of exposure providing a non risk-based measure. Total

exposure should be net of provisions and valuation adjustments (e.g. credit valuation adjustments). Physical or financial collateral is

not allowed to reduce exposure (neither is netting of derivatives and loans against deposits).

On-balance sheet items included in the exposure definition:

All assets (including high quality liquid assets - but study the possibility of excluding liquid assets)

Repurchase agreements and securities financing with netting disallowed (but study the possibility of including netting)

Funded investment in derecognized securitizations

Underlying portfolio for non-derecognized funded securitizations

Derivative exposures included without netting (but the Committee will consider netting in the impact study)

Long credit derivatives positions included for the purpose of exposure but purchased credit protection will not be

permitted as an offset against long risk

Off balance sheet items such as commitments (including liquidity facilities), unconditionally cancellable commitments, direct

credit substitutes, acceptances, standby letters of credit, trade letters of credit, etc. are included in exposure using a 100%

Credit Conversion Factor (but the Committee is investigating the use of standardized Credit Conversion Factors)






27 27


Cyclicality and Build-Up of Capital Buffers During High Earnings Periods

Proposals Addressing Cyclicality

Forward

Looking

Provisioning

&

Building of

Capital

Buffers


Cyclicality of the Minimum Requirement – The Committee is conducting an impact study on two specific proposals. The first is based

on the use of the highest average probability of default (PD) estimate applied by a bank historically to each of its exposure classes as a

proxy for a downturn PD. The second is based on the use of average of historic PD estimates for each exposure class.

Forward Looking Provisioning – The Committee is promoting stronger provisioning practices. First, consistent with IASB proposals the

Committee is advocating a change in the accounting standards towards an expected loss approach. Second, it is updating its supervisory

guidance to be consistent with the move to such an expected loss approach. Third, it is addressing disincentives to provisioning in the

regulatory capital framework (the Committee is proposing that any shortfall of the stock of provisions to expected loss be deducted fully

from the common equity component of Tier 1 capital, rather than the present deduction of 50% from Tier 1 and 50% from Tier 2 capital)

Building Buffers through Capital Conservation – the Committee proposes a framework for the build-up of capital buffers above

minimum requirements. The Committee uses the following example (illustrative and subject to subsequent calibration) where a bank

close to the minimum requirements would be subject to payout restrictions (dividend, buybacks, discretionary payments on capital

instruments and discretionary bonus payments to staff)

Individual Bank Minimum Capital Conservation Standards

Capital Conservation Range above the Minimum Requirement

Amount by which a Bank‟s capital exceeds the minimum

requirement in terms of a percentage of the size of the

conservation range

Minimum Capital Conservation Ratios (expressed as a

percentage of earnings)

[< 25%] [100%]

[25% - 50%] [80%]

[50% - 75%] [60%]

[75% - 100%] [40%]

[> 100%] [0%]






28 28


Global Minimum Liquidity Standard

Proposals Addressing Liquidity

Liquidity

Ratios

&

Monitoring

Tools


The Basel Consultation reinforces the implementation of the Principles for Sound Liquidity Risk Management and Supervision as

published by the Basel Committee in September 2008

Banks will be required to comply with two liquidity ratios: the liquidity coverage ratio and the net stable funding ratio

Liquidity Coverage ratio = Stock of high quality liquid assets / Net cash outflow over a 30-day period ≥ 100%

This metric aims to ensure that a bank maintains an adequate level of unencumbered, high quality assets that can be converted

into cash to meet its liquidity needs for a 30-day time horizon under an acute liquidity stress scenario. The envisioned stress

scenario includes both idiosyncratic and systemic shocks, such as a significant downgrade of the institution‟s public credit rating,

a partial loss of deposits and substantial calls on off-balance sheet exposures.

The stock of eligible high quality assets includes cash, central bank reserves and sovereign paper. In addition, the Committee

is reviewing whether to include liquid, high-quality corporate and covered bonds as eligible assets (these instruments would be

limited to 50% of the overall stock).

Net Stable Funding ratio = Available amount of stable funding / Required amount of stable funding ≥ 100%

This metric establishes a minimum acceptable amount of stable funding based on the liquidity characteristics of an institution‟s

assets and activities over a one year horizon. “Stable funding” is composed of financing instruments that are expected to be

reliable sources of funds over a one-year time horizon under conditions of extended stress. These instruments include capital,

preferred stock and liabilities with effective maturities of at least one year and the portion of deposits that would be

expected to stay with the institution for an extended period in an idiosyncratic stress event.

The required amount of stable funding is intended to measure the portion of an institution‟s assets, off-balance sheet exposures

and other select activities, which the National Supervisor deems to require longer-term funding. To compute this amount,

the Supervisor assigns a required stable funding (RSF) factor to each asset type, which approximates the amount of that asset

that could not be monetised during a liquidity event. Very liquid assets such as cash and money market instruments are assigned

a RSF factor of 0% whereas more illiquid assets such as loans with residual maturities greater than one year are assigned a RSF

factor of 100%.

Monitoring tools – In addition to the ratios above, banks will be required to report to their national supervisors a series of metrics such

as contractual maturity mismatch, concentration of funding (by both counterparty and instrument type), available unencumbered assets

and various market-related monitoring information.






V- Appendix

Source Documents






30 30

Appendix Source Documents

The material in this presentation is largely based on the following documents:

Revisions to the Basel II market risk framework (July 2009)

http://www.bis.org/publ/bcbs164.htm

Enhancement to the Basel II framework (July 2009)


Analysis of the trading book quantitative impact study (October 2009)


Strengthening the resilience of the banking sector (December 2009)


International framework for liquidity risk measurement, standards and monitoring (December 2009)


Basel Committee on Banking Supervision






31 31

Disclaimer

This document has been prepared by personnel in the Equities or Fixed Income, Currency and Commodities Sales/Trading Departments of one or more affiliates of The Goldman

Sachs Group, Inc. ("Goldman Sachs") and is not the product of the Global Investment Research Department or Fixed Income Research. It is not a research report and is not

intended as such.

