the goldman sachs group, inc.annual report pursuant to section 13 or 15(d) of the securities...

UNITED STATES SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

Form 10-KANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2010 Commission File Number: 001-14965

The Goldman Sachs Group, Inc.(Exact name of registrant as specified in its charter)

Delaware 13-4019460(State or other jurisdiction ofincorporation or organization)

(I.R.S. EmployerIdentification No.)

200 West StreetNew York, N.Y.

10282(Zip Code)

(Address of principal executive offices)

(212) 902-1000(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:Title of each class: Name of each exchange on which registered:

Common stock, par value $.01 per share New York Stock ExchangeDepositary Shares, Each Representing 1/1,000th Interest in a Share of Floating RateNon-Cumulative Preferred Stock, Series A

New York Stock Exchange

Depositary Shares, Each Representing 1/1,000th Interest in a Share of 6.20%Non-Cumulative Preferred Stock, Series B


Depositary Shares, Each Representing 1/1,000th Interest in a Share of Floating RateNon-Cumulative Preferred Stock, Series C


Depositary Shares, Each Representing 1/1,000th Interest in a Share of Floating RateNon-Cumulative Preferred Stock, Series D


5.793% Fixed-to-Floating Rate Normal Automatic Preferred Enhanced Capital Securities ofGoldman Sachs Capital II (and Registrant’s guarantee with respect thereto)


Floating Rate Normal Automatic Preferred Enhanced Capital Securities of Goldman SachsCapital III (and Registrant’s guarantee with respect thereto)


Medium-Term Notes, Series B, Index-Linked Notes due February 2013; Index-Linked Notesdue April 2013; Index-Linked Notes due May 2013; and Index-Linked Notes due 2011

NYSE Amex

Medium-Term Notes, Series B, Floating Rate Notes due 2011 New York Stock ExchangeMedium-Term Notes, Series A, Index-Linked Notes due 2037 of GS Finance Corp.(and Registrant’s guarantee with respect thereto)

NYSE Arca

Medium-Term Notes, Series B, Index-Linked Notes due 2037 NYSE ArcaMedium-Term Notes, Series D, 7.50% Notes due 2019 New York Stock Exchange6.125% Notes due 2060 New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.Yes ≤ No n

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.Yes n No ≤

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filingrequirements for the past 90 days.Yes ≤ No n

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data Filerequired to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant wasrequired to submit and post such files).Yes ≤ No n

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to thebest of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of the Annual Report on Form 10-K or anyamendment to the Annual Report on Form 10-K. ≤

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. Seethe definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ≤ Accelerated filer n Non-accelerated filer (Do not check if a smaller reporting company) n Smaller reporting company nIndicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes n No ≤As of June 30, 2010, the aggregate market value of the common stock of the registrant held by non-affiliates of the registrant was approximately

$66.7 billion.As of February 11, 2011, there were 520,507,295 shares of the registrant’s common stock outstanding.Documents incorporated by reference: Portions of The Goldman Sachs Group, Inc.’s Proxy Statement for its 2011 Annual Meeting of Shareholders

to be held on May 6, 2011 are incorporated by reference in the Annual Report on Form 10-K in response to Part III, Items 10, 11, 12, 13 and 14.

THE GOLDMAN SACHS GROUP, INC.

ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 2010

INDEX

Form 10-K Item Number Page No.• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •

PART I 1• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •

Item 1 Business 1• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •

Introduction 1• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •

Our Business Segments and Segment Operating Results 1• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •

Investment Banking 2• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •

Institutional Client Services 3• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •

Investing & Lending 5• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •

Investment Management 5• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •

Business Continuity and Information Security 6• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •

Employees 6• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •

Competition 7• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •

Regulation 8• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •

Available Information 17• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •

Cautionary Statement Pursuant to the U.S. Private Securities Litigation Reform Act of1995 17

• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •

Item 1A Risk Factors 18• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •

Item 1B Unresolved Staff Comments 31• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •

Item 2 Properties 31• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •

Item 3 Legal Proceedings 31• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •

Executive Officers of The Goldman Sachs Group, Inc. 32• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •

PART II 34• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •

Item 5 Market for Registrant’s Common Equity, Related Stockholder Matters and IssuerPurchases of Equity Securities 34

• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •

Item 6 Selected Financial Data 34• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •

Item 7 Management’s Discussion and Analysis of Financial Condition and Results ofOperations 35

• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •

Item 7A Quantitative and Qualitative Disclosures About Market Risk 96• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •

Item 8 Financial Statements and Supplementary Data 97• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •

Item 9 Changes in and Disagreements with Accountants on Accounting and FinancialDisclosure 213

• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •

Item 9A Controls and Procedures 213• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •

Item 9B Other Information 213• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •

PART III 213• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •

Item 10 Directors, Executive Officers and Corporate Governance 213• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •

Item 11 Executive Compensation 213• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •

Item 12 Security Ownership of Certain Beneficial Owners and Management and RelatedStockholder Matters 214

• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •

Item 13 Certain Relationships and Related Transactions, and Director Independence 214• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •

Item 14 Principal Accountant Fees and Services 214• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •

PART IV 215• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •

Item 15 Exhibits and Financial Statement Schedules 215• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •

SIGNATURES II-1

PART I

Item 1. Business

IntroductionGoldman Sachs is a leading global investment banking,securities and investment management firm thatprovides a wide range of financial services to asubstantial and diversified client base that includescorporations, financial institutions, governments andhigh-net-worth individuals.

