The Goldman Sachs Group, Inc. (NYSE: GS) today reported net revenues of $12.37 billion and net earnings of $3.19 billion for its third quarter ended September 25, 2009.

Diluted earnings per common share were $5.25 compared with $1.81 for the third quarter ended August 29, 2008 and $4.93 for the second quarter ended June 26, 2009. Annualized return on average common shareholders' equity (ROE) was 21.4% for the third quarter of 2009 and 19.2% for the first nine months of 2009.

Business Highlights

• Goldman Sachs continued its leadership in worldwide mergers and acquisitions, ranking first in worldwide announced transactions for the calendar year-to-date.

• Fixed Income, Currency and Commodities (FICC) generated quarterly net revenues of $5.99 billion, reflecting strong results across most businesses.

• Equities generated quarterly net revenues of $2.78 billion, reflecting strong results across the franchise.

• The firm's Tier 1 capital ratio under Basel I was 14.5% as of September 25, 2009, up from 13.8% as of June 26, 2009. The firm's Tier 1 common ratio under Basel I was 11.6% as of September 25, 2009, up from 10.9% as of June 26, 2009.

• Book value per common share increased 4% during the quarter to $110.75 and tangible book value per common share increased 5% during the quarter to $101.39. • On July 22, 2009, the firm repurchased the warrant issued to the U.S. Treasury pursuant to the Treasury's TARP Capital Purchase Program for $1.1 billion. The U.S. taxpayers' annualized return on their total investment in the firm was approximately 23%.

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'Although the world continues to face serious economic challenges, we are seeing improving conditions and evidence of stabilization, even growth, across a number of sectors', said Lloyd C. Blankfein, Chairman and Chief Executive Officer. 'Our client franchise businesses - advisory, financing, market making and asset management - contribute to and benefit from the overall improvement in conditions. Because the job market, and growth more generally, remain under stress, we continue to be focused on actively helping our clients in order to promote greater economic activity'.

Net Revenues

Investment Banking

Net revenues in Investment Banking were $899 million, 31% lower than the third quarter of 2008 and 38% lower than the second quarter of 2009.

Net revenues in Financial Advisory were $325 million, 47% lower than the third quarter of 2008, primarily reflecting a significant decline in industry-wide completed mergers and acquisitions. Net revenues in the firm's Underwriting business were $574 million, 15% lower than the third quarter of 2008, due to significantly lower net revenues in debt underwriting, partially offset by higher net revenues in equity underwriting. The decrease in debt underwriting primarily reflected a decline in net revenues from leveraged loans. The increase in equity underwriting primarily reflected an increase in industry-wide initial public offerings. The firm's investment banking transaction backlog increased significantly during the quarter.

Trading and Principal Investments

Net revenues in Trading and Principal Investments were $10.03 billion, significantly higher than the third quarter of 2008 and 7% lower than a record second quarter of 2009.

Net revenues in FICC were $5.99 billion, significantly higher than the third quarter of 2008. These results reflected strong performances in credit products and mortgages, which were significantly higher compared with a difficult third quarter of 2008. Net revenues in interest rate products were also strong and significantly higher compared with the third quarter of 2008, while net revenues in commodities and currencies were lower compared with the same prior year period. During the quarter, FICC operated in an environment characterized by solid client activity levels, tighter credit spreads and a general improvement in asset values.

Net revenues in Equities were $2.78 billion, 78% higher than the third quarter of 2008. These results reflected strong net revenues in derivatives, which were significantly higher than the third quarter of 2008, as well as a solid performance in shares. In addition, net revenues in principal strategies improved significantly compared with a difficult third quarter of 2008. Commissions declined compared with the third quarter of 2008. During the quarter, Equities operated in an environment generally characterized by a significant increase in global equity prices, favorable market opportunities and a decline in volatility levels.

Principal Investments recorded net revenues of $1.26 billion for the third quarter of 2009. These results included a gain of $977 million from corporate principal investments, a gain of $344 million related to the firm's investment in the ordinary shares of Industrial and Commercial Bank of China Limited (ICBC) and a loss of $66 million from real estate principal investments.

Asset Management and Securities Services

Net revenues in Asset Management and Securities Services were $1.45 billion, 29% lower than the third quarter of 2008 and 6% lower than the second quarter of 2009.

Asset Management net revenues were $974 million, 14% lower than the third quarter of 2008, primarily reflecting the impact of changes in the composition of assets managed. During the third quarter of 2009, assets under management increased $29 billion to $848 billion, due to $39 billion of market appreciation, primarily in equity and fixed income assets, partially offset by $10 billion of net outflows. Net outflows primarily reflected outflows in money market assets, partially offset by inflows in fixed income assets.
Securities Services net revenues were $472 million, 48% lower than the third quarter of 2008. The decrease in net revenues primarily reflected the impact of lower customer balances compared with the third quarter of 2008.

Expenses

Operating expenses were $7.58 billion, 49% higher than the third quarter of 2008 and 13% lower than the second quarter of 2009.

Compensation and Benefits

Compensation and benefits expenses (including salaries, estimated year-end discretionary compensation, amortization of equity awards and other items such as payroll taxes, severance costs and benefits) were $5.35 billion, which was higher than the third quarter of 2008, due to higher net revenues. The ratio of compensation and benefits to net revenues was 43.3% for the third quarter of 2009 (compared with 48.3% for the second quarter of 2009), resulting in a ratio of compensation and benefits to net revenues of 47.0% for the first nine months of 2009. This ratio was 49.0% for the first six months of 2009 and 48.0% for the first nine months of 2008.

Non-Compensation Expenses

Non-compensation expenses were $2.23 billion, 2% higher than the third quarter of 2008 and 7% higher than the second quarter of 2009. The increase compared with the third quarter of 2008 reflected the impact of a $200 million charitable contribution to The Goldman Sachs Foundation and $36 million of net provisions for litigation and regulatory proceedings during the third quarter of 2009, partially offset by the impact of lower transaction volumes in Equities.

Provision for Taxes

The effective income tax rate for the first nine months of 2009 was 32.2%, up slightly from 31.5% for the first half of 2009.

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