REPRESENTATION

If a transaction arises as a result of this document you agree that you will not offer, sell or deliver the Transaction in any jurisdiction except under circumstances that will result in compliance

with the applicable laws thereof, and that you will take at your own expense whatever action is required to permit your purchase and resale of the Transaction. Where securities are issued,

EEA standard selling restrictions apply.

This material and its content are not for distribution to retail clients, as defined in the Markets in Financial Instruments Directive (2004/39/EC).

For SPVS Notes Only: Reliance on Creditworthiness of the Collateral Note Issuer

The ability of the note issuer to meet its obligations under the notes will depend on, amongst other things, the receipt by it of payments of interest and principal under the Collateral.

Consequently, Investors are exposed not only to the occurrence of Credit Events in relation to any of the Reference Entities, but also to the ability of the Collateral note issuer to perform its

obligations to make payments to the note issuer

The Transaction described herein is not principal protected

Unless specifically identified as such, the transaction is not principal or investment protected, and future returns are not guaranteed. You will not receive a fixed amount of principal or

investment at maturity of the transaction and Goldman Sachs is not liable for any loss of principal or investment that you may incur

Where the transaction is described as principal or investment protected or principal or investment guaranteed, there is protection or a guarantee only to the extent that the issuer of the

transaction does not default on its obligations, either through bankruptcy or through any other event

Relevant Information

GS may have access to information relating to the Transaction described within (the Transaction), or any indices or assets (which may include, without limit, shares of one or more issuers,

commodities, currencies or baskets of the foregoing) to which it is referenced or which otherwise underlie it (Underlyers) and any derivative instruments referencing it (together Relevant

Instruments). GS will not be obliged to disclose any such Relevant Information to you

GS‟ Interests

GS may be an active participant on both sides of the market for the Relevant Instruments at any time. GS hedging and trading activities with respect to the Transaction may affect the value of

other Relevant Instruments and vice versa. GS may be calculation agent or sponsor of Underlyers and as such may make determinations affecting the value of the Transaction

Volatility

The price of the Transaction may be adversely affected by volatility in the price/value of the Underlyers. Volatility refers to the degree of unpredictable change over time of a certain variable

in this case the price, performance or investment return of a financial asset. A transaction that is more volatile is likely to decrease and increase in value more often and/or to a greater extent

than one that is less volatile

Foreign Exchange

Foreign currency denominated Underlyers, Products and Transactions are subject to fluctuations in exchange rates that could have an adverse effect on the value or price of, or income

derived from, the Transaction

No Correlation with Underlyer

The value of the Transaction will not necessarily correlate with the value of any Underlyers

Value of the Transaction

Assuming no change in market conditions or other factors, the value of the Transaction on the settlement date may be significantly less than the execution price on the trade date

Investment Performance

Changes in the investment performance of the Transaction or any Underlyer may also affect the value of the Transaction and could result in it being valued at zero






32 32

Disclaimer

Price Discrepancy

Any price quoted for the Transaction by GS may differ significantly from (i) the Transaction‟s value determined by reference to GS pricing models and (ii) any price quoted by a third party

Indicative Price(s) and Value(s)

Any indicative price(s) and value(s) expressed are as of the approximate time and/or date where indicated subject to change. Indicative price(s) and value(s) may be based on any of; the

information supplied by you, current market conditions, prices and any other factors as GS may consider relevant. The indicative price(s) are not necessarily related to transaction size and

may not reflect the price at which you may be able to transact or deal in any security, currency, commodity, derivative contract or other instrument with GS or with any other third party

Mark to Market Volatility

Mark to market of the transaction may be affected by a number of factors including, without limitation, the spread observed in the market for the underlying Reference Entities, the spread

observed in the market for tranches referenced to similar underlying assets, implied rating, and change in any other pricing parameters (including correlation and recovery rate assumptions).

Mark to markets may be extremely volatile and unpredictable. Due to the inherent leverage of the transaction with respect to the underlying portfolio, the mark to market on the investment

may be significantly more volatile than an unleveraged investment in equivalently rated corporate debt

Limited Liquidity of the Transaction

There is currently no market for the transaction. There can be no assurance that a secondary market for the transaction will develop or, if a secondary market does develop, that it will provide

the holder of the transaction with liquidity, or that it will continue for the life of the transaction. While GSI expects to make a market in the transaction, GSI is not obliged to do so. Any market-

making activity if commenced may be discontinued at any time. Moreover, the limited scope of information available to the Investors regarding the Reference Entities and the nature of any

Credit Event including uncertainty as to the extent of any reduction to be applied to the payment on the investment if a Credit Event has occurred but the amount of the relevant reduction in

the payment on maturity has not been determined, may further affect the liquidity of the transaction. Consequently, any Investor in the transaction must be prepared to hold such transaction

for an indefinite period of time or until final maturity (unless called earlier)

“Cheapest-to-Deliver” Risk

Given that Goldman Sachs, as buyer of protection, has discretion to choose the portfolio of valuation obligations used to calculate the amount of losses following a Credit Event, it is likely that

the portfolio of valuation obligations selected will be available obligations of the Reference Entity with the lowest market value that are permitted to be used to calculate loss pursuant to the

relevant documentation. This could result in a lower recovery value and hence a larger loss amount

Credit Ratings

Credit ratings represent the rating agencies‟ opinions regarding credit quality and are not a guarantee of quality. Rating agencies attempt to evaluate the safety of principal and/or interest

payments and do not evaluate the risks of fluctuations in market value. Accordingly, the credit ratings of the underlying Reference Entities or the transaction itself may not fully reflect the true

risks of the transaction. Also, rating agencies may fail to make timely changes in credit ratings in response to subsequent events, so that an issuer‟s current financial condition may be better

or worse than a rating indicates

Historical Performance may not Predict Future Performance of Transaction

Individual credits may not perform as indicated by historical performance for similarly rated credits. Furthermore, even if future credit performance is similar to that of historic performance for

the entire market, Investors must make their own determination as to whether the Reference Portfolio will reflect the experience of the universe of rated credits. Hence, Credit Event rates

experienced by this transaction may be higher than that of historical Credit Event rates, and that of future Credit Event rates for the entire market

Credit Event may vary from Defaults

Historical default statistics may not capture events that would trigger a Credit Event as specified under the credit default swap. All Credit Event definitions will be defined in the final legal

documents and will be governed by the market-standard ISDA 2003 credit derivatives definitions






33 33

Disclaimer

Tax/ Regulatory Impact

There may be a tax or regulatory impact of investing in this transaction. Goldman Sachs does not provide any opinion on these issues and any Investor should consult with its advisors prior to

investing in the Transaction

Creditworthiness of Goldman Sachs

Payments will be required to be made by Goldman Sachs affiliates, guaranteed by The Goldman Sachs Group Inc (together “Goldman Sachs”), throughout the life of the transaction.