When we use the terms “Goldman Sachs,” “the firm,”“we,” “us” and “our,” we mean The Goldman SachsGroup, Inc. (Group Inc.), a Delaware corporation, andits consolidated subsidiaries. References to “thisForm 10-K” are to our Annual Report on Form 10-Kfor the fiscal year ended December 31, 2010. Allreferences to 2010, 2009 and 2008 refer to our fiscalyears ended, or the dates, as the context requires,December 31, 2010, December 31, 2009 andNovember 28, 2008, respectively.

Group Inc. is a bank holding company and a financialholding company regulated by the Board of Governorsof the Federal Reserve System (Federal ReserveBoard). Our U.S. depository institution subsidiary,Goldman Sachs Bank USA (GS Bank USA), is a NewYork State-chartered bank.

As of December 2010, we had offices in over 30countries and 44% of our total staff was basedoutside the Americas (which includes the countries inNorth and South America). Our clients are locatedworldwide, and we are an active participant infinancial markets around the world. In 2010, wegenerated 45% of our net revenues outside theAmericas. For more information on our geographicresults, see Note 27 to the consolidated financialstatements in Part II, Item 8 of this Form 10-K.

Our Business Segments and Segment OperatingResultsWe report our activities in four business segments:Investment Banking; Institutional Client Services;Investing & Lending; and Investment Management.The chart below presents our four businesssegments. Prior to the end of 2010, we reported ouractivities in three segments.

Firmwide

Investment Banking Institutional ClientServices

InvestmentManagement

FinancialAdvisory

Fixed Income, Currencyand CommoditiesClient Execution

Managementand Other Fees

Underwriting EquitiesEquity Securities

(ex. ICBC)Incentive Fees

Debt Securitiesand Loans

TransactionRevenues

Other

EquityUnderwriting

DebtUnderwriting

Equities ClientExecution

Commissionsand Fees

SecuritiesServices

Industrial andCommercial Bank ofChina Limited (ICBC)

Investing & Lending

1

The table below presents our segment operating results.

December2010

December2009

November2008

NetRevenues$ in millions

% of 2010Year Ended 1

Investment Banking Net revenues $ 4,810 $ 4,984 $ 5,453 12%• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •

Operating expenses 3,511 3,482 3,269

Pre-tax earnings/(loss) $ 1,299 $ 1,502 $ 2,184

Institutional Client Services Net revenues $21,796 $32,719 $ 22,345 56%• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •


Pre-tax earnings $ 7,505 $19,028 $ 12,051

Investing & Lending Net revenues $ 7,541 $ 2,863 $(10,821) 19%• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •


Pre-tax earnings/(loss) $ 4,180 $ (660) $(13,540)

Investment Management Net revenues $ 5,014 $ 4,607 $ 5,245 13%• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •


Pre-tax earnings $ 963 $ 934 $ 1,717

Total Net revenues $39,161 $45,173 $ 22,222• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •

Operating expenses 2 26,269 25,344 19,886

Pre-tax earnings/(loss) $12,892 $19,829 $ 2,336

1. Financial information concerning our business segments for 2010, 2009 and 2008 (with prior periods recast to reflect our new segmentreporting) is included in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the “FinancialStatements and Supplementary Data,” which are in Part II, Items 7 and 8, respectively, of this Form 10-K. See Note 27 to the consolidatedfinancial statements in Part II, Item 8 of this Form 10-K for a further breakdown of our net revenues.

2. Includes the following expenses that have not been allocated to our segments: (i) charitable contributions of $345 million and $810 million forthe years ended December 2010 and December 2009, respectively; (ii) net provisions for a number of litigation and regulatory proceedings of$682 million, $104 million and $(4) million for the years ended December 2010, December 2009 and November 2008, respectively; and (iii) realestate-related exit costs of $28 million, $61 million and $80 million for the years ended December 2010, December 2009 and November 2008,respectively.

Investment BankingInvestment Banking serves corporate and governmentclients around the world. We provide financial advisoryservices and help companies raise capital to strengthenand grow their businesses. We seek to develop andmaintain long-term relationships with a diverse globalgroup of institutional clients, including governments,states and municipalities. Our goal is to deliver to ourclients the entire resources of the firm in a seamlessfashion, with investment banking serving as the maininitial point of contact with Goldman Sachs.

Financial Advisory. Financial Advisory includesstrategic advisory assignments with respect tomergers and acquisitions, divestitures, corporatedefense activities, risk management, restructuringsand spin-offs. In particular, we help clients executelarge, complex transactions for which we providemultiple services, including “one-stop” acquisitionfinancing and cross-border structuring expertise.

