Equity Research April 16, 2010 United States of America Financial Services Goldman Sachs Group Inc. (GS - US$ 184.27) 2-Equal Weight Brokers & Asset Managers Market Commentary/Strategy Roger A. Freeman, CFA Eric Bertrand 1.212.526.4662 1.212.526.1369 Administration Steps Up Support for Bill [email protected] [email protected] BCI, New York BCI, New York Investment Conclusion With revised derivatives legislation pending from EPS (US$) (FY Dec) Senator Blanche Lincoln from the Senate Ag subcommittee, which appears to have taken a turn 2009 2010 2011 % Change towards a more restrictive set of rules and Actual Old New St. Est. Old New St. Est. 2010 2011 regulations in recent days based on a letter from 1Q 3.39A 3.79E 3.79E 4.01E N/A N/A 4.71E 12% N/A Senator Lincoln earlier this week outlining likely 2Q 4.93A 4.19E 4.19E 4.37E N/A N/A 4.94E -15% N/A components of her bill, the Administration has 3Q 5.25A 3.76E 3.76E 4.17E N/A N/A 4.72E -28% N/A likely created a more difficult challenge for itself in 4Q 8.20A 6.48E 6.48E 5.39E N/A N/A 5.49E -21% N/A securing the 60 votes necessary to push the Year 22.13A 18.28E 18.28E 18.15E 20.23E 20.23E 20.31E -17% 11% Senate financial reform bill to the floor of the P/E 10.1 9.1 Senate for a majority vote. Today's SEC announcement and conference call (which did not Market Data Financial Summary allow analysts or investors to ask questions) was a well-timed, and perhaps not coincidental, effort to Market Cap (Mil.) 97083 Revenue TTM (Mil.) 51673.0 sway some on-the-fence Republicans to support a Dividend Yield 0.87 tougher financials bill that the White House has 52 Week Range 193.60 - 113.38 been lobbying for. Targeting GS, given the flurry of anti-Wall Street press that has centered around that firm offers the publicity that the administration needs at this critical juncture. We believe that Senator Dodd has targeted a vote on the Senate bill (with the expected Lincoln amendment) by Stock Overview April 26th, and given the short span of time Goldman Sachs Group Inc. -Reuters 04/ 16/ 2010 GS between now and the end of the month, we are Bloomberg GS not surprised to see the stepped up support for the ADR bill. 175 Stock Rating Target Price 125 New: 2-Equal Weight New: US$ 195.00 Volume Old: 2-Equal Weight Old: US$ 195.00 25M Sector View: 2-Neutral May Ju n Ju l Aug Sep Oct Nov Dec Ja n Feb Mar Apr Source: Barclays Capital Live As for GS itself, the profits were small (apparently $15mm), so assuming a penalty a few times the size of those profits might yield a penalty in the $100mm range (very rough, initial estimate). Reputationally, unless there are in fact more of these transactions with more clients, we would not expect a material fall-out. With the shares down some 14% today (SPX down 1.8%) to about 1.3x P/B, we find them attractive here, especially ahead of a likely strong quarter with an upside earnings surprise (based on earnings produced by peers so far) and an opportunity to tell the company's side of the story. Barclays Capital does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. PLEASE SEE ANALYST(S) CERTIFICATION(S) ON PAGE 3 AND IMPORTANT DISCLOSURES BEGINNING ON PAGE 4 1 Equity Research That said, these charges, and the timing of them, increase the likelihood of passage of a more onerous derivatives bill for dealers, and that could ultimately be far more costly to GS, its competitors, and the competitiveness of the US capital markets system broadly. The situation is of course fluid, and we will follow up with additional thoughts post the company's earnings report on Tuesday. 2 Equity Research Analyst Certification: We, Roger A. Freeman, CFA and Eric Bertrand, hereby certify (1) that the views expressed in this research report accurately reflect our personal views about any or all of the subject securities or issuers referred to in this research report and (2) no part of our compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this research report. Other Team Members: Truong, Steven (BCI, New York) 1.212.526.9937 [email protected] Hill, Kenneth (BCI, New York) 1.212.526.7179 [email protected] Company Description: The Goldman Sachs Group is a global financial services firm specializing in investment banking, trading and principal investments, and asset management and securities services. 