Consequently, Investors are exposed not only to the occurrence of Credit Events in relation to any of the Reference Entities, but also to the ability of Goldman Sachs to perform its obligations

to make payments to the Investors. Currently The Goldman Sachs Group Inc is assigned an Aa3 rating by Moody‟s and an A+ rating by S&P for its long-term unsecured senior debt

Conflicts of interest

The price and/or the redemption amount (where relevant) of the Transaction may be adversely affected by trading, hedging and other transactions by GS relating to the Transaction and/or

any Underlyers. In particular:GS, its officers, directors and employees, including persons involved in the preparation or issuance of this document may, from time to time be an active

participant on both sides of the market and have long or short positions in, or buy and sell (on a principal basis or otherwise,) and act as market makers in the Underlyer or in securities,

commodities, futures, options or any other derivative or instrument and investments identical to or related to the Transaction. Hedging activities by GS relating to the Transaction may affect

the price of Relevant Instruments and the price of the Transaction.

Both potential and actual conflicts of interest involving Goldman Sachs may arise in connection with their other business activities. Among other things, Goldman Sachs may have invested,

and may from time to time invest, for its own account or the account of others in (1) collateral held, or potentially held, by the issuer, (2) indices which include, or may be correlated with, one

or more such collateral and/or (3) synthetic securities which reference such collateral or securities correlated with one or more such collateral. Such investments may include synthetic, short

and similar transactions pursuant to which Goldman, Sachs & Co. and/or its affiliates would benefit (potentially substantially) if the market value of such collateral were to decline. In addition,

the existence of such transactions could, independently, adversely impact (a) the market value of such collateral, (b) the issuer's ability to perform its obligations under the securities and (c)

the return realized by investors in the notes. Neither Goldman Sachs nor any affiliate thereof has any obligation to take into account the interests of the issuer, the holders of the notes or any

party in deciding to enter into any such Investment.

No Reliance

No Advice: Goldman Sachs does not provide investment, accounting, tax or legal advice in respect of the transaction and shall not have a fiduciary relationship with any Investor. In

particular, Goldman Sachs does not make any representations as to (a) the suitability of the transaction, (b) the appropriate accounting treatment or possible tax consequences of the

transaction or (c) the future performance of the transaction either in absolute terms or relative to competing investments. Investors should obtain their own independent accounting, tax and

legal advice and should consult their own professional investment advisor to ascertain the suitability of the transaction, including such independent investigation and analysis regarding the

risks, security arrangements and cash-flows associated with the transaction as they deem appropriate to evaluate the merits and risks of the transaction

Goldman Sachs may, by virtue of its status as an underwriter, advisor or otherwise, possess or have access to non-publicly available information relating to the Collateral (i.e. an SPV note),

the issuer(s) thereof, the Reference Entities and/or the obligations of the Reference Entities and has not undertaken, and does not intend, to disclose, such status or non-public information in

connection with the transaction. Accordingly, this presentation may not contain all information that would be material to the evaluation of the merits and risks of entering into the transaction

As calculation agent, Goldman Sachs will have the authority to make determinations that could affect the market value of the transaction and the amount you receive at maturity






34 34

Disclaimer

Goldman Sachs does not make any representation, recommendation or warranty, express or implied, regarding the accuracy, adequacy, reasonableness or completeness of the information

contained herein or in any further information, notice or other document which may at any time be supplied in connection with the transaction and accepts no responsibility or liability

therefore. Goldman Sachs is currently and may be from time to time in the future an active participant on both sides of the market and have long or short positions in, or buy and sell,

securities, commodities, futures, options, indices or other derivatives identical or related to those mentioned herein and hedging activities by Goldman Sachs relating to the transaction may

affect the price of such transaction and the value of the transaction. Goldman Sachs may have potential conflicts of interest due to present or future relationships between Goldman Sachs

and any Collateral, the issuer thereof, any Reference Entity or any obligation of any Reference Entity

Confidentiality and Disclosure of Information: This document is confidential. It may not be (i) copied, photocopied, or duplicated in any form, by any means or (ii) redistributed without the prior

written consent of GS. However, any information regarding the Transaction that may be relevant to the U.S. federal income tax treatment of the Transaction (excluding the identities of the

parties) or which is necessary to support any U.S. federal income tax benefits may be disclosed to the relevant authorities without contractual limitation of any kind.

No Offer: This document is not final. It has been prepared for discussion purposes only. It is not an offer to partake in the Transaction or enter into any agreement. Neither Goldman Sachs

International or its affiliates, nor any of their officers or employees (GS) is soliciting any action based upon it. No action has been taken by GS to permit a public offering in any jurisdiction.

No Representation: GS makes any representations as to the likely performance of the Transaction which will be affected by a range of factors including those described in this document.

Not Complete Information: This document does not provide an exhaustive description of the merits and risks of the Transaction and will, if a transaction results, be superseded by final legal

documentation which may contain deemed representations by investors regarding, among other things, offer, resale and hedging of the Transaction. By accepting this document you agree to

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to know such information for the purpose of analysing or approving such participation.