We also assist our clients in managing their asset andliability exposures and their capital. In addition, we mayprovide lending commitments and bank loan and bridgeloan facilities in connection with our advisoryassignments.

2

Underwriting. The other core activity of InvestmentBanking is helping companies raise capital to fund theirbusinesses. As a financial intermediary, our job is tomatch the capital of our investing clients — who aimto grow the savings of millions of people — with theneeds of our corporate and government clients — whoneed financing to generate growth, create jobs anddeliver products and services. Our underwritingactivities include public offerings and privateplacements, including domestic and cross-bordertransactions, of a wide range of securities and otherfinancial instruments. Underwriting also includesrevenues from derivative transactions entered intowith institutional clients in connection with ourunderwriting activities.

Equity Underwriting. We underwrite common andpreferred stock and convertible and exchangeablesecurities. We regularly receive mandates for large,complex transactions and have held a leadingposition in worldwide public common stock offeringsand worldwide initial public offerings for many years.

Debt Underwriting. We underwrite and originatevarious types of debt instruments, includinginvestment-grade and high-yield debt, bank loansand bridge loans, and emerging and growth marketdebt, which may be issued by, among others,corporate, sovereign, municipal and agency issuers.In addition, we underwrite and originate structuredsecurities, which include mortgage-related securitiesand other asset-backed securities.

Institutional Client ServicesInstitutional Client Services serves our clients whocome to the firm to buy and sell financial products,raise funding and manage risk. We do this by actingas a market maker and offering market expertise on aglobal basis. Institutional Client Services makesmarkets and facilitates client transactions in fixedincome, equity, currency and commodity products. Inaddition, we make markets in and clear clienttransactions on major stock, options and futuresexchanges worldwide. Market makers provide liquidityand play a critical role in price discovery, whichcontributes to the overall efficiency of the capitalmarkets. Our willingness to make markets, commitcapital and take risk in a broad range of products iscrucial to our client relationships.

Our clients are primarily institutions that areprofessional market participants, including investmententities whose ultimate customers include individualinvestors investing for their retirement, buyinginsurance or putting aside surplus cash in a depositaccount.

Through our global sales force, we maintainrelationships with our clients, receiving orders anddistributing investment research, trading ideas,market information and analysis. As a market maker,we provide prices to clients globally across thousandsof products in all major asset classes and markets. Attimes we take the other side of transactions ourselves ifa buyer or seller is not readily available and at othertimes we connect our clients to other parties who wantto transact. Much of this connectivity between the firmand its clients is maintained on technology platformsand operates globally wherever and whenever marketsare open for trading.

Institutional Client Services and our other businessesare supported by our Global Investment Researchdivision, which, as of December 2010, providedfundamental research on more than 3,300 companiesworldwide and over 45 national economies, as well ason industries, currencies and commodities.

Institutional Client Services generates revenues inthree ways:

• In large, highly liquid markets (such as markets forU.S. Treasury bills or large capitalization S&P 500stocks), we execute a high volume of transactions forour clients for modest spreads and fees.

• In less liquid markets (such as mid-cap corporatebonds and growth market currencies), we executetransactions for our clients for spreads and fees thatare generally somewhat larger.

• We also structure and execute transactions involvingcustomized or tailor-made products that address ourclients’ risk exposures, investment objectives orother complex needs (such as a jet fuel hedge foran airline).

Institutional Client Services activities are organized byasset class and include both “cash” and “derivative”instruments. “Cash” refers to trading the underlyinginstrument (such as a stock, bond or barrel of oil).“Derivative” refers to instruments that derive theirvalue from underlying asset prices, indices, referencerates and other inputs, or a combination of these factors(such as an option, which is the right or obligation to buyor sell a certain bond or stock index on a specified datein the future at a certain price, or an interest rate swap,which is the right to convert a fixed rate of interest into afloating rate or vice versa).

3

Fixed Income, Currency and Commodities ClientExecution. Includes interest rate products, creditproducts, mortgages, currencies and commodities.

• Interest Rate Products. Government bonds,money market instruments such as commercialpaper, treasury bills, repurchase agreements andother highly liquid securities and instruments, aswell as interest rate swaps, options and otherderivatives.

• Credit Products. Investment-grade corporatesecurities, high-yield securities, bank and securedloans, municipal securities, emerging market anddistressed debt, and credit derivatives.

• Mortgages. Commercial and residentialmortgage-related securities and loan products,and other asset-backed and derivative instruments.

• Currencies. Most currencies, including growthmarket currencies.

• Commodities. Oil and natural gas, base, preciousand other metals, electricity, coal, agricultural andother commodity products.

Equities. Includes equity client execution,commissions and fees, and securities services.

