March 19, 2010 United States: Financial Services

March 19, 2010

United States: Financial Services

Capital market trends: A choppy start, but the outlook remains rosy
Buy JPM & BAC; JEF as source of funds Expect FICC up, Banking & Equities down
GS ESTIMATE REVISIONS AND VS. CONSENSUS
We continue to have a positive view on the Fixed income could be up nearly 50% qoq for
outlook for capital markets activity despite a weak the firms in our coverage group. Rates and Credit Goldman Sachs EPS (New) Goldman Sachs EPS (Old)

Ticker 1Q10E 2010E 2011E 1Q10E 2010E 2011E

February. While we are reducing capital market remain healthy, and 1Q results tend to be up more Large-cap banks

revenue estimates for Q1, strong M&A backlogs, than 50% from seasonally weak 4Q2009 levels. BAC
C
$0.10
$0.01
$1.00
$0.10
$2.20
$0.30
$0.12
$0.01
$1.05
$0.10
$2.20
$0.30
JPM $0.70 $3.25 $5.00 $0.74 $3.30 $5.00
improving ECM pipelines as well as our This is likely to be offset by lower Commodities MS $0.55 $2.95 $3.60 $0.71 $3.00 $3.60
Mid-cap Brokers
expectation for a steep yield curve should continue and F/X results, which were impacted by lower JEF $0.32 $1.45 $1.75 $0.38 $1.55 $1.75
PJC $0.55 $2.70 $3.80 $0.64 $2.80 $3.80
to support activity into the second quarter. volatility and a generally tighter level of pricing in
many products.
March M&A deal flow has been strong,
particularly in Asia and the US. FICC is also Equities are likely to be soft as exchange Goldman Sachs EPS Consensus EPS
Ticker 1Q10E 2010E 2011E 1Q10E 2010E 2011E
expected to remain robust in rates and credit. volumes are modestly higher but volatility and Large-cap banks
BAC $0.10 $1.00 $2.20 $0.09 $0.81 $1.98
While equity revenues are likely to suffer from a inflows are lower sequentially. Further, equity C $0.01 $0.10 $0.30 $0.00 $0.04 $0.34
JPM $0.70 $3.25 $5.00 $0.65 $3.01 $4.73
combination of lower ECM activity and weaker issuance trends are down more than 50% qoq. We MS $0.55 $2.95 $3.60 $0.68 $3.05 $3.48
Mid-cap Brokers
volumes, the equity backlog is beginning to show expect equity trading results to decline by 5% JEF $0.32 $1.45 $1.75 $0.36 $1.53 $1.72
PJC $0.55 $2.70 $3.80 $0.61 $2.79 $3.51
signs of improvement. sequentially across the group
Source: Goldman Sachs Research, Factset.
With that backdrop, we would avoid pure plays Investment banking has had a choppy start to
where the quarter may disappoint (Sell JEF, 2010, with announced M&A activity up (but
Neutral MS) and favor diversified companies completions down), and equity underwriting off
where a weak February is more easily absorbed by half. Debt issuance is up 30% sequentially but
and may be offset by better than expected is below near record 1Q2009 levels.
consumer provision leverage (Buy BAC and JPM).
We are revising our estimates for JPM, BAC, MS,
JEF and PJC by an average of 15% in 1Q10, and
by 3% for 2010, overall.
Richard Ramsden The Goldman Sachs Group, Inc. does and seeks to do business with
(212) 357-9981 | richard.ramsden@gs.com Goldman Sachs & Co. companies covered in its research reports. As a result, investors should
Daniel Harris, CFA be aware that the firm may have a conflict of interest that could affect
(212) 357-7512 | daniel.harris@gs.com Goldman Sachs & Co. the objectivity of this report. Investors should consider this report as
Adriana Kalova only a single factor in making their investment decision. For Reg AC
(212) 902-1913 | adriana.kalova@gs.com Goldman Sachs & Co. certification, see the end of the text. Other important disclosures follow
Jason Harbes, CFA the Reg AC certification, or go to www.gs.com/research/hedge.html.
(212) 357-4319 | jason.harbes@gs.com Goldman Sachs & Co. Analysts employed by non-US affiliates are not registered/qualified as
research analysts with FINRA in the U.S.

The Goldman Sachs Group, Inc. Global Investment Research

Goldman Sachs Global Investment Research 1
March 19, 2010 United States: Financial Services

PM Summary: Solid 1Q bookends around a soft core, but soft relative to healthy 4Q levels
We lower estimates on the major banks and brokers with capital markets exposure by roughly 15% in 1Q2010, but remain
upbeat regarding trends for the remainder of 2010. In general, while we continue to have a positive view on the direction of
capital markets activity, lower than expected February results are likely to soften what otherwise would have been solid first quarter
results. Specifically, we continue to favor CL-Buy rated JPMorgan for its combination of strong capital markets exposure
alongside improving metrics in consumer franchises. We also are attracted to CL-Buy rated Bank of America, but are somewhat
more wary of prospects for Neutral-rated Morgan Stanley and Citigroup, as recent results from these firms indicate they may not
capitalize on current trends as much as peers. We also reiterate our Sell rating on Jefferies Group, as we believe its current
multiple implies a better environment than we are looking for from 1Q results. Specifically:

(1) Fixed Income, Commodities, and Currencies (FICC) is likely to rebound sharply from weak 4Q2009 levels…, but perhaps
not to the level some expect. In recent years, first quarter revenues have rebounded 69% from seasonally slower fourth quarter
levels. While January was likely supportive of this rebound, February activity levels declined notably, and the strength in rates and
credit is likely to be offset by somewhat lower than expected commodities and F/X results, which were impacted by lower volatility
and a generally tighter level of pricing in many products. The group of six companies that we are revising estimates for have (1)
20% exposure to fixed income trading as a percentage of total revenues through 2006, and (2) we expect fixed income revenue to
increase by 50% from 4Q2009 levels (adjusted for 1x marks).

(2) …but surprisingly Investment Banking has trended much lower than 4Q levels. IB trends were mixed but generally negative
on a sequential basis. The lone bright spot was debt issuance, where we estimate volumes will increase by 30% qoq. However, this
is likely to be more than offset by sharp declines in completed M&A activity (down 40% qoq) and equity issuance (down 57% qoq).
While the pace of announced M&A has ticked up in the past few weeks, very slow February trends imply announced global M&A
will fall 14% relative to 4Q09 results. The ECM backlog of announced but not yet filed U.S. offerings has declined 14% since year-
end 2009, and is down 24% yoy. Overall, we expect investment banking revenues to decline 30% in 1Q2010 from 4Q2009 levels, but
we do anticipate a higher level of activity to occur later in 2010.

(3) Equity trading not likely to be a buffer against weak IB trends: with equity issuance down and overall U.S. volumes up only
5% qoq, we do not expect a material uptick in equity results, and would not be surprised to see lower sequential results. While
clearly this goes against some of the seasonality we normally expect, equity inflows into domestic equities have been negative in
1Q thus far, and last year’s fourth quarter was boosted by substantial follow-on and IPO issuance activity, which has not been
repeated in 1Q2010 thus far. Option activity is up 5% qoq and up a solid 6% yoy, which is somewhat surprising given the decline in
VIX relative to 1Q2009, but we expect options to continue to be a growth area in 2010. We expect equity trading results to decline
by 5% sequentially across the group.

What to do with the stocks: Buy JPM and BAC, Sell JEF
We favor JPMorgan and Bank of America over Morgan Stanley and Citigroup. We recommend investors remain long JPMorgan, as
its diversified business and exposure to healing consumer credit (approximately 47% of credit costs) could provide support to
earnings power; and similarly for Bank of America. On the other hand, Jefferies’ significant exposure to FICC (approximately 56% of
2009 revenue) highlights its vulnerability to softer trading volumes, narrower bid-ask spreads, and lower benefits from credit spread
tightening relative to 2009, and we continue to recommend using the shares as a source of funds in any trade involving capital

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March 19, 2010 United States: Financial Services

markets, as its business mix seems FICC-heavy and its valuation remains among the most expensive in the group. Specifically, JEF
trades at 2.5X tangible book, above the historical average of 2.3X and well above the 1.2X for PJC, which is below the 5-year
average of 1.5X. Given our expectation that returns on tangible equity at these firms will essentially converge over the next two
years, we believe a price to tangible book ratio of 2.0X is more appropriate, suggesting 36% upside at PJC and 2% downside for JEF.