Please note – Any description of the intended structure, portfolio and other details of the proposed transaction are provided here as information only, is in all respects subject to change, and

will be entirely superseded by the final documentation provided to any prospective Investors. You should not rely on this document, but should carefully read all of the legal documentation

which will be provided to you prior to entering into any transaction.

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REGULATION S UNDER THE SECURITIES ACT). THIS DOCUMENT MAY NOT BE DISTRIBUTED IN THE UNITED STATES.

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representation as to its accuracy or completeness, and expressly disclaim any liability whatsoever for any loss arising from, or incurred in reliance upon, any part of this document.

<特定投資家用資料＞

本資料は、特定投資家のお客さまのみを対象に作成されたものです。本資料における金融商品は特定投資家のお客さまのみがお取引可能であり、特定投資家以外のお客さまからのご注文等はお受けできませんので、ご注意ください。

商号等/ゴールドマン・サックス証券株式会社金融商品取引業者関東財務局長（金商）第６９号

加入協会/ 日本証券業協会、（社）金融先物取引業協会

© Copyright 2009 The Goldman Sachs Group, Inc. All rights reserved






Potential Regulatory and Accounting Changes

Positioning for Market Impacts

This is not research and is not intended as such. This has been prepared by individuals

on the sales/trading desks of the Securities Division. This material does not represent a

formal or official view of Goldman Sachs as the views expressed herein are solely those of

the author(s), which may differ from those of Global Investment Research

All information and ideas within are based on current advice from consultation papers and

proposed banking regulation framework changes which have not been finalized, hence the analysis

within is subject to change and may be different to what the final advice is

Strictly Private and Confidential No disclosure may be made to third parties regarding any information disclosed in this

presentation without the prior permission of Goldman Sachs

June 2010

For Professional Investors Only

Not for Onward Distribution






36 36 36

Relative Winners and Losers

Long Trade Ideas

A. Long Granite RMBS

Short Trade Ideas

B. Short Tight BBB Credits

C. Short Tight Top CSO Reference Credits

D. Short „7y‟ CDX IG9 15-30%

Rates Trade Ideas

E. 2y1y 3s6s Euribor Basis Widener

I

III

II

Table of Contents

IV






I- Relative Winners and Losers






38

Source: Goldman Sachs. For illustrative purposes only

Return on Equity Analysis Comparison Across Credit Assets

Sample Credit Assets Return on Equity Comparison

The ROE is computed as ( Spread – Loss Rate ) / Capital Charge (specific assumptions

detailed on the next slide)

Pre-crisis ROEs use Basel II capital charges1 and indicative 2006 spread levels. Post-crisis

ROEs use Basel III capital charges1 and indicative 2010 spread levels

These numbers are indicative only and heavily dependent on the loss assumptions used

Spreads and investor loss expectations may differ significantly for individual assets within the

broader credit asset classes considered

All securities are assumed to be held in the banking book, except the synthetic mezzanine

tranche, which is assumed to be held in the trading book2

IG Corps: investment grade corporates, approximated by the 5y on-the-run iTraxx Main index

HY Corps: high-yield corporates, approximated by the 5y on-the-run iTraxx X-Over index

Financials: credit exposures to financial entities, approximated by the 5y on-the-run iTraxx

Main Senior Financials sub-index

Resi Mortgages: residential mortgages with substantial security over the loan amount

AAA RMBS: residential mortgage-backed securities rated AAA that are the most senior in the

capital structure

B RMBS: residential mortgage-backed securities rated B

Synth Mezz: synthetic junior mezzanine tranche, approximated by the 5y iTraxx Main 6-9%

tranche

Government Securities: these are excluded as highly-rated government securities in many

instances face a capital charge of zero, but generate negative returns above the swap rate

In this analysis, RMBS rated AAA currently have the highest post-crisis return-on-equity

(ROE). Junior securitization positions (both cash and synthetic) have relatively low

ROEs, as do IG Corporates and Financials

While low-rated RBMS were never efficient under Basel II, some banks likely do hold

these securities as many originally-AAA RMBS have been downgraded multiple notches

Assumptions

AAA RMBS

IG Corps

HY Corps

Financials

Resi mortgages

B RMBS

Synthetic Mezz

AAA RMBS

IG Corps

HY Corps

Financials

Resi Mortgages

B RMBS

Synthetic Mezz

Incre

asin

g C

ap

ital E

fficie

ncy

Incre

asin

g C

ap

ital E

fficie

ncy

Source: Goldman Sachs. Not to scale. For illustrative purposes only

1 Note that European banks were required to implement Basel II by no later than 2008. Basel III has not yet been

implemented and is only in proposal form 2 Note that some banks may hold synthetic securitizations in the banking book

This analysis should be considered in conjunction with the presentation entitled „Regulation

and Accounting: Changing Landscape‟

Asset Class Pre-crisis ROE Post-crisis ROE

IG Corps 8.0% 14.0%

HY Corps 28.0% 26.0%

Financials 5.0% 17.3%

Resi Mortgages 14.3% 64.3%

AAA RMBS 17.9% 267.9%

B RMBS 0.4% 5.5%

Synth Mezz 10.0% 8.3%

Pre-crisis Post-crisis

Many pre-crisis AAA

RMBS have been

downgraded multiple

notches and are now

inefficient under Basel II /

III






39

RWAs for corporate and securitization exposures are based on credit ratings and

are shown in the table below (the treatment of financials generally follows the

treatment of corporates)

Residential mortgages: RWA of 35%

Trading book exposures: VaR-based capital charge (99th percentile, 10-day)