Equities Client Execution. We make markets inequity securities and equity-related products,including convertible securities, options, futures andover-the-counter (OTC) derivative instruments, on aglobal basis. As a principal, we facilitate clienttransactions by providing liquidity to our clients withlarge blocks of stocks or options, requiring thecommitment of our capital. In addition, we engage ininsurance activities where we reinsure and purchaseportfolios of insurance risk and acquire pensionliabilities.

We also structure and execute derivatives on indices,industry groups, financial measures and individualcompany stocks. We develop strategies and provideinformation about portfolio hedging and restructuringand asset allocation transactions for our clients. Wealso work with our clients to create specially tailoredinstruments to enable sophisticated investors toestablish or liquidate investment positions orundertake hedging strategies. We are one of theleading participants in the trading and development ofequity derivative instruments.

Our exchange-based market-making activities includemaking markets in stocks and exchange-traded funds.In the United States, we are one of the leadingDesignated Market Makers (DMMs) for stocks tradedon the NYSE. For ETFs, we are registered marketmakers on NYSE Arca. In listed options, we areregistered as a primary or lead market maker orotherwise make markets on the InternationalSecurities Exchange, the Chicago Board OptionsExchange, NYSE Arca, the Boston OptionsExchange, the Philadelphia Stock Exchange andNYSE Amex. In futures and options on futures, weare market makers on the Chicago MercantileExchange and the Chicago Board of Trade.

Commissions and Fees. We generate commissionsand fees from executing and clearing institutional clienttransactions on major stock, options and futuresexchanges worldwide. We increasingly provide ourclients with access to electronic “low-touch” equitytrading platforms, and electronic trades account forthe majority of our equity trading activity. However, amajority of our net revenues in these activities continueto be derived from our traditional “high-touch” handlingof more complex trades. We expect both types ofactivity to remain important.

Securities Services. Includes financing, securitieslending and other prime brokerage services.

• Financing Services. We provide financing to ourclients for their securities trading activities throughmargin loans that are collateralized by securities,cash or other acceptable collateral. We earn aspread equal to the difference between theamount we pay for funds and the amount wereceive from our client.

• Securities Lending Services. We provideservices that principally involve borrowing andlending securities to cover institutional clients’short sales and borrowing securities to cover ourshort sales and otherwise to make deliveries into themarket. In addition, we are an active participant inbroker-to-broker securities lending and third-partyagency lending activities.

• Other Prime Brokerage Services. We earn feesby providing clearing, custody and settlementservices globally. In addition, we help our hedgefund and other clients maintain the infrastructurethat supports their investing activity by providing asuite of services from the moment a client begins theprocess of establishing a new investing business.We provide a technology platform and reportingwhich enables clients to monitor their securityportfolios, and manage risk exposures.

4

Investing & LendingOur investing and lending activities, which are typicallylonger-term, include the firm’s investing andrelationship lending activities across various assetclasses, primarily including debt securities and loans,public and private equity securities, and real estate.These activities include investing directly in publiclyand privately traded securities and also throughcertain investment funds that we manage. We alsoprovide financing to our clients. We manage adiversified global portfolio of investments in equityand debt securities and other investments in privatelynegotiated transactions, leveraged buyouts,acquisitions and investments in funds managed byexternal parties.

ICBC. We have an investment in the ordinary sharesof ICBC, the largest bank in China.

Equity Securities (excluding ICBC). We makecorporate, real estate and infrastructure equity-relatedinvestments.

Debt Securities and Loans. We make corporate,real estate and infrastructure debt security-relatedinvestments. In addition, we provide credit tocorporate clients through loan facilities and tohigh-net-worth individuals through secured loans.

Other. Our other investments primarily include ourconsolidated investment entities, which are entitieswe hold for investment purposes strictly for capitalappreciation. These entities have a defined exitstrategy and are engaged in activities that are notclosely related to our principal businesses. We alsoinvest directly in distressed assets, currencies,commodities and other assets, including powergeneration facilities.

Investment ManagementInvestment Management provides investment andwealth advisory services to help clients preserve andgrow their financial assets. Our clients includeinstitutions and high-net-worth individuals as well asretail investors, who access our products through anetwork of third-party distributors around the world.

We manage client assets across a broad range of assetclasses and investment strategies, including equity,fixed income and alternative investments. Alternativeinvestments primarily include hedge funds, privateequity, real estate, currencies, commodities, andasset allocation strategies. Our investment offeringsinclude those managed on a fiduciary basis by ourportfolio managers as well as strategies managed bythird-party managers. We offer our investments in avariety of structures, including separately managed

accounts, mutual funds, private partnerships andother commingled vehicles.

We also provide customized investment advisorysolutions designed to address our clients’ investmentneeds. These solutions begin with identifying clients’objectives and continue through portfolio construction,ongoing asset allocation and risk management andinvestment realization. We draw from a variety ofthird-party managers as well as our proprietaryofferings to implement solutions for clients.

We supplement our investment advisory solutions forhigh-net-worth clients with wealth advisory services thatinclude income and liability management, trust andestate planning, philanthropic giving and tax planning.We also use the firm’s global securities and derivativesmarket-making capabilities to address clients’ specificinvestment needs.