3 Equity Research On September 20, 2008, Barclays Capital acquired Lehman Brothers' North American investment banking, capital markets, and private investment management businesses. All ratings and price targets prior to this date relate to coverage under Lehman Brothers Inc. Important Disclosures: Goldman Sachs Group Inc. (GS) US$ 184.27 (15-Apr-2010) 2-Equal Weight / 2-Neutral Rating and Price Target Chart: GOLDMAN SACHS GROUP INC. As of 14-Apr-2010 Currency = USD 256.00 240.00 224.00 208.00 192.00 176.00 160.00 144.00 128.00 112.00 96.00 80.00 64.00 48.00 4-07 7-07 10-07 1-08 4-08 7-08 10-08 1-09 4-09 7-09 10-09 1-10 4-10 Closing Price Price Target Recommendation Change Drop Coverage Source: FactSet Currency=US$ Date Closing Price Rating Price Target Date Closing Price Rating Price Target 16-Oct-09 184.37 195.00 19-Mar-08 166.49 213.00 05-Jun-09 149.01 165.00 14-Feb-08 176.56 229.00 15-Apr-09 121.19 105.00 06-Dec-07 222.51 234.00 09-Mar-09 73.95 100.00 21-Sep-07 209.98 226.00 10-Nov-08 71.21 135.00 30-Aug-07 171.38 214.00 26-Sep-08 137.99 170.00 15-Jun-07 226.19 238.00 19-Sep-08 129.80 175.00 03-Apr-08 176.53 200.00 FOR EXPLANATIONS OF RATINGS REFER TO THE STOCK RATING KEYS LOCATED ON THE PAGE FOLLOWING THE LAST PRICE CHART. Barclays Bank PLC and/or an affiliate is a market-maker and/or liquidity provider in securities issued by Goldman Sachs Group Inc. or one of its affiliates. Barclays Bank PLC and/or an affiliate has received compensation for investment banking services from Goldman Sachs Group Inc. in the past 12 months. Barclays Bank PLC and/or an affiliate trades regularly in the shares of Goldman Sachs Group Inc.. Barclays Bank PLC and/or an affiliate has received non-investment banking related compensation from Goldman Sachs Group Inc. within the past 12 months. Goldman Sachs Group Inc. is or during the past 12 months has been an investment banking client of Barclays Bank PLC and/or an affiliate. Goldman Sachs Group Inc. is or during the last 12 months has been a non-investment banking client (securities related services) of Barclays Bank PLC and/or an affiliate. Valuation Methodology: Our $195 price target is based on a 1.4x P/B multiple on 2010E BVPS estimate of $140. Risks Which May Impede the Achievement of the Price Target: Principal gains are lumpy, greater risk tolerance increases potential for earnings volatility, priced to perfection, specialist business model is under fire, mortgage business is not vertically integrated 4 Equity Research Important Disclosures Continued: The analysts responsible for preparing this report have received compensation based upon various factors including the firm's total revenues, a portion of which is generated by investment banking activities. Company Name Ticker Price Price Date Stock / Sector Rating Goldman Sachs Group Inc. GS US$ 184.27 15-Apr-2010 2-Equal Weight / 2-Neutral Barclays Capital produces a variety of research products including, but not limited to, fundamental analysis, equity-linked analysis, quantitative analysis, and trade ideas. Recommendations contained in one type of research product may differ from recommendations contained in other types of research products, whether as a result of differing time horizons, methodologies, or otherwise. Guide to the Barclays Capital Fundamental Equity Research Rating System: Our coverage analysts use a relative rating system in which they rate stocks as 1-Overweight, 2-Equal Weight or 3-Underweight (see definitions below) relative to other companies covered by the analyst or a team of analysts that are deemed to be in the same industry sector (the “sector coverage universe”). Below is the list of companies that constitute the sector coverage universe: Blackstone Group LP (BX) Charles Schwab Corp. (SCHW) CME Group (CME) Duff & Phelps Corp. (DUF) E*TRADE Financial (ETFC) Eaton Vance Corp. (EV) Evercore Partners Inc. (EVR) FBR Capital Markets (FBCM) Federated Investors, Inc. (FII) Fortress Investment Group (FIG) Franklin Resources Inc. (BEN) GLG Partners, Inc. (GLG) Goldman Sachs Group Inc. (GS) IntercontinentalExchange Inc. (ICE) Invesco Limited (IVZ) Janus Capital Group Inc. (JNS) Knight Capital Group (NITE) Legg Mason Inc. (LM) MF Global Ltd. (MF) Morgan Stanley (MS) NASDAQ OMX Group, Inc. (NDAQ) NYSE Euronext, Inc. (NYX) Och-Ziff Capital Management Group (OZM) T Rowe Price Group Inc.