Regulation and Accounting - Changing Landscape Credit Markets (May 2010)

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GS Credit Structuring
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For Professional Investors Only

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Regulation and Accounting: Changing Landscape
This is not research and is not intended as such. This has been prepared by
individuals on the sales/trading desks of the Securities Division. This material
does not represent a formal or official view of Goldman Sachs as the views
expressed herein are solely those of the author(s), which may differ from those of
Global Investment Research
All information and ideas within is based on current advice from consultation papers and proposed
banking regulation framework changes which have not been finalized, hence the analysis within is
subject to change and may be different to what the final advice is
Strictly Private and Confidential

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presentation without the prior permission of Goldman Sachs
May 2010
Goldman Sachs does not represent that this information is accurate or complete, and it should not be relied upon as such. We are not soliciting any action based upon it.
Table of Contents GS Credit Structuring
Prepared for UCI
I EXECUTIVE SUMMARY
II BANKING REGULATION CHANGES

 Legislative Environment
 Current Regulatory Framework
 Banking Regulation Overview
 Liability Side Impact
 Asset Side Impact
III ACCOUNTING CHANGES

 Accounting Considerations
 Impact of Accounting Regulation
IV IMPLEMENTATION TIMELINE
V APPENDIX
 State of the Market
 Proposed Changes to Basel II Framework
 Source Documents
You should consult your own accounting, tax, investment and legal advisors before investing. GS is acting as an arm’s-length contractual counterparty and not as an 1
advisor or fiduciary.
Prepared for UCI
I- Executive Summary
Executive Summary
Prepared for UCI
Executive Summary
 In the wake of the financial crisis, the banking industry finds itself in a state of unprecedented change, with regulatory overhaul at
almost every level of the financial system
 In an attempt to reduce the likelihood of future bailouts, regulators are pressing for significant reform, particularly as it relates
to bank capital, liquidity management, accounting and disclosure. These changes are likely to have a lasting and profound
impact on the banking industry
Changes in the
Regulatory  Proposed reforms by the Basel Committee will likely lead to increased risk weights on the asset side and higher-quality
Environment capital on the liability side
 Simultaneously, regulators are working on harmonizing capital requirements for European insurers through the introduction of
Solvency II
 Potential future accounting changes may simplify classification and measurement, but may lead to increased P&L and balance
sheet volatility going forward as some assets no longer qualify for Available for Sale and Amortized Cost treatment
 Since the proposed regulatory changes define capital instruments more strictly (i.e. innovative Tier 1 capital is being phased
out), banks will more likely focus on the risk weighted asset (RWA) side to optimize their capital ratios
 Given the surge in asset prices brought about by improving market sentiment and support from government programs, banks
and insurers may seek to reduce exposures to asset classes that have a comparatively less favorable capital and accounting
Potential treatment
Impacts
 Additionally, some price support for these assets may seize as government programs are being phased out
 Impending regulatory and accounting changes create significant uncertainty regarding the future efficiency of holding certain
existing portfolios. As a result, banks and insurers may change their investment / divestment behavior with potentially
significant knock-on effects across asset markets
Prepared for UCI
II- Banking Regulation Changes
Banking Regulation Changes
Legislative Environment
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Bank Regulatory Framework
Basel Committee on Banking Supervision (BCBS)

Revisions to the Basel II market risk Enhancements to the Basel II Strengthening the resilience of the International framework for liquidity risk
framework framework banking sector measurement, standards and monitoring
December 31, 2010 December 31, 2010 December 31, 2012 December 31, 2012
 BCBS only issues recommendations on banking laws and regulations. It is up to individual countries to transform these into law.
European Regulatory Framework US Regulatory Framework
Current Situation Current Situation