Management and Other Fees. The majority ofrevenues in management and other fees is comprisedof asset-based management fees on client assets. Thefees that we charge vary by asset class and are affectedby investment performance as well as asset inflows andredemptions. Other fees we receive include financialcounseling fees generated through our wealth advisoryservices and fees related to the administration of realestate assets.

Assets under management include only those clientassets where we earn a fee for managing assets ona discretionary basis. This includes assets in our mutualfunds, hedge funds, private equity funds and separatelymanaged accounts for institutional and individualinvestors. Assets under management do not includethe self-directed assets of our clients, includingbrokerage accounts, or interest-bearing deposits heldthrough our bank depository institution subsidiaries.

Incentive Fees. In certain circumstances, we are alsoentitled to receive incentive fees based on a percentageof a fund’s or a separately managed account’s return, orwhen the return exceeds a specified benchmark orother performance targets. Such fees includeoverrides, which consist of the increased share of theincome and gains derived primarily from our privateequity and real estate funds when the return on afund’s investments over the life of the fund exceedscertain threshold returns. Incentive fees are recognizedonly when all material contingencies are resolved.

Transaction Revenues. We receive commissionsand net spreads for facilitating transactional activity inhigh-net-worth client accounts. In addition, we earn netinterest income primarily associated with client depositsand margin lending activity undertaken by such clients.

5

The tables below present assets under management by asset class and by distribution channel and client category.

in billionsDecember 31,

2010December 31,

2009November 30,

2008

As of

Alternative investments $148 $146 $146• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •

Equity 144 146 112• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •

Fixed income 340 315 248

Total non-money market assets 632 607 506• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •

Money markets 208 264 273

Total assets under management $840 $871 $779

in billionsDecember 31,

2010December 31,

2009November 30,

2008

As of

Directly Distributed:Institutional $286 $297 $273• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •

High-net-worth individuals 229 231 215• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •

Third-Party Distributed:Institutional, high-net-worth individuals and retail 325 343 291

Total $840 $871 $779

Business Continuity and Information Security

Business continuity and information security are highpriorities for Goldman Sachs. Our Business ContinuityProgram has been developed to provide reasonableassurance of business continuity in the event ofdisruptions at the firm’s critical facilities and to complywith regulatory requirements, including those of FINRA.Because we are a bank holding company, our BusinessContinuity Program is also subject to review by theFederal Reserve Board. The key elements of theprogram are crisis management, people recoveryfacilities, business recovery, systems and datarecovery, and process improvement. In the area ofinformation security, we have developed andimplemented a framework of principles, policies andtechnology to protect the information assets of thefirm and our clients. Safeguards are applied tomaintain the confidentiality, integrity and availability ofinformation resources.

Employees

Management believes that a major strength andprincipal reason for the success of Goldman Sachsis the quality and dedication of our people andthe shared sense of being part of a team. We striveto maintain a work environment that fostersprofessionalism, excellence, diversity, cooperationamong our employees worldwide and high standardsof business ethics.

Instilling the Goldman Sachs culture in all employees isa continuous process, in which training plays animportant part. All employees are offered theopportunity to participate in education and periodicseminars that we sponsor at various locationsthroughout the world. Another important part ofinstilling the Goldman Sachs culture is our employeereview process. Employees are reviewed bysupervisors, co-workers and employees theysupervise in a 360-degree review process that isintegral to our team approach, and includes anevaluation of an employee’s performance with respectto risk management, compliance and diversity.

As of December 2010, we had 35,700 total staff,excluding staff at consolidated entities held forinvestment purposes. See “Management’s Discussionand Analysis of Financial Condition and Resultsof Operations — Results of Operations — OperatingExpenses” in Part II, Item 7 of this Form 10-K foradditional information on our consolidated entitiesheld for investment purposes.

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Competition

The financial services industry — and all of ourbusinesses — are intensely competitive, and weexpect them to remain so. Our competitors are otherentities that provide investment banking, securities andinvestment management services, as well as thoseentities that make investments in securities,commodities, derivatives, real estate, loans and otherfinancial assets. These entities include brokers anddealers, investment banking firms, commercial banks,insurance companies, investment advisers, mutualfunds, hedge funds, private equity funds andmerchant banks. We compete with some entitiesglobally and with others on a regional, product orniche basis. Our competition is based on a number offactors, including transaction execution, our productsand services, innovation, reputation and price.

We also face intense competition in attracting andretaining qualified employees. Our ability to continueto compete effectively will depend upon our ability toattract new employees, retain and motivate our existingemployees and to continue to compensate employeescompetitively amid intense public and regulatoryscrutiny on the compensation practices of largefinancial institutions. Our pay practices and those ofour principal competitors are subject to review by, andthe standards of, the Federal Reserve Board andregulators outside the United States, including theFinancial Services Authority (FSA) in the UnitedKingdom. See “Regulation — Banking Regulation”and “Regulation — Compensation Practices” belowand “Risk Factors — Our businesses may beadversely affected if we are unable to hire and retainqualified employees” in Part I, Item 1A of this Form 10-Kfor more information on the regulation of ourcompensation practices.