Capital Markets: a 2-minute data driven summary

Below in Exhibit 1, we summarize the key investment banking trends in 1Q2010. Most notably, completed M&A is down 40% qoq
(on a quarterized basis), though announced M&A is up 19% yoy. Overall DCM is up 30% qoq but is running at a lower pace than
very robust 1Q2009 levels. There has been notable strength in Agency issuance and High Yield (up 200% yoy), while high grade
volumes are lower yoy. Equity issuance is nearly double the depressed year-ago level, with strength in IPOs and follow-ons.
Interestingly, 67% of equity issuance in 1Q2010 is outside the U.S., compared with 56% of debt issuance and 49% of announced
M&A activity. Increasing non-U.S. investment banking activity will clearly benefit those firms with a more international footprint,
such as C and MS, relative to BAC and JEF.

Exhibit 1: Investment Banking Summary: M&A activity up yoy, ECM has doubled, but DCM activity down off record levels
$ bn or as noted

$ bn % Change Deals/Issues Geographic Summary (on $ )

1QTD 1Q10TD 1QTD 1Q10TD
(Actual) (Quarterized) 4Q09 1Q09 QoQ YoY (Actual) (Quarterized) 4Q09 1Q09 Americas EMEA A/P

Announced $564 $686 $729 $576 (6%) 19% 7,197 $8,753 $9,752 $9,310 51% 25% 24%
M&A

Completed $366 $445 $737 $629 (40%) (29%) 6,726 $8,180 $9,518 $9,292 50% 29% 21%

High Grade $453 $551 $470 $858 17% (36%) 845 1,028 1,082 1,080 25% 51% 25%

High Yield $66 $80 $93 $27 (14%) 201% 207 252 304 150 65% 22% 13%
Debt Issuance (DCM)

ABS $23 $28 $32 $26 (12%) 8% 51 62 97 103 88% 8% 4%

MBS $89 $108 $118 $43 (9%) 151% 92 112 153 105 85% 9% 6%

Agency $272 $331 $192 $250 72% 32% 2,036 2,476 1,986 1,159 100% 0% 0%

Subtotal $902 $1,097 $905 $1,204 21% (9%) 3,231 3,930 3,622 2,597 58% 28% 14%

Total DCM $1,243 $1,491 $1,151 $1,617 30% (8%) 4,052 4,052 4,357 3,293 44% 41% 15%
Equity Issuance (ECM)

Conv $16 $19 $35 $7 (46%) 191% 63 77 150 35 48% 31% 21%

FO $72 $88 $231 $63 (62%) 39% 645 784 1,312 457 34% 23% 44%

IPO $27 $33 $63 $1 (47%) 2468% 187 227 270 56 15% 19% 66%

ECM $115 $140 $329 $71 (57%) 97% 895 1,089 1,732 548 33% 22% 45%

Source: Dealogic, Goldman Sachs Research.

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March 19, 2010 United States: Financial Services

On the trading front, FICC and equities are likely to have divergent sequential results. With the broad FICC platforms, Rates and
Credit are likely to be solid. Credit spreads have continued to tighten for most ratings, and the ‘X’ (credit) indices are largely flat
sequentially (Exhibit 10). Moreover, issuance is up 30% qoq, which should support secondary trading activity. Rates volumes at the
CME are also up a healthy 22% qoq, and Agency issuance has been extremely robust. Alternately, lower levels of F/X and
commodities volatility will dampen results somewhat. In equities, while trading volumes are up a tad sequentially, volatility and
deal volumes are down, which is likely to pressure equity commissions and trading results.

Exhibit 2: Trading summary: US equity volumes soft, but Rates and Credit trends appear healthy

% Change
1Q10TD
1QTD (Quarterized/
(Actual) Avg/ Est) 4Q09 1Q09 QoQ YoY

Trading volumes NYSE and Nasdaq 7,146 7,109 6,754 8,750 6% (18%)

Deal volume FO, IPO, Ann, M&A ($ bn) $664 $807 $1,023 $641 (21%) 26%
Equity

Market
QoQ % ∆ nm 0.8% 4.8% -10.2% nm nm
performance

Volatility VIX (quarterly avg) nm 20.9 23.1 45.0 (10%) (54%)

CME volumes 5,171 5,269 4,318 3,843 20% 35%

Rates
Implied vol on US & European rates nm nm nm nm (13%) (21%)

CME FX volumes 910 905 755 507 21% 79%

FX
Fixed income

FX volatility 8 nm 10 19 (13%) (55%)

CME Commodity volumes 811 854 751 685 8% 18%

Commodities
Implied vol on Oil and Nat Gas nm nm nm nm (19%) (37%)

Debt issuance
DCM ($bn) 1,243 1,491 1,151 1,617 30% (8%)
volumes

Credit indices QoQ % ∆ nm 0.3% 3.5% -17.0% nm nm

Source: Dealogic, FactSet, CME, Markit, Goldman Sachs Research.

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March 19, 2010 United States: Financial Services

Digging into the weeds on stock specific exposures and adjusting estimates
Below, we highlight the specific stocks for which we are making adjustments and our views on each. We note Jefferies and
Morgan Stanley have the most exposure to investment banking with approximately 22% and 19% of total 2009 revenue,
respectively. Jefferies has the most exposure to FICC (at 56% of 2009 revenue), and Bank of America has the least exposure
to overall capital markets (investment banking + trading) among large cap peers (based on 2009 revenue) given the
company’s diverse business mix.
Areas we will be focusing on during the reporting of 1Q2010 results are the state of investment banking backlog build, and areas of
particular strength/weakness in FICC and equities. Further, the trajectory of consumer credit quality metrics and pace of lending are
also key focus areas. Moreover, discussions on capital requirements and potential changes to the regulatory environment are likely
to drive the group during earnings. We expect firms with solid Rates/Credit exposures to outperform peers (JPM) while those with
more investment banking and equities as a relative % of total revenues may under-perform the group on the top-line.

Exhibit 3: Stock Summary and investment view: Buy JPM, Sell JEF

Stock Summary Price Target Analysis 1Q10 EPS Investment view and considerations
Price % upside GS vs
Ticker Rating Price Target GS Est Consensus Stock specific exposure and issues 1Q10 areas we are watching
3/17/2010 /downside Consensus

JPM Buy $43.79 $54.00 23% $0.70 $0.65 8% - Most exposure to improving consumer credit - Signs of a turn in credit.
- Market share gains in the capital markets business. - Impact of card act, NSF/OD policies.
- Expect to be among the first to increase dividend. - Trading bounce and update on the recently acquired
- Bulk of reserve build could be over with reserves to loans business from SRE/RBS JV.
now over 5%. - Expense trends given multiple growth initiatives.

MS Neutral $30.28 $36.00 19% $0.55 $0.68 (20%) - Most exposure to rebound in advisory business - Ability to improve FICC revenue given focus on
- MS Smith Barney JV should continue to provide stability expanding the team
to earnings - Compensation expense

BAC Buy $17.27 $20.00 16% $0.10 $0.09 13% - Diverse businesses provide stability to earnings. - Signs of a turn in credit.
- High exposure to improving consumer credit. - Impact of card act, NSF/OD policies.
- Strong capital ratios and reserve adequacy. - Capital markets trends.

C Neutral $4.05 $3.50 (14%) $0.01 $0.00 NM - Capital and liquidity levels higher than peers. - Consumer and credit trends at both Citicorp and Citi
- Ability to wind down non-core assets and re-investing Holdings.
within Citicorp. - Pre-provision trends
- Ability to improve pre-provision trends which have been
lagging peers.

JEF Sell $26.98 $26.00 (4%) $0.32 $0.36 (12%) - Highest level of investment banking and trading - Level of fixed income relative to 2009
exposure in group - Compensation ratio (guidance of 56-59%
- Growth company that has been expanding into many - Impact of new hires in banking, trading
areas of fixed income and electronic equity trading
PJC Buy $46.04 $61.00 32% $0.55 $0.61 (11%) - Improving capital returns could drive higher valuation - Ability to drive improving ROE
- Acquisition of asset management platform diversified - Impact of Asset Mgmt acquisition on consolidate
revenue results
- Exposure to municipal trading/public debt issuance - Ability to carry over momentum in expense mgmt and
fixed income into 2010

Source: Factset, Goldman Sachs Research.