Source: Goldman Sachs. For illustrative purposes only

Return on Equity Analysis Analysis Assumptions

Spread, Loss Rate and Capital Assumptions

Spreads shown are indicative spreads for the

beginning of 2006 and 2010

Loss rates indicate a reflection of investor loss

expectations and may differ substantially across

investors

Capital charges are calculated for indicative

instruments within the relevant asset class. Actual

capital charges may differ

Sample risk-weighted asset (RWA) numbers for

Basel II and Basel III are shown below. Capital

requirements are computed as 8% of the RWAs

Basel II Capital Charges


2006 2010 Capital Charges

Asset Class Spread Loss RateExcess

ReturnSpread Loss Rate

Excess

ReturnBasel II Basel III

IG Corps 0.5% 0.1% 0.4% 1.0% 0.3% 0.7% 5.0% 5.0%

HY Corps 3.3% 0.5% 2.8% 4.1% 1.5% 2.6% 10.0% 10.0%

Financials 0.2% 0.0% 0.2% 1.1% 0.2% 0.9% 4.0% 5.2%

Resi Mortgages 0.5% 0.1% 0.4% 2.0% 0.2% 1.8% 2.8% 2.8%

AAA RMBS 0.1% 0.0% 0.1% 1.5% 0.0% 1.5% 0.6% 0.6%

B RMBS 0.5% 0.1% 0.4% 8.0% 2.5% 5.5% 100.0% 100.0%

Synth Mezz 0.3% 0.0% 0.3% 3.0% 0.5% 2.5% 3.0% 30.0%

Rating Corporates Securitizations

AAA – AA 20% 20%

A 50% 50%

BBB 100% 100%

BB 100% 350%

B and below 150% Deduct

Proposed Basel III Capital Charges

Corporate, financial and securitization RWAs continue to be computed in the

same fashion as under the Basel II rules for Standardised Banks (although

RWAs for re-securitizations increase)

For Internal Rating Based (IRB) banks, capital requirements for financials

may be ~30% higher than previously

Capital requirements for trading book exposures, particularly securitizations in

the trading book, are expected to increase significantly under Basel III

For more information, please see the presentation entitled „Regulation and

Accounting: Changing Landscape‟






II- Long Ideas






41

1 Indicative level as of May 26, 2010. 2 “Housing and Spare Capacity”, UK Economics Analyst. April 1, 2010. <https://360.gs.com/gs/portal/?st=1&action=action.binary&d=8837408&fn=/document.pdf> 3 You should not consider investing in Granite until you have read the full Granite Investor Presentation (http://www.sec.gov/Archives/edgar/data/1305478/000090514807003822/efc7-1434_fwp.htm) and related offering material

Master Trust: Granite

A Notes (AAA): £ 91.3 / $ 91.45 / € 91.45

C Notes (BBB): £ 43.5 / $ 42.25 / € 43.5

WHY?

Position for potential flows by buying Granite A notes (Aaa/AAA/AAA),

currently the cheapest AAA bonds backed by „prime‟ UK collateral.

Investors seeking higher yield could also consider the C tranche

(Baa2/BB/BBB), which is trading at equity-type yields also making it

attractive from a ROE perspective

Senior bonds could also benefit from Amortized Cost treatment under

potential accounting changes (IFRS 9), further incentivizing banks to invest

UK RMBS has outperformed US RMBS2 (see next slide):

– Not a single original AAA UK „prime‟ RMBS has been downgraded

– Unlike in the US, UK mortgages are full recourse to the borrower

– Tighter supply in the UK has kept UK house prices slightly higher

than they were in mid-2006 while they have fallen 30% in the US

KEY RISKS:

A deterioration in the UK housing and economic situation, especially

unemployment could cause an increase in mortgage losses in the UK

An increase in defaults and / or a decrease in recovery rates could cause:

– Interest and principal losses to the RMBS

– Slower pre-payment performance

The mark-to-market performance of the trade is exposed to changes in the

liquidity premium. In particular, the suspension of central bank repo

facilities could lead to an increase in the liquidity premium

The trade is also exposed to an increase in interest rates and changes in

FX (depending on the currency chosen)

Simplified UK Master Trust Structure3

Trade Details1

Trade Rationale

A. Long Granite RMBS Position for increased demand for high-ROE assets…

Notes

Source: Goldman Sachs.

For illustrative purposes only.

Seller

AAA

AA

A

BBB

Investor Share

Seller Share

Cash Principal and

interest

Master

Trust

(Issuer)

Issue

proceeds

Principal and

Interest

Cash Portfolio Trustee

Swap

Counter-

party

Introduction to Granite3

Granite is the £25bn RMBS Master Trust with loans originated by

Northern Rock

Having failed to substitute loans in November 2008, the transaction

became sequential and Northern Rock‟s interest in the trust

(approx. £3.5bn) went subordinate for principal but pro-rata for

losses

The weighted-average life of the AAAs is expected to be around 3 -

3.5 years

The AAAs are currently not on negative watch by any rating

agency and offer a minimum of 20.7% subordination versus an

original rating agency requirement of 11.6%






42

Housing Equity

Historical Prices

Mortgage Write-offs (annualized)

A. Long Granite RMBS Historical spreads and UK housing data

Spare Housing Capacity

0

20

40

60

80

100

120

Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jun-09 Dec-09

Mid

Pri

ce (

Po

ints

)

Granite 2007-1 3A2 (AAA) Granite 2007-1 3B1 (AA)

Granite 2007-1 3M1 (A) Granite 2007-1 3C1 (BBB)

Source: Markit. Past performance not indicative of future results.

0.0

0.5

1.0

1.5

2.0

2.5

3.0

1993 1995 1997 1999 2001 2003 2005 2007 2009

% o

f L

oan

s

UK US

Source: Bank of England, US Federal Reserve

15

25

35

45

55

1970 1975 1980 1985 1990 1995 2000 2005 2010Deb

t / V

alu

e o

f H

ou

sin

g S

tock (

%)

UK US

Source: National Sources

1.06

1.08

1.10

1.12

1.14

1.16

1.18

1968 1973 1978 1983 1988 1993 1998 2003 2008

Ho

uses / H

ou

seh

old

s

1.02

1.03

1.04

1.05

1.06

Ho

uses / H

ou

seh

old

s

US (lhs) UK (rhs)

Source: ONS, US BEA






III- Short Ideas






44

Source: Goldman Sachs. 1 Indicative level as of May 26, 2010. Source: Goldman Sachs. Past performance is not indicative of future results.