Over time, there has been substantial consolidation andconvergence among companies in the financialservices industry. This trend accelerated in recentyears as the credit crisis caused numerous mergersand asset acquisitions among industry participants.Many commercial banks and other broad-basedfinancial services firms have had the ability for sometime to offer a wide range of products, from loans,deposit-taking and insurance to brokerage, assetmanagement and investment banking services, whichmay enhance their competitive position. They also havehad the ability to support investment banking andsecurities products with commercial banking,insurance and other financial services revenues in aneffort to gain market share, which has resulted in pricingpressure in our investment banking and client execution

businesses and could result in pricing pressure in otherof our businesses.

Moreover, we have faced, and expect to continue toface, pressure to retain market share by committingcapital to businesses or transactions on terms that offerreturns that may not be commensurate with their risks.In particular, corporate clients seek such commitments(such as agreements to participate in their commercialpaper backstop or other loan facilities) from financialservices firms in connection with investment bankingand other assignments.

Consolidation and convergence have significantlyincreased the capital base and geographic reach ofsome of our competitors, and have also hastened theglobalization of the securities and other financialservices markets. As a result, we have had to commitcapital to support our international operations and toexecute large global transactions. To take advantage ofsome of our most significant challenges andopportunities, we will have to compete successfullywith financial institutions that are larger and havemore capital and that may have a stronger localpresence and longer operating history outside theUnited States.

We have experienced intense price competition in someof our businesses in recent years. For example, over thepast several years the increasing volume of tradesexecuted electronically, through the internet andthrough alternative trading systems, has increasedthe pressure on trading commissions, in thatcommissions for “low-touch” electronic trading aregenerally lower than for “high-touch” non-electronictrading. It appears that this trend toward electronicand other “low-touch,” low-commission trading willcontinue. In addition, we believe that we will continueto experience competitive pressures in these and otherareas in the future as some of our competitors seek toobtain market share by further reducing prices.

The provisions of the U.S. Dodd-Frank Wall StreetReform and Consumer Protection Act (Dodd-FrankAct) and other financial regulation could affect ourcompetitive position to the extent that limitations onactivities, increased fees and compliance costs orother regulatory requirements do not apply, or do notapply equally, to all of our competitors. The impact of theDodd-Frank Act on our competitive position will dependto a large extent on the details of the requiredrulemaking, as discussed further under “Regulation”below.

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Regulation

As a participant in the banking, securities, futures andoptions and insurance industries, we are subject toextensive regulation worldwide. Regulatory bodiesaround the world are generally charged withsafeguarding the integrity of the securities and otherfinancial markets and with protecting the interests of thecustomers of market participants, including depositorsin banking entities and the customers of broker-dealers.They are not, however, generally charged withprotecting the interests of security holders.

The financial services industry has been the subject ofintense regulatory scrutiny in recent years. Ourbusinesses have been subject to increasingregulation in the United States and other countries,and we expect this trend to continue in the future.The Dodd-Frank Act, which was enacted inJuly 2010, significantly alters the framework withinwhich we operate, including through the creation of anew systemic risk oversight body, the Financial StabilityOversight Council (FSOC). The FSOC will oversee andcoordinate the efforts of the primary U.S. financialregulatory agencies (including the Federal ReserveBoard, the SEC, the CFTC and the FDIC) inestablishing regulations to address financial stabilityconcerns. The Dodd-Frank Act directs the FSOC tomake recommendations to the Federal ReserveBoard as to supervisory requirements and prudentialstandards applicable to systemically important financialinstitutions, including risk-based capital, leverage,liquidity and risk-management requirements. TheDodd-Frank Act mandates that the requirementsapplicable to systemically important financialinstitutions be more stringent than those applicable toother financial companies. Although the criteria fortreatment as a systemically important financialinstitution have not yet been determined, it isprobable that they will apply to our firm.

The implications of the Dodd-Frank Act for ourbusinesses will depend to a large extent on theprovisions of required future rulemaking by theFederal Reserve, the FDIC, the SEC, the CFTC andother agencies, as well as the development of marketpractices and structures under the regime establishedby the legislation and the rules adopted pursuant to it, asdiscussed further throughout this section.

Banking RegulationIn September 2008, Group Inc. became a bank holdingcompany under the Bank Holding Company Act of 1956(BHC Act) and the Federal Reserve Board became theprimary regulator of Group Inc., as a consolidated entity.In August 2009, Group Inc. became a financial holdingcompany under amendments to the BHC Act effectedby the U.S. Gramm-Leach-Bliley Act of 1999 (GLB Act).