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March 19, 2010 United States: Financial Services

We are revising estimates for all the firms in our group with significant investment banking to incorporate capital markets trends in
1Q2010 thus far. We lower our 1Q2010 estimates an average of 15%, with slightly greater reductions at Morgan Stanley, Bank of
America, and Jefferies (an average of 18% decline), partially offset by JPMorgan’s greater diversification (or a 5% reduction relative
to our prior estimates). We make no changes to our 12-month price targets and ratings. Our 12-month price targets for JPM, BAC,
MS and C are based on our DND framework. Key downside risks include deterioration in credit quality and capital markets; key
upside risks include better than expected earnings power. The price targets for JEF and PJC are based on price to tangible book
ratios of 2.0X. Key risks to our 6-month price target for JEF include more favorable than anticipated fixed income trading conditions,
better than expected IB results, and market share gains. Key risks to our 12-month price target for PJC include weaker than
expected equity and debt issuance and inability to improve returns on equity.

We are lowering our 2010 estimates for PJC and JEF to reflect softer than anticipated investment banking and institutional
brokerage trends. We retain our preference for PJC given the expected accretion from the Advisory Research acquisition, which
was completed on March 1 and should result in a 25 percent earnings contribution from the firm's burgeoning asset management
business. Moreover, we view PJC's valuation as considerably more compelling given improving returns on adjusted equity towards
management’s 10-12% target by 2012 (we are modeling 11% in 2012) and discounted valuation (1.2X tangible book) vs. likely
declines at JEF, a much more highly leveraged balance sheet and greater reliance on short-term funding, which combined with its
premium valuation (a peer-high 2.5X tangible book) leads us to maintain our more cautious stance.

We continue to favor JPM for its combination of strong capital markets exposure alongside improving metrics in consumer
franchises in addition attractive valuation at 6.7X our normalized EPS vs 8.3X on average for large cap peers. We also are attracted
to Bank of America; and are somewhat more wary of prospects for Morgan Stanley and Citigroup, as recent results from these two
firms indicate they may not capitalize on current trends as much as peers.

Exhibit 4: Summary of estimate revisions

Goldman Sachs EPS (New) Goldman Sachs EPS (Old) Goldman Sachs EPS (%)

Ticker 1Q10E 2010E 2011E 1Q10E 2010E 2011E 1Q10E 2010E 2011E

Large-cap banks
BAC $0.10 $1.00 $2.20 $0.12 $1.05 $2.20 (17%) (4%) (0%)
C $0.01 $0.10 $0.30 $0.01 $0.10 $0.30 nm nm nm
JPM $0.70 $3.25 $5.00 $0.74 $3.30 $5.00 (5%) (2%) (0%)
MS $0.55 $2.95 $3.60 $0.71 $3.00 $3.60 (23%) (2%) 0%
Mid-cap Brokers
JEF $0.32 $1.45 $1.75 $0.38 $1.55 $1.75 (16%) (6%) 0%
PJC $0.55 $2.70 $3.80 $0.64 $2.80 $3.80 (15%) (4%) (0%)

Average (15%) (3%) (0%)

Source: Goldman Sachs Research estimates.

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March 19, 2010 United States: Financial Services

Exhibit 5: GS estimates versus consensus

Goldman Sachs EPS Consensus EPS GS vs. Consensus

Ticker 1Q10E 2010E 2011E 1Q10E 2010E 2011E 1Q10E 2010E 2011E
Large-cap banks
BAC $0.10 $1.00 $2.20 $0.09 $0.81 $1.98 13% 24% 11%
C $0.01 $0.10 $0.30 $0.00 $0.04 $0.34 NM 152% (14%)
JPM $0.70 $3.25 $5.00 $0.65 $3.01 $4.73 8% 8% 6%
MS $0.55 $2.95 $3.60 $0.68 $3.05 $3.48 (20%) (3%) 4%
Mid-cap Brokers
JEF $0.32 $1.45 $1.75 $0.36 $1.53 $1.72 (12%) (5%) 2%
PJC $0.55 $2.70 $3.80 $0.61 $2.79 $3.51 (11%) (3%) 8%

Average (4%) 29% 3%

Source: Factset, Goldman Sachs Research.

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March 19, 2010 United States: Financial Services

FICC up vs. soft 4Q2009, but favorable 1Q seasonality may be dampened by soft February
1Q is seasonally strong Fixed Income, Commodities, and Credit (FICC) should materially improve over weak 4Q results as client engagement appears to
FICC* QoQ ∆ have recovered relative to the fourth quarter of 2009, and volumes have increased in Rates and Credit. Specifically, we expect
1Q02 44% FICC to increase by 50% qoq in 1Q2010 for five large U.S. market participants, though we expect this to be down 20% yoy
1Q03 86%
compared with an extremely robust 1Q2009. Specifically:
1Q04 58%
1Q05 51% Rates: rate activity has been solid, with CME interest rate volumes up 20% compared with 4Q2009 levels and up 35% yoy.
1Q06 76% Moreover, Treasury issuance of $12.4 tn is up 14% yoy. Rate volatility has been more mixed globally, but we note as the Federal
1Q07 31% Reserve begins to unwind its emergency measures, we expect activity in Rates markets globally will accelerate, and believe Rates
1Q08 135% will remain one of the more active segments of the FICC franchise in 2010. The U.S. Treasury is expected to issue $392 bn in
Avg 69% marketable debt in 1Q2010, which is up 51% yoy from $260 bn in 4Q09 but down 18% from $481 bn. Primary Dealer Treasury
*Adj for 1x, acquisitions trading volume is up 17% yoy to $5.86 tn from $5.0 tn in 1Q2009 and $5.7 tn in 4Q2009.

Credit: trading remains robust, with investment grade issuance up 17% sequentially. Further, industry-wide TRACE high-grade
trading volumes imply overall credit trading volumes are up 64% from 1Q2009 levels, and up 11% from robust 4Q levels. Keep in
mind that while significant volume remains in cash bonds versus derivatives, we are also beginning to see signs that the CDS
market is recovering after a nearly two year slide. With recent sovereign concerns in Greece and the Middle East, we would not be
surprised to hear Credit was among the best performing sectors in FICC in 1Q2010. Moreover, we expect credit to remain relatively
robust as corporates continue to re-finance debt and inflows into fixed income mutual funds remains active (up 29% yoy in 1Q2010).

Commodities: trading volumes at CME and ICE have been solid. CME Energy and Commodities average daily volume of 2.45 mn
contracts was up sequentially, thus client activity should be solid. ICE Energy and Commodities volumes also improved
sequentially and year over year (Exhibit 15). However, the quarter lacked significant price movement and thus volatility was a tad
lower than it had been, which may limit the spreads earned on swaps and other derivative products. We expect commodity results
to be at least equivalent to 1Q2009 levels, but may fall short of the growth expected in Rates and Credit.

Currencies: Whereas volumes at CME are up 21% qoq and 79% relative to 1Q2009, which would generally imply healthy F/X results,
the realized level of volatility in the major F/X pairs was lower sequentially. Despite some significant issues in EMEA and the Middle
East, volatility in the $/€, $/¥, £/€ currency pairs were down an average of 13% on a sequential basis (Exhibit 14).

Credit Spreads and ‘X’ index trends: Spreads across most ratings have tightened during the quarter. A and Baa spreads have
tightened an average of 18 bp qoq, while junk rated BB bonds have tightened nearly 90 bp versus 4Q2009 average levels. On the ‘X’
indices, they are largely flat, though a tad wider sequentially. Bid/Ask spreads appear to have slowed their dramatic tightening,
though we do not expect to see a similar impact from either very wide spreads (relative to 1Q2009) or tightening throughout the
remainder of 2010.

First Quarter is seasonally the strongest quarter of the year. Over the past years (excluding 1Q2009), FICC revenues have
increased 69% relative to 4Q levels. We expect a strong rebound over soft 4Q levels, but with some uncertainty/softness in F/X and
commodities, we do not expect that level of growth. Our estimates now incorporate a 50% increase in FICC revenues in 1Q.