Bullet maturity: 20-Jun-2015

Reference Portfolio: 46 names (17 Europe, 29 US)

Premium Paid: [78] bps p.a. plus 0% upfront

WHY?

BBB corporates are trading particularly tight to their capital charge

of 8% (for a bank under the standardized approach)

Furthermore, it is unlikely that BBB credits will benefit from

inclusion into liquidity buffers under the new rules (unlike AA

corporates, which may be included with haircuts)

Under the proposed Basel III regulations, banks would become

capital-constrained, possibly forcing them to restructure their asset

portfolios to optimize the return on equity (ROE)

To position for lower bank demand for BBB credits, go short a

basket of BBB names trading tight to the median BBB spread

This short benefits from an asymmetric pay-off pattern with a

limited downside (spread payments until trade maturity) and from

limited time decay

KEY RISKS:

Risks to this trade include a further rally in credit spreads leading

to mark-to-market (MTM) losses and the passage of time without

spread widening

Historical Spreads1 Trade Details1

Trade Rationale

S&P Industry Breakdown

B. Short Tight BBB Credits Position for wider corporate credit on the back of Basel III market technicals…

0

50

100

150

200

250

May-07 Oct-07 Mar-08 Aug-08 Jan-09 Jun-09 Nov-09 Apr-10

Sp

rea

d (

bp

s)

BBB Basket

iTraxx Main 5y OTR

0%

5%

10%

15%

20%

25%

Ae

rosp

ace

,

Au

tos a

nd

Tra

nsp

ort

atio

nC

on

su

me

r

Pro

du

cts

(de

fen

siv

e)

Pro

pe

rty

Ba

sic

Ma

nu

factu

rin

g

En

erg

y,

Ind

ustr

ial a

nd

Utilitie

sC

on

su

me

r

Se

rvic

es a

nd

Re

tail

TM

T +

Ele

ctr

on

ics

Oth

er

Fre

qu

en

cy

(%

)






45

0

2

4

6

8

10

12

14


Re

lati

ve

Sp

rea

d C

ha

ng

e CSO Basket

iTraxx Main 5y OTR

C. Short Tight Top CSO Reference Entities Position for wider corporate credit and a potential CSO unwind…

1 Indicative level as of May 26, 2010. Source: Goldman Sachs. Past performance is not indicative of future results. 2 “The Most Widely Referenced Corporate Obligors in Rated U.S. Synthetic CDOs,” Standard & Poor‟s, December 16, 2008 and “European Synthetic CDO Portfolio Overlap Means Recent Corporate Credit

Events Cause Widespread Rating Actions,” Standard & Poor‟s, December 4, 2008 3The Credit Line – The new Basel II proposals: Implications for CDS markets; February 26th, 2010: <https://360.gs.com/gs/portal/?st=1&action=action.binary&d=8662374&fn=/document.pdf>

WHY?

The capital framework governing bank trading books is set to be

revised as early as December 2010. Under the proposed changes,

capital charges for credit correlation positions are anticipated to be

punitive, particularly because only limited benefit may be given for

imperfect hedges

As a result, dealers may decide to unwind bespoke deals together

with their hedges. As dealers have generally bought mezzanine

protection, an unwind would imply correlation books buying back

single-name protection in the CDS market

Go short a basket of names2 commonly referenced in bespoke CDOs

(with current spreads below 150 bps). These names underperformed

during the recent selloff when we also saw significant unwinds of

CDOs

If further synthetic CDO unwinds materialize on the back of increased

capital charges coupled with the increasing cost of dynamic hedging,

this would likely result in increased pressure on these single names3

KEY RISKS:

Risks to this trade include a further rally in credit spreads leading to

MTM losses and the passage of time without spread widening

Underperformance

during selloff

Bullet maturity: 20-Jun-2015

Reference Portfolio: 51 names (22 Europe, 29 US)

Premium Paid: [116] bps p.a. plus 0% upfront

Historical Spread Changes of Portfolio vs CDX OTR1 Trade Details1

Trade Rationale

S&P Rating Breakdown

0%

5%

10%

15%

20%

25%

AA

A

AA

+

AA

AA

-

A+ A A-

BB

B+

BB

B

BB

B-

BB

+

BB

S&P Rating

Fre

qu

en

cy

(%

)

Source: Goldman Sachs.






46

1 Indicative level as of May 26, 2010; iTraxx Main S9 ref is 138 bps. Source: Goldman Sachs. Past performance not indicative of future results. Tranche attach and exhaust shown to 2 decimal places 2 The Credit Line – The new Basel II proposals: Implications for CDS markets; February 26th, 2010: <https://360.gs.com/gs/portal/?st=1&action=action.binary&d=8662374&fn=/document.pdf>

Bullet maturity: 20-Dec-2014

Tranche: 15-30% (14.29-29.29%)2

Reference Index: CDX IG S9

Premium Paid: [124] bps p.a. plus 0%

upfront

WHY?

Market technicals resulting from Basel III proposals may push

corporate credit wider as banks seek to optimize the ROE on their

asset portfolios

In addition, changes to the trading book capital rules will likely

introduce significantly higher capital charges for synthetic tranches

As a result, dealers may decide to unwind bespokes and hedges

on the estimated $165 bn2 outstanding risk-adjusted senior

tranches

Go short „7y‟ iTraxx Main S9 12-22%, potentially benefitting from

convexity of the senior tranches. Benefit from positive convexity for

large spread widening moves

Compared to other hedging strategies (e.g. equity put options),

credit shorts have favorable time decay

KEY RISKS:

The main risks to this trade are spread tightening and large

negative moves in correlation skew

Historical Spreads and Deltas1 Trade Details1

Trade Rationale

Convexity of 12-22% Tranche Relative to IG Index1

D. Short „7y‟ iTraxx Main S9 12-22% Position for wider corporate credit with positive convexity…

0

50

100

150

200

250

300


Tra

nc

he

Sp

rea

d (

bp

s)

0

50

100

150

200

250

Ind

ex

Sp

rea

d (

bp

s)

Tranche Spread (LHS)

Index Spread (RHS)






IV- Rates Trade Ideas






48

1 Indicative level as of May 26, 2010.

Format: EUR Basis Swap

Start: May 2012

End: May 2013

Client pays: 3m EUR + [ 16.5 bps ], quarterly

Client receives: 6m EUR, semi-annually

WHY?

