Preliminary Conference Call Transcript: Goldman Sachs (GS) Business Update Call March 20, 2009<<Company Speaker>>Good morning ladies and gentlemen. My name is Gerald, and I will be your conference operator today. At this time, I would liketo welcome everyone to the Goldman Sachs CFO Conference call. All lines have been placed on mute to [audio gap] [Operator Instructions] [audio gap] turn it over to Lucas van Praag, Head of Corporate Communications. Sir, you may begin.<<Company Speaker>>Thank you. Good morning everybody, welcome to the conference call today. During the call, we will answer questions andclarify some perceptions regarding Goldman Sachs' trading relationship with AIG.I'd like to remind you this call is only to discuss AIG. Questions related to earnings or to any other issues are not going to beanswered. But you are, of course, welcome to call me after the call on 212-902-5400. Today's call may include forward-lookingstatements. These statements represent the firm's beliefs regarding future events by their nature of uncertain and outside the firm'scontrol. This audiocast is copyrighted material of the Goldman Sachs Group Inc. and they're not to be duplicated if we producerebroadcast without our consent. Now, let me turn the call over to David Viniar, our CFO. David?<<David A. Viniar, Executive Vice President and Chief Financial Officer>>Thanks, Lucas, and good morning to everyone. We appreciate all of you taking the time to be on this call. Over the last severalweeks and particularly in recent days, we've received a lot of questions concerning our trading relationship with AIG. Werecognize that this is a complex set of issues and we thought it'd be helpful to provide a brief overview of the nature of interactionwith AIG, including a general timeline that I hope will illustrate how we manage our risk.<<Company Speaker>>consistent with the way in which we manage counterparty risk more generally. I also want to provide an explanation of our exposure to AIG.Since the mid-1990s, Goldman Sachs has had a significant trading relationship with AIG. Our business with them stands in anumber of their entities including many of their insurance subsidiaries, and it included multiple activities such as stock lending,foreign exchange, fixed income, futures and mortgage service.AIG was aAAA-rated company, one of the largest and considered one of the most sophisticated trading counterparts in the world.We established credit accounts with them commensurate with those extended to other major counterparts, including a willingnessto do substantial trading volume with subject to collateral arrangements that were tightly managed.As we do with many other counterparty relationships, we limited our overall credit exposure to AIG through a combination of collateral and market hedges in order to protect ourselves against the potential inability of AIG to make good on its commitment.We established a predetermined hedging program which provided with aggregate exposure move above the certain thresholdCDF's and other credit hedges would be obtained.This hedging is designed to keep our overall<<Company Speaker>>manageable levels. As part of our trading with AIG, we purchased protection on super-senior CDO risk. This protection wasdesigned to hedge equivalent transactions executed with clients taking the other side of the same trace. In so doing, we serve asan intermediary in assisting our clients to express a defined view on the market.The net risk we were exposed to was consistent overall as a market intermediary rather than a proprietary market participant. InJuly 2007, we began to significantly markdown our super-senior CDO risk. Our rigorous commitment to mark-to-marketaccounting prompted us to do so on a basis which we believe was ahead of other institutions. This resulted in collateral disputeswith AIG.Over subsequent weeks and months we continued to make collateral cost as the market deteriorated. While we collectedsignificant amounts of collateral, there remains material gap between what we were paid and what we believed we owed. As wasstated on multiple occasions, these gaps were hedged in full by the purchase of CDS and other risk mitigants, such that we had nomaterial risk.

In mid-September, prior to the governments actions to save AIG, the majority of Goldman Sachs exposure to AIG wascollateralized and the rest was covered through various risk mitigants. Our total exposure was roughly $10 billion, which predominantly included AIGFP, but also a number of other AIG legal entities.Against this, we held roughly $7.5 billion in collateral. The remainder was fully covered through hedges we purchased primarilythrough CDS. Again, as we have said before, we had no material economic exposure to AIG.In this regard, a list of AIG's cash flows to counterparties indicates little about credit exposure to the company. So let me turn tothe three buckets AIG identified in which cash flows to counterparties. The first represented $2.6 billion in additional collateralthat was called as market continued to deteriorate. This posting of collateral was consistent with the agreements we entered intowith AIG.The second bucket was the $5.6 billion associated with Maiden Lane III. In mid-November, the Federal Reserve's established thisfinancing entity to purchase the securities underlying certain CDS contracts and affect the cancellation of those contracts betweenAIG and counterparties.The Federal Reserve required that the counterparties delivered the cash funds to Maiden Lane in order to settle the CDS contractand to avoid any further collateral risk. Consequently the cash flow of --<<Company Speaker>>-- the cash flow $5.6 billion between Maiden Lane and Goldman Sachs reflected the Federal Reserve paying Goldman Sachs theface value of the securities, less the collateral held on those securities. We then spent the vast majority of the money we receivedto buy the cash funds from our counterparties in order to complete the settlement as required by the Federal Reserve.The third bucket AIG identified involved $4.8 billion related to securities lending. Financial institutions regularly exchangesecurities for cash to facilitate their liquidity needs. In this case, AIG gave Goldman Sachs $4.8 billion in securities, which werelargely the highest quality, very liquid agency securities. Goldman