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March 19, 2010 United States: Financial Services

Exhibit 6: FICC revenue could benefit from improved client activity Exhibit 7: Client activity across various products remains strong in 1Q2010
CME trading volumes, global debt issuance and major credit indices ADV volumes; debt issuance for 1Q10 is quarter-ized; QTD change for indices

Trends 35%
4Q09
4Q09 1Q10 QTD 30%
30% 1Q10 QTD

Rates volumes 25%

21%
FICC Drivers

20%

1Q10 TD vs. 4Q09

20%

FX volumes 14%
15%

Commodity 10% 8%
6%
volumes
5% 4%

0%
Debt issuance
0%
volumes
-3% -2%
-5%
Debt issuance FX volumes Interest Rate Commodities Credit indices
Credit indices
volumes volumes

Source: Goldman Sachs Research estimates, CME, Markit, and Dealogic. Source: CME, Dealogic, Markit, Goldman Sachs Research

Exhibit 8: The yield curve remains extremely steep, boosting net interest margin and a variety of carry trade strategies
10-year to Federal Funds yield differential

6.0
Current: 3.5% Average: 1.60% Std. Dev: 1.63% + Std. Dev: 3.23% - Std. Dev: (0.02%)

4.0

2.0

0.0

(2.0)
25-Jun-97 30-Jun-98 6-Jul-99 7-Jul-00 12-Jul-01 23-Jul-02 28-Jul-03 2-Aug-04 4-Aug-05 9-Aug-06 8/15/07 8/6/08 7/29/09

Source: Factset, Goldman Sachs Research.

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March 19, 2010 United States: Financial Services

Exhibit 9: Credit spreads have tightened considerably over the past year, and in fact continued to tighten in 1Q2010, which should
help to drive higher asset pricing on balance sheet items
in bp

AA Spread 500 A Spread

450

390 420

330
340
270

210 260
Avg spread
150 Avg spread Chng
Chng
Q/Q - 1 bps 180 Q/Q - (11 bps)
90 Y/Y - (187 bps)
Y/Y - (140 bps)

30 100

Mar-06

Mar-07

Mar-08

Mar-09

Mar-10

Mar-06

Mar-07

Mar-08

Mar-09

Mar-10
Sep-05

Dec-05

Jun-06

Sep-06

Dec-06

Jun-07

Sep-07

Dec-07

Jun-08

Sep-08

Dec-08

Jun-09

Sep-09

Dec-09

Sep-05

Dec-05

Jun-06

Sep-06
Dec-06

Jun-07

Sep-07

Dec-07

Jun-08

Sep-08
Dec-08

Jun-09

Sep-09

Dec-09
750 Baa Spread 1,800 BB Spread

1,500
625
Avg Spread Chng
1,200
Q/Q - (88bps)
500
Y/Y - (933 bps)
900
375
600
Avg Spread
250 Q/Q - (26 bps) 300
Y/Y - (288 bps)

125 0

Jun-06

Jun-07

Jun-08

Jun-09
Sep-05
Dec-05
Mar-06

Sep-06
Dec-06
Mar-07

Sep-07
Dec-07
Mar-08

Sep-08
Dec-08
Mar-09

Sep-09
Dec-09
Mar-10
Mar-06

Mar-07

Mar-08

Mar-09

Mar-10
Sep-05

Dec-05

Jun-06

Sep-06

Dec-06

Jun-07

Sep-07

Dec-07

Jun-08

Sep-08

Dec-08

Jun-09

Sep-09

Dec-09
Source: Factset, Goldman Sachs Research.

Exhibit 10: ‘X’ indices are largely flat with 4Q09 levels, which should minimize credit marks
data as of March 15

CMBX 3
Index (EOP) MCDX IG CDX LCDX 9 HY CDX ABX 07-1 TABX Avg
('07)

1Q09 95.0 95.5 74.1 70.8 59.4 20.0 1.4

4Q09 98.5 100.7 100.0 99.4 76.3 27.6 0.7

1Q10TD 98.7 100.7 100.0 99.6 77.1 27.8 0.7

QoQ ∆ 0.2% 0.0% 0.0% 0.2% 1.0% 0.8% 0.0% 0.3%

YoY ∆ 3.9% 5.4% 35.0% 40.7% 29.9% 39.4% -46.8% 15.3%

Source: Markit, Goldman Sachs Research.

Goldman Sachs Global Investment Research 10

March 19, 2010 United States: Financial Services

Exhibit 11: Primary dealer trading activity is higher since troughing in 3Q2009, and has increased 10% versus 4Q09
$ in mn

20,000,000 Treasuries Agency/GSE MBS Corporate

18,000,000

16,000,000

14,000,000

12,000,000

10,000,000

8,000,000

6,000,000

4,000,000

2,000,000

1Q05

2Q05

3Q05

4Q05

1Q06

2Q06

3Q06

4Q06

1Q07

2Q07

3Q07

4Q07

1Q08

2Q08

3Q08

4Q08

1Q09

2Q09

3Q09

4Q09

1Q10E
Source: Federal Reserve Board, Goldman Sachs Research.

Exhibit 12: Global debt issuance is up 30% qoq, but down roughly 8% yoy Exhibit 13: MBS is recovering yoy, while sovereign and non-US agency debt
$ in mn; 1Q2010 ‘quarter-ized’ to assume a full quarter issuance rate is up materially on a sequential basis
$ in mn; 1Q2010 ‘quarter-ized’ to assume a full quarter issuance rate

2,000,000 IG HY ABS MBS Sovereign Agency Non-US Agency Supranational

1,800,000

G lo bal D ebt Is suance

1,600,000
N o n- US
ABS HY IG M BS S o ve reign S uprN t l A ge nc y T o t al
A genc y
1,400,000 Quarter
1Q08 72,382 23,741 390,936 70,363 75,822 90,511 45,896 265,435 1,035,086
1,200,000
2Q08 85,657 57,350 761,741 86,430 68,047 124,199 40,147 229,657 1,453,229
3Q08 42,576 22,467 318,291 43,801 51,863 42,937 25,111 103,584 650,631
1,000,000
4Q08 16,948 6,949 432,727 36,266 52,236 50,896 22,525 70,078 688,626
1Q09 26,009 27,114 901,546 39,976 132,008 180,108 60,798 249,848 1,617,408
800,000
2Q09 52,661 67,654 785,118 107,833 112,704 165,605 65,378 234,313 1,591,266
3Q09 55,039 69,208 574,030 117,847 63,797 129,180 33,145 146,933 1,189,179
600,000
4Q09 32,511 94,206 486,865 117,515 73,274 128,795 25,778 191,590 1,150,534
1Q10 27,773 67,434 550,472 106,445 134,257 213,499 63,545 328,049 1,491,474
400,000

200,000
Q/Q (15%) (28%) 13% (9%) 83% 66% 147% 71% 30%
Y/Y 7% 149% (39%) 166% 2% 19% 5% 31% (8%)
0
1Q10 Q-ized
1Q1998
2Q1998
3Q1998
4Q1998
1Q1999
2Q1999
3Q1999
4Q1999
1Q2000
2Q2000
3Q2000
4Q2000
1Q2001
2Q2001
3Q2001
4Q2001
1Q2002
2Q2002
3Q2002
4Q2002
1Q2003
2Q2003
3Q2003
4Q2003
1Q2004
2Q2004
3Q2004
4Q2004
1Q2005
2Q2005
3Q2005
4Q2005
1Q2006
2Q2006
3Q2006
4Q2006
1Q2007
2Q2007
3Q2007
4Q2007
1Q2008
2Q2008
3Q2008
4Q2008
1Q2009
2Q2009
3Q2009
4Q2009

Source: Dealogic, Goldman Sachs Research. Source: Company data, Goldman Sachs Research estimates.