As regulators focus on short-term liquidity risk management, the

term premium between shorter and longer-dated wholesale bank

funding may increase

Currently, forwards in EUR are pricing tighter than spot. In the UK

where liquidity regulations are scheduled to come into force before

Basel III, the forward is now trading above spot as the GBP 3s6s

basis became well-bid by UK banks

The Euribor basis may follow suit as regulations are implemented

broadly in Europe

The 2y1y 3s6s Euribor basis widener is a positive roll-down

investment (if the curve shape remains unchanged) with good

mark-to-market potential, which should also benefit if another

credit or funding pressure in the European interbank market were

to realize (right-way risk)

KEY RISKS:

Upon expiry of the forward, the spot 3s6s may trade at lower levels

and the downside is potentially unlimited

GBP 3s6s Basis: Spot v 1yr Forward

Trade Details1

Trade Rationale

E. 2y1y 3s6s Euribor Basis Widener Position for Euribor basis widening…

EUR 3s6s Basis: Spot v 2yr Forward

Source: Goldman Sachs. Past performance not indicative of future results.

Source: Goldman Sachs. Past performance not indicative of future results.

-0.1

0.0

0.1

0.2

0.3

0.4

0.5


Basis

(b

ps)

EUR 3s6s Basis - 1y Spot EUR 3s6s Basis - 2y into 1y

-0.1

0.0

0.1

0.2

0.3

0.4

0.5


Basis

(b

ps)

EUR 3s6s Basis - 1y Spot EUR 3s6s Basis - 2y into 1y

-0.2

0.0

0.2

0.4

0.6

0.8


Basis

(b

ps)

GBP 3s6s Basis - 1y Spot GBP 3s6s Basis - 1y into 1y






49 49

Disclaimer

This document has been prepared by personnel in the Equities or Fixed Income, Currency and Commodities Sales/Trading Departments of one or more affiliates of The Goldman

Sachs Group, Inc. ("Goldman Sachs") and is not the product of the Global Investment Research Department or Fixed Income Research. It is not a research report and is not

intended as such.

REPRESENTATION

If a transaction arises as a result of this document you agree that you will not offer, sell or deliver the Transaction in any jurisdiction except under circumstances that will result in compliance

with the applicable laws thereof, and that you will take at your own expense whatever action is required to permit your purchase and resale of the Transaction. Where securities are issued,

EEA standard selling restrictions apply.

This material and its content are not for distribution to retail clients, as defined in the Markets in Financial Instruments Directive (2004/39/EC).

For SPVS Notes Only: Reliance on Creditworthiness of the Collateral Note Issuer

The ability of the note issuer to meet its obligations under the notes will depend on, amongst other things, the receipt by it of payments of interest and principal under the Collateral.

Consequently, Investors are exposed not only to the occurrence of Credit Events in relation to any of the Reference Entities, but also to the ability of the Collateral note issuer to perform its

obligations to make payments to the note issuer

The Transaction described herein is not principal protected

Unless specifically identified as such, the transaction is not principal or investment protected, and future returns are not guaranteed. You will not receive a fixed amount of principal or

investment at maturity of the transaction and Goldman Sachs is not liable for any loss of principal or investment that you may incur

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transaction does not default on its obligations, either through bankruptcy or through any other event

Relevant Information

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commodities, currencies or baskets of the foregoing) to which it is referenced or which otherwise underlie it (Underlyers) and any derivative instruments referencing it (together Relevant

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GS may be an active participant on both sides of the market for the Relevant Instruments at any time. GS hedging and trading activities with respect to the Transaction may affect the value of

other Relevant Instruments and vice versa. GS may be calculation agent or sponsor of Underlyers and as such may make determinations affecting the value of the Transaction

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The price of the Transaction may be adversely affected by volatility in the price/value of the Underlyers. Volatility refers to the degree of unpredictable change over time of a certain variable

in this case the price, performance or investment return of a financial asset. A transaction that is more volatile is likely to decrease and increase in value more often and/or to a greater extent

than one that is less volatile

Foreign Exchange

Foreign currency denominated Underlyers, Products and Transactions are subject to fluctuations in exchange rates that could have an adverse effect on the value or price of, or income

derived from, the Transaction

No Correlation with Underlyer

The value of the Transaction will not necessarily correlate with the value of any Underlyers

Value of the Transaction

Assuming no change in market conditions or other factors, the value of the Transaction on the settlement date may be significantly less than the execution price on the trade date

Investment Performance

Changes in the investment performance of the Transaction or any Underlyer may also affect the value of the Transaction and could result in it being valued at zero






50 50

Disclaimer

Price Discrepancy

Any price quoted for the Transaction by GS may differ significantly from (i) the Transaction‟s value determined by reference to GS pricing models and (ii) any price quoted by a third party

Indicative Price(s) and Value(s)

Any indicative price(s) and value(s) expressed are as of the approximate time and/or date where indicated subject to change. Indicative price(s) and value(s) may be based on any of; the

information supplied by you, current market conditions, prices and any other factors as GS may consider relevant. The indicative price(s) are not necessarily related to transaction size and

may not reflect the price at which you may be able to transact or deal in any security, currency, commodity, derivative contract or other instrument with GS or with any other third party

Mark to Market Volatility

Mark to market of the transaction may be affected by a number of factors including, without limitation, the spread observed in the market for the underlying Reference Entities, the spread

observed in the market for tranches referenced to similar underlying assets, implied rating, and change in any other pricing parameters (including correlation and recovery rate assumptions).