Sachs in return gave $4.8 billion in cash to AIG. The $4.8 billion referenced in AIG's disclosure was simply the return of cash to Goldman Sachs in exchange for the return of securitiesAIG has posted.AIG repaid the money to Goldman Sachs and we returned the collateral to AIG. Since these securities were highly liquid andmark-to-market, had AIG not returned the cash, we would have sold the securities for roughly $4.8 billion. We stated consistentlythat Goldman Sachs did not have a significant economic exposure at AIG. AIG's disclosure of cash flow to counterparties doesnot in any way contradict that statement.In the middle of September it was clear that AIG would either be supported by the government and meet its obligations bymaking payments or posting collateral or it would sell. In the case of the latter, we would have collected our hedges and retain thecollateral posted by AIG. That is why we are able to say that whether it failed or not, AIG would have had no material directimpact on Goldman Sachs.I hope this information has cleared up much of the confusion that existed. I would now be happy to answer any questions youhave.Q&AOperator: Your first question comes from the miserable with L.A. Times.<Q>: Yeah, thanks. What I'm wondering is if you were adequately hedged against any losses, why can't you take any discountson what you got back from AIG in tax payer money?<A - David A. Viniar>: Well, Jim, here is the way that's there. We have commercial contract with AIG. We entered into thiscontract on commercial terms. We were fully hedged with either as we said CBS on collateral, so we were not in our position totackle off. We were -- we said we entered into this the terms if they had taken discount and we will take and loss for GoldmanSachs and frankly as I'm sure you know, we also --at Goldman Sachs and it's part of our responsibility is to protect that -- money and not lose it. And so should not comply with thecommercial terms we have [indiscernible] were across the trends taken lots were there was no work coming.Operator: Your next question comes from Peter -- with Wall Street Journal.<Q>: Following on for Natt. [indiscernible] a loss if you look for we hedged?<A>: I'm sorry, Peter I'll make sure I understood the question.

<Q>: I mean if you referring was they filed or not. And they just want a way that they have a page with single dime again withthere impose any -- with you. You wouldn't have -- you would enough book any loss whatsoever, right?<A>: Correct -- Correct. That's correct. But what I was saying I think the question was net on the transactions we did with them.We should have taken a discount, which I thought -- you would say essentially now we should have returned some of thecollateralized and not capital in settlement of the transaction. If we had done math then we would have that --. But that we have been setting the transaction at a discount. Is that correct, or do you have anything about. That's right that we wouldn't want to dothat because we work for it but didn't happen to take a look.<Q>: Well but I was saying I mean regardless of what you took there, are you already covered completely or saying anyway. Sois even you took it at a discount you would have incurred on those hedges, right?<A>: Yeah. We were fully covered with yes, with the collateralized and with the hedge. As what is the hedge is by themselvesand what would I said is in September we had about 7.5 billion of collaterals and 2.5 billion of hedges that totaled $10 billionwhich is that we disclosure. If we had to take a discount on that Sun .5 billion of collateralized, as they said we want to sell of the-- we wanted to do give its back some of the collateralized, so it is a discount. Then we wouldn't be fully covered.<Q>: You said you got most of collateral before the collapse and therefore the rest was [indiscernible] mostly under that 2.5which came of. That we would have taken a lot which came of with that. So you'd have taken a lot in the 2.5? You're saying?<A>: You need a maybe I would say I must be confused that confusing [indiscernible] question was at a discount on thetransaction which would have meant with current some of the collateral. And then we wouldn't be fully covered. If we had toreturn some of the collaterals.<Q>: Okay. All right. Okay, you're saying 10 billion what I would like to say 20 billion and so the IG -- total AIG exposure.What's the difference.<A>: The 20 billion that was the first with the total notion analysis of the trade. So that was how much total protection we've got--. The $10 billion in a way represents -- represented once a deterioration in the market and so how much had to actually becovered by the production. 20 billion-budget total -- analysis of the trade that has been done.<Q>: Okay. And then before the collapse exactly how much collateral would be posted?-- [indiscernible] okay. And then, other than the super senior CDOs, David, it was there any other trade is going over with AIG.Having posted -- have you received collateral payments on those if it goes -- if you look at the AIG disclosure, about $40 millionof [indiscernible] exposure on the market sector CDOs, that is less [indiscernible] 20 billion, what's the difference?<A - David Viniar>: Yeah. We do have the other trades with AIG. As a super senior CDOs, we're largely transaction in alltransactions that we've done with cash bond in the late that. We have in the ones that we [indiscernible] outstanding now and oncethat we are not [indiscernible] since that transaction. We have significance with them and derivatives on the other side. So there isreally no cash bonds involved. And those are what are still outstanding now and that's way to [indiscernible].<Q>: And how much? How much coal at all?<A - David Viniar>: We have roughly a little bit over $4.4 billion of collateral right now.<Q>: On that particular trade?<A - David Viniar>: Yes.<Q>: Okay, thanks.<A - David Viniar>: You're welcome.Operator: Your next question comes from [indiscernible].<Q>: Good morning, David.<A - David Viniar>: Good morning, Christine.<Q>: Hi. Can you just clarifies some of the -- you say you have a $10 million of [indiscernible] 7.5 billion collateral. How wasthat collateral with super senior CDOs, what was the colonical that you have there? And once the liquidity agencies I think [indiscernible]