Goldman Sachs Global Investment Research 11

March 19, 2010 United States: Financial Services

Exhibit 14: While F/X futures volumes at CME have been healthy, driven by new client types, lower volatility may dampen F/X revenues sequentially
average daily trading volumes for CME, average daily volatility for major currency cross rates

FX volatility trend varies by currency FX trading volumes increase

Quarterly average volatility

QTR USD-EUR JPY-USD USD-GBP EUR-GBP Avg 1.0 50%
CME FX volumes
4Q09 9.4 11.6 11.9 9.7 10.7 0.9 40%
QoQ change
1Q10 QTD 8.6 10.7 9.2 8.4 9.2 0.8 30%
QoQ -8% -8% -23% -14% -13% 0.7
20%

Avg volumes

QoQ change
0.6
Monthly average volatility 10%
0.5
Avg monthly USD-EUR JPY-USD USD-GBP EUR-GBP Avg 0%
0.4
Dec-09 10.9 15.1 10.8 8.2 11.3 -10%
0.3
Jan-10 8.3 11.1 8.7 8.6 9.2
0.2 -20%
Feb-10 9.0 10.5 8.8 8.0 9.1
Mar-10 8.4 10.4 10.8 9.1 9.7 0.1 -30%
0.0 -40%
MoM change

1Q07

2Q07

3Q07

4Q07

1Q08

2Q08

3Q08

4Q08

1Q09

2Q09

3Q09

4Q09

1Q10
Jan-10 -24% -27% -20% 5% -19%
Feb-10 8% -5% 1% -8% -1%
Mar-10 -6% -1% 23% 14% 7%

Source: Markit, CME, Goldman Sachs Research.

Exhibit 15: Commodity trading volumes were up 18% yoy and 12% qoq… Exhibit 16: …but volatility in pricing was down 19% qoq, which may
pressure commodity trading revenues
implied volatility for oil and natural gas

4,000 0.8
CME Energy ICE Energy CME Ags ICE Ags
+18% 0.7
3,500

Average quarterly volatility

3,000 0.6

2,500 0.5

2,000 0.4

1,500 0.3

1,000 Implied vol on commodities

0.2 Oil Vol
1Q10TD QoQ ∆ YoY ∆
500 Gas Vol Oil -20% -51%
0.1
Nat gas -18% -24%
0 Average -19% -37%
1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10E
0.0
2Q03
3Q03
4Q03
1Q04
2Q04
3Q04
4Q04
1Q05
2Q05
3Q05
4Q05
1Q06
2Q06
3Q06
4Q06
1Q07
2Q07
3Q07
4Q07
1Q08
2Q08
3Q08
4Q08
1Q09
2Q09
3Q09
4Q09
1Q10
Source: CME, ICE, Goldman Sachs Research. Source: Factset, Goldman Sachs Research.

Goldman Sachs Global Investment Research 12

March 19, 2010 United States: Financial Services

Equity revenues likely to face some headwinds in 1Q as volumes, volatility decline

Equity trading and commissions revenues are not likely to ramp up materially in the first quarter versus the fourth quarter, though
the first quarter of the year has tended to be the strongest historically. In general, sluggish volumes and lower volatility will
suppress commission growth, and relatively weak issuance trends will limit secondary trading in new shares. Specifically, we
expect Equities revenues to decline by 5% qoq in 1Q10 for our sub-group, and this should translate into 35% lower revenue
versus 1Q2009. Specifically:
U.S. exchange trading volumes sluggish, but Europe up materially: Overall volume trends appear soft versus prior periods. In
the U.S., industry volumes of 8.6 bn are up 5% compared with 4Q levels, but each successive month has been lower throughout
2010 (Jan – 9.1 bn, Feb 8.5 bn, March-TD – 8.1 bn). Moreover, the average level of volatility (as measured by the CBOE VIX) has
fallen 220 bp qoq to 20.8%, generally in line with longer term average of 21%. Lower volatility likely created lower trading
opportunities on the principal side, lowering both commissions and principal trading revenues. Euronext cash transaction volumes
were up 4% qoq but relatively flat versus the year-ago period, while OMX transactions are expected to increase 35% yoy. CME e-
mini volumes are trending down 16% yoy, but they are up 18% compared with very soft 4Q09 levels. U.S. equity option volumes of
13.9 mn are up 4% compared with 4Q and up 6% yoy.

Equity issuance trends lower versus 4Q: we estimate equity issuance will reach roughly $140 bn in 1Q2010, down almost 60%
qoq, but nearly double the year-ago level. U.S. issuance was down a tad more than international issuance, which was bolstered by
IPO transactions in Latin America and Asia. Overall, IPO’s fell about 47% qoq, but the $33 bn in estimated issuance compares with
just over $1 bn in 1Q2009 at the depths of the financial crisis. Follow-ons were the stand-out on the downside, declining 62% qoq as
financial issuance was much lower than the second half of 2009. We expect issuance to remain at nearly the same level, as the
backlog has not grown since year-end, which could limit secondary trading activity.

Market Performance – up 2% globally YTD: the U.S. market whipsawed throughout the quarter, with overall S&P500 index levels
now up roughly 5% for the year as of March 17, 2010. In Europe, the FTSE has risen 4% YTD while the Nikkei has increased 3% YTD.
Increasing markets tend to not only drive higher volumes, but also trading commissions.

Equity inflows tepid, institutional money moving into international funds: According to ICI, there have been $5.7 bn of outflows
from U.S. domestic equities (through 3/3/2010), while international equities have benefitted from $17 bn in inflows. Until flows
resume in earnest into U.S. equities, we do not expect volume growth to be sustained without higher levels of industry volatility.

Goldman Sachs Global Investment Research 13

March 19, 2010 United States: Financial Services

Our analysis indicates that equity trading revenue for large US investment banks can be forecasted using a multivariate regression
model. We have identified key factors that impact equity trading revenue based three variables: (1) average daily equity trading
volumes for NYSE and NASDAQ; (2) the S&P 500 index level, and (3) global equity issuance and announced M&A activity. The
results are generally robust (an 85% r –squared). In addition to the model variables, we consider market volatility and
European/Asian market performance to supplement the quantitative output from our model.

We estimate revenue could decline by 4%-5% sequentially from 4Q2009. Activity in equities has been quiet, with commissions
likely lower sequentially and the primary market not making up for lower news flow. In many cases, banks and brokers have
identified client activity as a driver of lower revenues in 1Q2010, similar to the pull back in 4Q2009. With announced M&A volumes
up but not at the level some had expected, alongside generally low levels of public equity offerings, 1Q2010 results could be soft.
The most exposed names in the group to lower equity revenues are Jefferies and Morgan Stanley, as equities account for
approximately 22% and 14% of 2009 revenue, respectively. See Exhibit 17 for an illustration of the key drivers of equity trading
results.

Exhibit 17: Expect growth in equity trading revenue to be challenging Exhibit 18: Equity revenue could decline if activity does not improve
key factors impacting equity trading revenue aggregate equity revenue and predicted revenue by multivariate regression model

Trends
$14
R-square = 85%
4Q09 1Q10 QTD

Aggregate core equity trading revenue ($bn)

$12 Predicted
Equity trading revenue drivers

Trading Actual
Mixed
Client Activity

volumes $10

$8
Deal volumes
$6

$4
Market performance

$2

$0
Volatilty

1Q10E
1Q01
2Q01
3Q01
4Q01
1Q02
2Q02
3Q02
4Q02
1Q03
2Q03
3Q03
4Q03
1Q04
2Q04
3Q04
4Q04
1Q05
2Q05
3Q05
4Q05
1Q06
2Q06
3Q06
4Q06
1Q07
2Q07
3Q07
4Q07
1Q08
2Q08
3Q08
4Q08
1Q09
2Q09
3Q09
4Q09
Source: Goldman Sachs Research estimates. Source: Goldman Sachs Research estimates Company data.

Goldman Sachs Global Investment Research 14

March 19, 2010 United States: Financial Services

Exhibit 19: U.S. trading activity on exchanges is up 5% qoq but has declined Exhibit 20: European value traded is up 17% qoq, and 47% yoy, largely
21% relative to 1Q2009 … owing to a major recovery in EU index levels
average daily trading volumes for Tape A/B/C shares in bn Euro mn of average daily market capitalization traded

12 Tape A Tape B Tape C

€ 40,000 LSE Chi-X Euronext Deutsche Boerse OMX SIX Madrid Other

€ 35,000

9
€ 30,000

Value traded (Euro in mn)

€ 25,000
6
€ 20,000

€ 15,000
3
€ 10,000

€ 5,000
0

1Q10TD
1Q07

2Q07

3Q07

4Q07

1Q08

2Q08

3Q08

4Q08

1Q09

2Q09

3Q09

4Q09
€0
1Q09 2Q09 3Q09 4Q09 1Q10

Source: BATS, Goldman Sachs Research. Source: BATS, Goldman Sachs Research.