Supervision and RegulationAs a bank holding company and a financial holdingcompany under the BHC Act, Group Inc. is subject tosupervision and examination by the Federal ReserveBoard. Under the system of “functional regulation”established under the BHC Act, the Federal ReserveBoard serves as the primary regulator of ourconsolidated organization, but generally defers to theprimary regulators of our U.S. non-bank subsidiarieswith respect to the activities of those subsidiaries. Such“functionally regulated” non-bank subsidiaries includebroker-dealers registered with the SEC, such as ourprincipal U.S. broker-dealer, Goldman, Sachs & Co.(GS&Co.), insurance companies regulated by stateinsurance authorities, investment advisers registeredwith the SEC with respect to their investmentadvisory activities and entities regulated by the CFTCwith respect to certain futures-related activities.

ActivitiesThe BHC Act generally restricts bank holdingcompanies from engaging in business activities otherthan the business of banking and certain closely relatedactivities. As a financial holding company, we mayengage in a broader range of financial and relatedactivities than are permissible for bank holdingcompanies as long as we continue to meet theeligibility requirements for financial holdingcompanies, including our U.S. depository institutionsubsidiaries (consisting of GS Bank USA and ournational bank trust company subsidiary) maintainingtheir status as “well-capitalized” and “well-managed”as described under “— Prompt Corrective Action”below. These activities include underwriting, dealingand making markets in securities, insuranceunderwriting and making investments in nonfinancialcompanies. In addition, we are permitted under theGLB Act to continue to engage in certaincommodities activities in the United States that wouldotherwise be impermissible for bank holdingcompanies, so long as the assets held pursuant tothese activities do not equal 5% or more of ourconsolidated assets.

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Beginning in July 2011, our financial holding companystatus will also depend on Group Inc.’s maintaining itsstatus as “well-capitalized” and “well-managed.”

As a bank holding company, we are required to obtainprior Federal Reserve Board approval before directly orindirectly acquiring more than 5% of any class of votingshares of any unaffiliated depository institution. Inaddition, as a bank holding company, we maygenerally engage in banking and other financialactivities abroad, including investing in and owningnon-U.S. banks, if those activities and investments donot exceed certain limits and, in some cases, if we haveobtained the prior approval of the Federal ReserveBoard.

We expect to face additional limitations on our activitiesupon implementation of those provisions of theDodd-Frank Act referred to as the “Volcker Rule,”which will prohibit “proprietary trading” (other than forcertain risk-mitigation activities) and limit thesponsorship of, and investment in, hedge funds andprivate equity funds by banking entities, including bankholding companies such as us. The extent of theadditional limitations will depend on the details ofagency rulemaking. The Volcker Rule provisions willtake effect no later than July 2012, and companieswill be required to come into compliance within twoyears after the effective date (subject to possibleextensions).

Capital and Liquidity RequirementsAs a bank holding company, we are subject toconsolidated regulatory capital requirementsadministered by the Federal Reserve Board.GS Bank USA is subject to broadly similar capitalrequirements, as discussed below. Under the FederalReserve Board’s capital adequacy requirements andthe regulatory framework for prompt corrective actionthat is applicable to GS Bank USA, Group Inc. andGS Bank USA must meet specific regulatory capitalrequirements that involve quantitative measures ofassets, liabilities and certain off-balance-sheet items.The calculation of our capital levels and those ofGS Bank USA, as well as GS Bank USA’s promptcorrective action classification, are also subject toqualitative judgments by regulators.

Tier 1 Leverage and Basel I Capital Ratios. SeeNote 20 to the consolidated financial statements inPart II, Item 8 of this Form 10-K for information onour Tier 1 capital ratio, Tier 1 capital, total capital,risk-weighted assets and Tier 1 leverage ratio, andfor a discussion of minimum required ratios.

Pending Changes in Capital Requirements. Weare currently working to implement the requirementsset out in the Federal Reserve Board’s CapitalAdequacy Guidelines for Bank Holding Companies:Internal Ratings-Based and Advanced MeasurementApproaches, which are based on the advancedapproaches under the Revised Framework for theInternational Convergence of Capital Measurementand Capital Standards issued by the BaselCommittee on Banking Supervision (BaselCommittee) as such requirements apply to us as abank holding company (Basel 2). U.S. bankingregulators have incorporated the Basel 2 frameworkinto the existing risk-based capital requirements byrequiring that internationally active bankingorganizations, such as us, transition to Basel 2following the successful completion of a parallel run.

In addition, the Basel Committee has undertaken aprogram of substantial revisions to its capitalguidelines. In particular, the changes in the“Basel 2.5” guidelines will result in increased capitalrequirements for market risk. Additionally, the Basel 3guidelines issued by the Basel Committee inDecember 2010 revise the definition of Tier 1 capital,introduce Tier 1 common equity as a regulatory metric,set new minimum capital ratios (including a new “capitalconservation buffer,” which must be composedexclusively of Tier 1 common equity and will be inaddition to the other capital ratios), introduce a Tier 1leverage ratio within international guidelines for the firsttime, and make substantial revisions to the computationof risk-weighted assets for credit exposures.Implementation of the new requirements is expectedto take place over an extended transition period,starting at the end of 2011 (for Basel 2.5) and end of2012 (for Basel 3). Although the U.S. federal bankingagencies have now issued proposed rules that areintended to implement certain aspects of theBasel 2.5 guidelines, they have not yet addressed allaspects of those guidelines or the Basel 3 changes. Inaddition, both the Basel Committee and U.S. bankingregulators implementing the Dodd-Frank Act haveindicated that they will impose more stringent capitalstandards on systemically important financialinstitutions. Therefore, the regulations ultimatelyapplicable to us may be substantially different fromthose that have been published to date.