Mark to markets may be extremely volatile and unpredictable. Due to the inherent leverage of the transaction with respect to the underlying portfolio, the mark to market on the investment

may be significantly more volatile than an unleveraged investment in equivalently rated corporate debt

Limited Liquidity of the Transaction

There is currently no market for the transaction. There can be no assurance that a secondary market for the transaction will develop or, if a secondary market does develop, that it will provide

the holder of the transaction with liquidity, or that it will continue for the life of the transaction. While GSI expects to make a market in the transaction, GSI is not obliged to do so. Any market-

making activity if commenced may be discontinued at any time. Moreover, the limited scope of information available to the Investors regarding the Reference Entities and the nature of any

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for an indefinite period of time or until final maturity (unless called earlier)

“Cheapest-to-Deliver” Risk

Given that Goldman Sachs, as buyer of protection, has discretion to choose the portfolio of valuation obligations used to calculate the amount of losses following a Credit Event, it is likely that

the portfolio of valuation obligations selected will be available obligations of the Reference Entity with the lowest market value that are permitted to be used to calculate loss pursuant to the

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payments and do not evaluate the risks of fluctuations in market value. Accordingly, the credit ratings of the underlying Reference Entities or the transaction itself may not fully reflect the true

risks of the transaction. Also, rating agencies may fail to make timely changes in credit ratings in response to subsequent events, so that an issuer‟s current financial condition may be better

or worse than a rating indicates

Historical Performance may not Predict Future Performance of Transaction

Individual credits may not perform as indicated by historical performance for similarly rated credits. Furthermore, even if future credit performance is similar to that of historic performance for

the entire market, Investors must make their own determination as to whether the Reference Portfolio will reflect the experience of the universe of rated credits. Hence, Credit Event rates

experienced by this transaction may be higher than that of historical Credit Event rates, and that of future Credit Event rates for the entire market

Credit Event may vary from Defaults

Historical default statistics may not capture events that would trigger a Credit Event as specified under the credit default swap. All Credit Event definitions will be defined in the final legal

documents and will be governed by the market-standard ISDA 2003 credit derivatives definitions






51 51

Disclaimer

Tax/ Regulatory Impact

There may be a tax or regulatory impact of investing in this transaction. Goldman Sachs does not provide any opinion on these issues and any Investor should consult with its advisors prior to

investing in the Transaction

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Consequently, Investors are exposed not only to the occurrence of Credit Events in relation to any of the Reference Entities, but also to the ability of Goldman Sachs to perform its obligations

to make payments to the Investors. Currently The Goldman Sachs Group Inc is assigned an Aa3 rating by Moody‟s and an A+ rating by S&P for its long-term unsecured senior debt

Conflicts of interest

The price and/or the redemption amount (where relevant) of the Transaction may be adversely affected by trading, hedging and other transactions by GS relating to the Transaction and/or

any Underlyers. In particular:GS, its officers, directors and employees, including persons involved in the preparation or issuance of this document may, from time to time be an active

participant on both sides of the market and have long or short positions in, or buy and sell (on a principal basis or otherwise,) and act as market makers in the Underlyer or in securities,

commodities, futures, options or any other derivative or instrument and investments identical to or related to the Transaction. Hedging activities by GS relating to the Transaction may affect

the price of Relevant Instruments and the price of the Transaction.

Both potential and actual conflicts of interest involving Goldman Sachs may arise in connection with their other business activities. Among other things, Goldman Sachs may have invested,

and may from time to time invest, for its own account or the account of others in (1) collateral held, or potentially held, by the issuer, (2) indices which include, or may be correlated with, one

or more such collateral and/or (3) synthetic securities which reference such collateral or securities correlated with one or more such collateral. Such investments may include synthetic, short

and similar transactions pursuant to which Goldman, Sachs & Co. and/or its affiliates would benefit (potentially substantially) if the market value of such collateral were to decline. In addition,

the existence of such transactions could, independently, adversely impact (a) the market value of such collateral, (b) the issuer's ability to perform its obligations under the securities and (c)

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No Reliance

No Advice: Goldman Sachs does not provide investment, accounting, tax or legal advice in respect of the transaction and shall not have a fiduciary relationship with any Investor. In

particular, Goldman Sachs does not make any representations as to (a) the suitability of the transaction, (b) the appropriate accounting treatment or possible tax consequences of the

transaction or (c) the future performance of the transaction either in absolute terms or relative to competing investments. Investors should obtain their own independent accounting, tax and

legal advice and should consult their own professional investment advisor to ascertain the suitability of the transaction, including such independent investigation and analysis regarding the

risks, security arrangements and cash-flows associated with the transaction as they deem appropriate to evaluate the merits and risks of the transaction

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connection with the transaction. Accordingly, this presentation may not contain all information that would be material to the evaluation of the merits and risks of entering into the transaction

As calculation agent, Goldman Sachs will have the authority to make determinations that could affect the market value of the transaction and the amount you receive at maturity






52 52

Disclaimer

Goldman Sachs does not make any representation, recommendation or warranty, express or implied, regarding the accuracy, adequacy, reasonableness or completeness of the information

contained herein or in any further information, notice or other document which may at any time be supplied in connection with the transaction and accepts no responsibility or liability

therefore. Goldman Sachs is currently and may be from time to time in the future an active participant on both sides of the market and have long or short positions in, or buy and sell,

securities, commodities, futures, options, indices or other derivatives identical or related to those mentioned herein and hedging activities by Goldman Sachs relating to the transaction may

affect the price of such transaction and the value of the transaction. Goldman Sachs may have potential conflicts of interest due to present or future relationships between Goldman Sachs

and any Collateral, the issuer thereof, any Reference Entity or any obligation of any Reference Entity

Confidentiality and Disclosure of Information: This document is confidential. It may not be (i) copied, photocopied, or duplicated in any form, by any means or (ii) redistributed without the prior

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parties) or which is necessary to support any U.S. federal income tax benefits may be disclosed to the relevant authorities without contractual limitation of any kind.

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Please note – Any description of the intended structure, portfolio and other details of the proposed transaction are provided here as information only, is in all respects subject to change, and

will be entirely superseded by the final documentation provided to any prospective Investors. You should not rely on this document, but should carefully read all of the legal documentation

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<特定投資家用資料＞

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