Exhibit 21: The VIX has slipped below its longer term average and has fallen Exhibit 22: Secondary trading around global equity issuance should be tepid
for five consecutive quarters, limiting trading opportunities as issuance appears to have declined more than 50% qoq (but up yoy)
CBOE VIX in $ mn of equity issued globally

60% 350,000
Quarterly VIX trends Global ECM

300,000 Converts Follow Ons IPOs

50%
250,000

40%
200,000

30% 150,000

Average: 21% 100,000

20%
50,000

10%
0

1Q10TD (Q-ized)
1Q98

3Q98

1Q99

3Q99

1Q00

3Q00

1Q01

3Q01

1Q02

3Q02

1Q03

3Q03

1Q04

3Q04

1Q05

3Q05

1Q06

3Q06

1Q07

3Q07

1Q08

3Q08

1Q09

3Q09
0%
1Q10TD
1Q02

3Q02

1Q03

3Q03

1Q04

3Q04

1Q05

3Q05

1Q06

3Q06

1Q07

3Q07

1Q08

3Q08

1Q09

3Q09

Source: Factset, Goldman Sachs Research. Source: Dealogic, Goldman Sachs Research.

Goldman Sachs Global Investment Research 15

March 19, 2010 United States: Financial Services

Investment banking – 2010 full of promise, but the year is starting slowly
Coming into 2010, expectations were elevated that advisory and equity issuance would have a solid ramp up. While we do believe
there is likely to be a higher level of activity throughout 2010, the first quarter has been quieter than expected. Overall, we expect
investment banking revenues to decline 30% sequentially for our covered companies. The most exposed name in this group to
investment banking trends are Jefferies and Morgan Stanley, with approximately 22% and 19% of annual revenue from investment
banking respectively.

A few key metrics support growth in banking. Overall, CEO confidence has more than doubled off its lows, with a 4Q2009 reading of
64, the highest since the second quarter of 2004. We view this as a leading indicator of announcements as the confidence of
business managers and Boards will determine strategic decisions. Spreads to Treasuries have improved over the past year as well,
and continue to tighten, implying more attractive yields for corporates looking to utilize the debt market. Cash on balance sheets
continues to build, and is up 37% yoy, accounting for 9% of enterprise value in the U.S. (excluding financials). Morever, the pace of
M&A seems likely to grow as both U.S. and Europe announced M&A as a percentage of market capitalization are below their long
term averages, implying higher activity could be forthcoming as we peer into 2H10 and 2011.

Specifically by investment banking activity:

Announced M&A: activity rates appear to be improving in both announced and not-yet announced activity. For the quarter,
announced M&A deal volume of $686 bn (assuming a full quarter) is up 19% yoy and down roughly 6% from healthy 4Q levels.
Prudential/AIA ($36 bn) and Novartis/Alcon ($28 bn) deals were the largest of the quarter, while ten deals had deal values greater
than $10 bn. Comparatively, there were eight deals greater than $10 bn announced in 4Q09 and seven in 1Q09. The pace of larger
transactions is encouraging to the health of the M&A market, as larger strategic transactions are being pursued, implying the
optimism of executives and Board’s of Directors is incrementally improving. Moreover, we continue to hear that the pace of
strategic conversations is increasing, which should lead to more announced deals by year-end.

Equity Underwriting: issuance has been soft thus far in 2010, with overall ECM activity down 57% qoq to an estimated $140 bn,
down from a very strong 4Q. The weakness is spread across IPO’s (down 47% qoq), Follow-ons (down 62% qoq) and Converts
(down 46%). The volatility in equity markets caused some deals to be pulled from issuance, while other deals have not traded well
post offering which limits some of the pending issuance to the market in the near term. With the recovery of the S&P 500 in March,
we expect the deal calendar to trend higher over the next few months, and in fact, the backlog of filed but not yet priced ECM
transactions with the SEC has risen about 10% in the past two weeks, now sitting over $21 bn in backlog. The deal backlog has
gone from 93 transactions in early March to 124 in registration, thus the markets appear poised for a better 2Q10.

Debt Underwriting: debt underwriting is expected to jump 30% qoq to $1.49 tn, with notable strength in non-US Agency and
Sovereign debt issues. Relative to the year-ago period, however, high yield underwriting is very strong (up 201% yoy) and MBS
issuance is starting to recover as well (up 150% yoy) but remains at roughly one-quarter its former size. With spreads still narrow
and the perceived likelihood of a rate-hike increasing, we expect corporations to pre-fund expected cash needs. Also, as M&A
improves, we would expect investment grade and high yield debt to tick higher as well. The ABS/MBS market remains mired
around regulatory questions, but investors’ demand for yield has actually sparked some discussion that prime securitizations may
make their way back into the market over the next few months.

Goldman Sachs Global Investment Research 16

March 19, 2010 United States: Financial Services

Exhibit 23: CEO confidence at its highest level since 2Q04… Exhibit 24: Which we think has lead to a higher number of large transactions
Conference Board CEO Confidence number of announced M&A transactions greater than $10 bn in deal value

80 CEO Confidence Average + Std Dev - Std Dev 18

Number of announced $10 bn + deals

16

68 14

12

56
10 Average num be r of $10
bn de als per quarter: 7
8 Avg deal size: $22 bn
44
6

4
32
2

1Q1996

3Q1996

1Q1997

3Q1997

1Q1998

3Q1998

1Q1999

3Q1999

1Q2000

3Q2000

1Q2001

3Q2001

1Q2002

3Q2002

1Q2003

3Q2003

1Q2004

3Q2004

1Q2005

3Q2005

1Q2006

3Q2006

1Q2007

3Q2007

1Q2008

3Q2008

1Q2009

3Q2009

1Q2010
20
2Q76
2Q77
2Q78
2Q79
2Q80
2Q81
2Q82
2Q83
2Q84
2Q85
2Q86
2Q87
2Q88

2Q89
2Q90
2Q91
2Q92
2Q93
2Q94
2Q95
2Q96
2Q97
2Q98
2Q99
2Q00
2Q01
2Q02
2Q03
2Q04
2Q05
2Q06
2Q07
2Q08
2Q09
Source: Haver analytics. Source: Dealogic, Goldman Sachs Research.

Exhibit 25: Improving spreads have also bolstered announced activity Exhibit 26: And while valuations have improved, they do not appear to be
announced M&A in $ mn, spreads AA to 10-year Treasuries restrictive to announced deal consummation
FY1 forward P/E on the S&P 500

700,000 0
U.S. Announced M&A AA spreads over 10 year Treasurys
32x Current S&P forw ard P/E: 19.0x Average: 19.1x + Std Dev: 23.2x - Std Dev: 15.1x

600,000 50

26x
AA credit spreads (bps)

500,000 100
Deal volumes in $ mn

400,000 150
20x

300,000 200

14x
200,000 250

100,000 300

8x
1/1/1996

1/1/1997

1/1/1998

1/1/1999

1/1/2000

1/1/2001

1/1/2002

1/1/2003

1/1/2004

1/1/2005

1/1/2006

1/1/2007

1/1/2008

1/1/2009

1/1/2010
- 350
1Q95 1Q96 1Q97 1Q98 1Q99 1Q00 1Q01 1Q02 1Q03 1Q04 1Q05 1Q06 1Q07 1Q08 1Q09 1Q10

Source: Factset, Dealogic, Goldman Sachs Research. Source: Factset, Goldman Sachs Research.

Goldman Sachs Global Investment Research 17

March 19, 2010 United States: Financial Services

Exhibit 27: Announced U.S. M&A looks to be rebounding… Exhibit 28: …while Europe continues to fall from peak levels in 2007
announced M&A as a percentage of market capitalization announced M&A as a percentage of market capitalization

14% US announced M&A as % of market cap 35%

EU announced M&A as a % of Mkt Cap Average 32%
12%
12% 30%

10%
10% 9%
10% 25% 23%
9% 23%
8% Average: 7.5%
8% 8%
8% 7% 19%
7% 20%
7% 17%
6% 15%
6% 5% 5% 15% Average: 14%
4% 4% 12%
11%
4% 9% 10%
9% 9% 9%
10% 8%
8%
7%
2%
5%

0%
0%
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Source: Dealogic, World Federation of Exchanges, Goldman Sachs Research.. Source: Dealogic, World Federation of Exchanges, Goldman Sachs Research.