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The Dodd-Frank Act will subject Goldman Sachs at afirmwide level to the same leverage and risk-basedcapital requirements that apply to depositoryinstitutions, and directs banking regulators to imposeadditional capital requirements, as discussed above.The Federal Reserve Board will be required to beginimplementing the new leverage and risk-based capitalregulation by January 2012. As a consequence of thesechanges, Tier 1 capital treatment for our juniorsubordinated debt issued to trusts and our cumulativepreferred stock will be phased out over a three-yearperiod beginning on January 1, 2013. The interactionbetween the Dodd-Frank Act and the BaselCommittee’s proposed changes adds furtheruncertainty to our future capital requirements. Forexample, regulations implementing provisions of theDodd-Frank Act are expected to subject us to acontinuing “floor” of the Federal Reserve Board’sregulatory requirements currently applicable to bankholding companies (Basel 1), which are based on theCapital Accord of the Basel Committee, in cases whereBasel 2 or Basel 3 would otherwise permit lower capitalrequirements.

Liquidity Ratios under Basel 3. Historically,regulation and monitoring of bank and bank holdingcompany liquidity has been addressed as asupervisory matter, both in the U.S. and internationally,without required formulaic measures. Basel 3 will requirebanks and bank holding companies to measure theirliquidity against two specific liquidity tests that, althoughsimilar in some respects to liquidity measures historicallyapplied by banks and regulators for management andsupervisory purposes, will be required by regulation. Onetest, referred to as the liquidity coverage ratio, isdesigned to ensure that the banking entity maintainsan adequate level of unencumbered high-quality liquidassets equal to the entity’s expected net cash outflow fora 30-day time horizon (or, if greater, 25% of its expectedtotal cash outflow) under an acute liquidity stressscenario. The other, referred to as the net stablefunding ratio, is designed to promote more medium-and long-term funding of the assets and activities ofbanking entities over a one-year time horizon. Theserequirements may incent banking entities to increasetheir holdings of U.S. Treasury securities and othersovereign debt as a component of assets and increasethe use of long-term debt as a funding source. Theliquidity coverage ratio would be implemented subjectto an observation period beginning in 2011, but would notbe introduced as a requirement until January 1, 2015,and the net stable funding ratio would not be introducedas a requirement until January 1, 2018. These newstandards are subject to further rulemaking and theirterms may change before implementation.

Payment of DividendsDividend payments by Group Inc. to its shareholdersare subject to the oversight of the Federal ReserveBoard. Under temporary guidance issued by theFederal Reserve Board in November 2010, thedividend policy of large bank holding companies,such as Goldman Sachs, is reviewed by the FederalReserve Board based on capital plans and stress testssubmitted by the bank holding company, and will beassessed against, among other things, the ability toachieve the Basel 3 capital ratio requirements referredto above as they are phased in by U.S. regulators andany potential impact of the Dodd-Frank Act on thecompany’s risk profile, business strategy, corporatestructure or capital adequacy. The Federal Reserve’scurrent guidance provides that, for large bank holdingcompanies like us, dividend payout ratios exceeding30% of after-tax net income will receive particularlyclose scrutiny.

Federal and state law imposes limitations on thepayment of dividends by our depository institutionsubsidiaries to Group Inc. In general, the amount ofdividends that may be paid by GS Bank USA or ournational bank trust company subsidiary is limited to thelesser of the amounts calculated under a “recentearnings” test and an “undivided profits” test. Underthe recent earnings test, a dividend may not be paid ifthe total of all dividends declared by the entity in anycalendar year is in excess of the current year’s netincome combined with the retained net income of thetwo preceding years, unless the entity obtains priorregulatory approval. Under the undivided profits test,a dividend may not be paid in excess of the entity’s“undivided profits” (generally, accumulated net profitsthat have not been paid out as dividends or transferredto surplus). While GS Bank USA could have declareddividends of $4.63 billion to Group Inc. as ofDecember 2010 in accordance with these limitations,the banking regulators have overriding authority toprohibit the payment of any dividends by GS BankUSA. In addition to the dividend restrictions describedabove, the banking regulators have authority to prohibitor to limit the payment of dividends by the bankingorganizations they supervise if, in the bankingregulator’s opinion, payment of a dividend wouldconstitute an unsafe or unsound practice in light ofthe financial condition of the banking organization.

In addition, certain of Group Inc.’s non-banksubsidiaries