Exhibit 29: Cash has increased 37% yoy as firms build their cash balances Exhibit 30: And Cash now represents 9% of enterprise value, making many
for growth and acquisition activity companies attractive targets
cash on U.S. corporate balance sheets, excluding financials cash as a percentage of enterprise value

1,200,000 10%
Cash on B/S has
9%
jumped over the
1,000,000 past year 8%

7%
800,000
6%

600,000 5%

4%
400,000
3%

2%
200,000
1%

- 0%
1Q1999

3Q1999

1Q2000

3Q2000

1Q2001

3Q2001

1Q2002

3Q2002

1Q2003

3Q2003

1Q2004

3Q2004

1Q2005

3Q2005

1Q2006

3Q2006

1Q2007

3Q2007

1Q2008

3Q2008

1Q2009

3Q2009

1Q1999

3Q1999

1Q2000

3Q2000

1Q2001

3Q2001

1Q2002

3Q2002

1Q2003

3Q2003

1Q2004

3Q2004

1Q2005

3Q2005

1Q2006

3Q2006

1Q2007

3Q2007

1Q2008

3Q2008

1Q2009

3Q2009
Source: Factset, Goldman Sachs Research. Source: Factset, Goldman Sachs Research.

Goldman Sachs Global Investment Research 18

March 19, 2010 United States: Financial Services

Our analysis indicates that investment banking revenue for large US investment banks can be forecasted using a regression model
and Dealogic estimated investment banking fees. In forecasting revenue we have used the following approach: (1) we have
regressed aggregate investment banking revenue for large US investment banks versus industry investment banking fees
estimated by Dealogic and (2) We have pro-rated quarter-to-date data to estimate a complete quarter run rate. The model has 88% r
-squared and correctly forecasts revenue. As a result of a lower level of completed deal activity so far in 1Q2010, we estimate
investment banking revenue could decline by approximately 30% sequentially.

Exhibit 31: Expect IBD revenue to decline in 1Q2010

regression model based on Dealogic fees as of March 15, 2010 and historical aggregate IBD revenue for US investment banks.

$10

$9 Actual IBD Revenue vs Dealogic Fees

$8 R-square = 88%
Investment banking fees ($bn)

$7

$6

$5

$4
We expect Investment banking
$3
fees to decline in 1Q2010
$2 Predicted
Actual
$1

$0

1Q10E
1Q01

3Q01

1Q02

3Q02

1Q03

3Q03

1Q04

3Q04

1Q05

3Q05

1Q06

3Q06

1Q07

3Q07

1Q08

3Q08

1Q09

3Q09
Source: Company data, Dealogic, Goldman Sachs Research.

Goldman Sachs Global Investment Research 19

March 19, 2010 United States: Financial Services

Exhibit 32: We estimate announced global M&A volume will increase 17% Exhibit 33: But 1Q10 completed M&A is expected to be down 39% qoq as
yoy in 1Q10, in line with our estimate for a 10-15% increase in 2010 the market digests weak announced activity in 2009
$ volume of announced global M&A, in mn $ volume of announced global M&A, in mn

1,600,000 1,600,000
Announced Global M&A Deal Volumes ($ mn) Completed Global M&A Deal Volumes ($ mn)
Americas EMEA Asia-Pac Americas EMEA Asia-Pac
1,400,000 1,400,000

1,200,000 1,200,000

1,000,000 1,000,000

800,000 800,000

600,000 600,000

400,000 400,000

200,000 200,000

0 0

1Q10 (Q-ized)
1Q98

3Q98

1Q99

3Q99

1Q00

3Q00

1Q01

3Q01

1Q02

3Q02

1Q03

3Q03

1Q04

3Q04

1Q05

3Q05

1Q06

3Q06

1Q07

3Q07

1Q08

3Q08

1Q09

3Q09
1Q10 (Q-ized)
1Q98

3Q98

1Q99

3Q99

1Q00

3Q00

1Q01

3Q01

1Q02

3Q02

1Q03

3Q03

1Q04

3Q04

1Q05

3Q05

1Q06

3Q06

1Q07

3Q07

1Q08

3Q08

1Q09

3Q09
Source: Dealogic, Goldman Sachs Research. Source: Dealogic, Goldman Sachs Research.

Exhibit 34: Announced & Completed Global and U.S. M&A volumes
$ in mn, 1Q2010 data is through March 15-16.

Global Completed M&A Global Announced M&A U.S. Completed M&A U.S. Announced M&A
Quarter $ Volume Deals $ Volume Deals $ Volume Deals $ Volume Deals

1Q08 1,013,829 11,502 822,466 11,280 353,742 2,522 273,670 2,449

2Q08 806,031 10,637 903,915 10,678 207,207 1,965 377,882 1,952
3Q08 856,710 10,486 836,150 10,278 316,311 2,366 272,503 2,302
4Q08 878,353 9,852 602,823 9,528 269,830 2,083 113,458 1,987
1Q09 628,962 9,292 576,391 9,310 230,867 1,880 253,146 1,866
2Q09 431,903 8,600 565,360 8,810 91,200 1,636 193,662 1,703
3Q09 495,345 8,720 511,596 9,009 140,129 1,647 116,145 1,736
4Q09 737,413 9,518 729,144 9,752 292,357 1,877 232,951 1,968
1Q10 (q-ized) 445,178 8,180 685,926 8,753 192,197 2,154 244,865 2,231
Q/Q (40%) (14%) (6%) (10%) (34%) 15% 5% 13%
Y/Y (29%) (12%) 19% (6%) (17%) 15% (3%) 20%

Source: Dealogic, Goldman Sachs Research estimates

Goldman Sachs Global Investment Research 20

March 19, 2010 United States: Financial Services

Exhibit 35: M&A activity trends with market performance … Exhibit 36: …and with GDP growth…
US announced deal volumes versus S&P500 index US announced M&A volumes qoq change, US Real GDP qoq change annualized

600 1,800 USA - Real GDP (QoQ) annualized

8% 40%
US volumes (QoQ)

US M&A announced volumes - QoQ change

SPX 1,600
500 Volumes 6% 30%
US announced M&A volumes ($bn)

1,400
4%
20%
400 1,200

S&P 500 index

US GDP - QoQ
2%
1,000 10%
300 0%
800 0%
-2%
200 600
-10%
-4%
400
100 -20%
-6%
200

0 0 -8% -30%

2Q01
4Q01
2Q02
4Q02
2Q03
4Q03
2Q04
4Q04
2Q05
4Q05
2Q06
4Q06
2Q07
4Q07
2Q08
4Q08
2Q09
4Q09
2Q10E
4Q10E
2Q11E
4Q11E
2001 Q1
2001 Q3
2002 Q1
2002 Q3
2003 Q1
2003 Q3
2004 Q1
2004 Q3
2005 Q1
2005 Q3
2006 Q1
2006 Q3
2007 Q1
2007 Q3
2008 Q1
2008 Q3
2009 Q1
2009 Q3
2010 Q1
Source: Dealogic, FactSet, Goldman Sachs Research. Source: Dealogic, Goldman Sachs Research.

Exhibit 37: deals take longer to monetize and most of deal announced but not yet completed in 1Q2010 YTD are above $1 bn
Announced deals - not yet completed by size 1Q2010 YTD announced but not yet completed deals

100%
89%
90% 6% of deals account for almost 76% of deals
80%
that were announced but not yet complated
Deal Duration from Announce to Complete in 1Q2010 YTD
70% # deals % Total
Avg Duration Avg Duration
Deal Size Total Deals
(days) (months) 60% volume % Total
50%
$10 bn+ 131 202 6.7
39%
40%
$5 bn - $10 bn 168 163 5.4
30% 23%
$1 bn - $5 bn 1,153 121 4.0 20% 14% 16%
8%
$0.5 bn - $1bn 1,017 101 3.3 10% 5% 5%
1% 1%
<$0.5 bn 7,229 92 3.0 0%
Total 9,698 99 3.3 $10 bn+ $5 bn - $10 bn $1 bn - $5 bn $0.5 bn - $1bn <$0.5 bn

Source: Dealogic, Goldman Sachs Research estimates.

Goldman Sachs Global Investment Research 21

March 19, 2010 United States: Financial Services

Exhibit 38: M&A Backlog volumes are highest in Americas but Asia Pacific accounts for approximately 50% of deals in backlog
backlog data is for deals announced since 1/1/2009 that are pending but not yet completed or withdrawn here

M&A backlog volumes by region M&A deals in backlog by region

500 Deal Value

450 EMEA
Americas
400 22%

M&A backlog deal value ($bn)

26%
350

300

250

200

150

100

50 Asia Pacific
0 52%
Americas Asia Pacific EMEA

Source: Dealogic, Goldman Sachs Research estimates.

Exhibit 39: ECM trends have been much lower qoq but have recovered more Exhibit 40: While America’s share of issuance has fallen to 31% in 1Q10 from
than 100% from trough 1Q09 levels 50% in 3Q08
$ in mn share of $ volume of equity issuance

350,000
Global ECM Americas EMEA A/P
100%
Converts Follow Ons IPOs
300,000

250,000
80%

200,000

60%
150,000

100,000
40%

50,000

20%
0
1Q10TD (Q-ized)
1Q98

3Q98

1Q99

3Q99

1Q00

3Q00

1Q01

3Q01

1Q02

3Q02

1Q03

3Q03

1Q04

3Q04

1Q05

3Q05

1Q06

3Q06

1Q07

3Q07

1Q08

3Q08

1Q09

3Q09

0%
1Q98

3Q98

1Q99

3Q99
1Q00

3Q00

1Q01

3Q01

1Q02

3Q02

1Q03

3Q03

1Q04

3Q04

1Q05

3Q05

1Q06

3Q06

1Q07

3Q07

1Q08
3Q08

1Q09

3Q09

1Q10
Source: Dealogic, Goldman Sachs Research. Source: Dealogic, Goldman Sachs Research.

Goldman Sachs Global Investment Research 22

March 19, 2010 United States: Financial Services

Exhibit 41: Global ECM and IPO backlog is building – which could provide support to equity underwriting business as markets improve
global ECM and IPO backlog volumes and number of deals

Global ECM backlog Global IPO backlog

60 ECM Backlog ($bn) 400 35 350

IPO Backlog ($ bn)
# of deals 350
50 30 # of deals 300
300
25 250
40
250
20 200
backlog

backlog
# deals

# deals
30 200
15 150
150
20
10 100
100
10 5 50
50

0 0 0 0

1Q10TD

1Q10TD
3Q99
1Q00
3Q00
1Q01
3Q01
1Q02
3Q02
1Q03
3Q03
1Q04
3Q04
1Q05
3Q05
1Q06
3Q06
1Q07
3Q07
1Q08
3Q08
1Q09
3Q09

3Q99
1Q00
3Q00
1Q01
3Q01
1Q02
3Q02
1Q03
3Q03
1Q04
3Q04
1Q05
3Q05
1Q06
3Q06
1Q07
3Q07
1Q08
3Q08
1Q09
3Q09
Source: Dealogic, Goldman Sachs Research estimates.

Exhibit 42: Global ECM issuance by product: IPO’s as a % of total issuance (24%) is at its highest level in two years
$ in mn, 1Q2010 data is through March 15-16.

Global Equity Issuance U.S. Equity Issuance

Converts Follow Ons IPOs Total Converts Follow Ons IPOs Total
Quarter
1Q08 31,572 58,821 36,897 127,289 17,010 13,694 23,680 54,384
2Q08 56,222 174,198 34,383 264,803 34,462 49,768 5,175 89,406
3Q08 12,708 112,331 8,259 133,299 6,089 44,964 973 52,027
4Q08 4,894 101,424 3,225 109,544 - 44,196 145 44,340
1Q09 6,541 63,256 1,291 71,087 3,332 9,419 828 13,579
2Q09 30,815 236,487 12,243 279,544 12,500 90,782 1,563 104,845
3Q09 25,875 163,507 38,343 227,726 6,639 29,082 5,110 40,831
4Q09 35,315 230,612 62,900 328,828 12,285 70,924 9,202 92,410
1Q10 19,009 88,042 33,150 140,200 6,254 18,456 3,044 27,755

Q/Q (46%) (62%) (47%) (57%) (49%) (74%) (67%) (70%)

Y/Y 191% 39% 2468% 97% 88% 96% 268% 104%

Source: Dealogic, Goldman Sachs Research estimates.

Goldman Sachs Global Investment Research 23

March 19, 2010 United States: Financial Services

Exhibit 43: DCM issuance is up 30% qoq and remains at healthy levels vs. depressed levels in 2007-2008
$ in mn

2,000,000 IG HY ABS MBS Sovereign Agency Non-US Agency Supranational

1,800,000

1,600,000

1,400,000

1,200,000

1,000,000

800,000

600,000

400,000

200,000

1Q10 Q-ized
1Q1998
2Q1998
3Q1998
4Q1998
1Q1999
2Q1999
3Q1999
4Q1999
1Q2000
2Q2000
3Q2000
4Q2000
1Q2001
2Q2001
3Q2001
4Q2001
1Q2002
2Q2002
3Q2002
4Q2002
1Q2003
2Q2003
3Q2003
4Q2003
1Q2004
2Q2004
3Q2004
4Q2004
1Q2005
2Q2005
3Q2005
4Q2005
1Q2006
2Q2006
3Q2006
4Q2006
1Q2007
2Q2007
3Q2007
4Q2007
1Q2008
2Q2008
3Q2008
4Q2008
1Q2009
2Q2009
3Q2009
4Q2009
Source: Dealogic, Goldman Sachs Research.

Exhibit 44: Debt issuance by product

$ in mn, 1Q2010 data is through March 16.

G lo ba l D e bt Is s ua nc e

N o n- US
ABS HY IG M BS S o v e re ign S uprN t l A ge nc y T o tal
A ge nc y
Quarter
1Q08 72,382 23,741 390,936 70,363 75,822 90,511 45,896 265,435 1,035,086
2Q08 85,657 57,350 761,741 86,430 68,047 124,199 40,147 229,657 1,453,229
3Q08 42,576 22,467 318,291 43,801 51,863 42,937 25,111 103,584 650,631
4Q08 16,948 6,949 432,727 36,266 52,236 50,896 22,525 70,078 688,626
1Q09 26,009 27,114 901,546 39,976 132,008 180,108 60,798 249,848 1,617,408
2Q09 52,661 67,654 785,118 107,833 112,704 165,605 65,378 234,313 1,591,266
3Q09 55,039 69,208 574,030 117,847 63,797 129,180 33,145 146,933 1,189,179
4Q09 32,511 94,206 486,865 117,515 73,274 128,795 25,778 191,590 1,150,534
1Q10 27,773 67,434 550,472 106,445 134,257 213,499 63,545 328,049 1,491,474

Q/Q (15%) (28%) 13% (9%) 83% 66% 147% 71% 30%
Y/Y 7% 149% (39%) 166% 2% 19% 5% 31% (8%)

Source: Dealogic, Goldman Sachs Research.

Goldman Sachs Global Investment Research 24

March 19, 2010 United States: Financial Services

Exhibit 45: Geographic distribution for debt and equity issuance and announced M&A deal volumes.
% of global DCM, ECM, and announced M&A volumes, 1995-2010YTD

Geographic distribution of Debt issuance Deal volumes Geographic distribution of Equity issuance Deal volumes

80% Americas 60% Americas

Asia Pacific Asia Pacific
70% EMEA EMEA
50%
60%

% DCM volumes by region

% ECM volumes by region

40%
50%

40% 30%

30%
20%
20%

10%
10%

0% 0%

2010 YTD
1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010 YTD
1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009
Geographic distribution of M&A announced Deal volumes

80% Americas
Asia Pacific
70%
EMEA
% M&A announced volumes by region

60%

50%

40%

30%

20%

10%

0%

2010 YTD
1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009
Source: Dealogic, Goldman Sachs Research estimates.

Goldman Sachs Global Investment Research 25

March 19, 2010 United States: Financial Services

Reg AC
We, Richard Ramsden, Daniel Harris, CFA, Adriana Kalova, Jason Harbes, CFA, Brian Foran and Quan Mai, hereby certify that all of the views expressed in this report accurately reflect our personal
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March 19, 2010 United States: Financial Services

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March 19, 2010 United States: Financial Services

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Goldman Sachs Global Investment Research 28