 European banks currently report under Basel II  US banks currently under Basel I
 In the European Union, Basel II is implemented through the Capital  Most core banks (total assets of greater than USD 250bn and least
Requirements Directive (CRD) USD 10bn of on-balance sheet foreign exposures) are currently in the
 While the CRD is not binding on EU banks, European supervisors process of transitioning to Basel II (parallel run with Basel I
such as the Financial Services Authority (FSA) in the UK are requirements still binding)
required to implement the rules in their jurisdiction  Core banks must start a three-year transition period no later than April
 Changes to the CRD must be voted on by the European Parliament 1, 2011 (a floor based on the Basel I charge applies)
 To modify existing rules, the Federal Reserve issues an Advance
Status of the Proposals Notice of Proposed Rule Making (ANPR), which is followed by a
 Impact studies currently underway by the European Commission and comment period. Vote by Congress is not required for implementation
the Committee of European Banking Supervisors (CEBS)
Status of the Proposals
 Vote on the directives implementing the 2010 changes are expected
later this year  ANPR has not yet been released
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potential not be relied upon as such. We are not soliciting any action based upon it.
investment
Current Regulatory Framework I
Prepared for UCI
Evolution of Banking Book Capital Requirements
Total Capital
Credit Risk (Banking Book) + Market Risk (mostly Trading Book) + Operational Risk
 Capital held against the risk of entity-  Risk of losses arising from movements in  Capital held against the risk of loss from
specific losses on positions (credit and market prices of positions held in the failed internal processes, people,
equities) held in the banking book trading book systems, or external events
Banking Book Capital Requirement = Notional x Risk Weight (RW) x 8%

Basel I
Basel II*
Basel III
Asset Class RW Rating Corporates Securitizations Basel proposals increase RWs in the banking book:
 July proposals (effective December 31, 2010):
Corporate 100% AAA – AA 20% 20%
 Resecuritization RWs captured separately from
Bank 20% A 50% 50% securitization RWs (up to 200% increase)
 December proposals (effective Dec 31, 2012):
OECD Sovereign 0% BBB 100% 100%
 Greater charges for financial exposures
BB 100% 350%  Potentially higher probabilities of default for
Internal Ratings-Based (IRB) banks
B and below 150% Deduct  Stricter definitions of the capital base
* Sample charges under Basel II for a Standardized bank
 Supplementary risk measures addressing
leverage and liquidity
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Current Regulatory Framework II
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Evolution of Trading Book Capital Requirements
Credit Risk (Banking Book) + Market Risk (mostly Trading Book) + Operational Risk
Trading Book Capital Requirement (Interest Rate, Equity, FX and Commodities Risk)
Basel I*
Basel II*
Basel III
The Basel II market risk framework remains unchanged from Basel I: The July proposal revamps the Market Risk Framework:
 General market risk: risk due to changes in broad market  Introduction of a stressed VaR requirement:
parameters  CapitalGMR = Max[ VaRt-1, mc • VaRavg(60) ]
Position Risk
 CapitalGMR = Max[ VaRt-1, m • VaRavg(60) ] where 3 ≤ m ≤ 4 + Max[ sVaRt-1, ms • sVaRavg(60) ] where 3 ≤ m c, ms ≤ 4

 Specific risk: risk specific to the issuer of the security  Expand Incremental Risk Charge to capture migration risk in addition to
default risk, now at a 1-year 99.9th percentile risk horizon
 CapitalSR = Specific risk captured in VaR model +
 Substitute a more capital-intensive Comprehensive Risk Charge for the
Incremental Risk Charge capturing default risk (estimate of
Incremental Risk Charge for correlation trading positions (floor applies)
10-day 99th percentile risk)
 Substitute the banking book risk charges for the Specific Risk charge for
securitization exposures, which are not correlation trading positions
Counterparty Risk
The capital charge is calculated as in the banking book using: The December proposal increases capital held for counterparty risk:
 PD and LGD: as modelled in the banking book  The Effective EPE becomes the higher of the currently calculated value
 Exposure at Default (EAD): the bank models an Expected and a value based on data from a period of stress, and the floor on the
Effective Expected Positive Exposure (Effective EPE) of the scaling factor is increased (α ≥ 1.4)
derivative and multiplies it by the scaling factor Alpha (α ≥ 1.2) to  An additional capital charge to address CVA risk is incorporated
adjust for correlation, wrong-way risk, etc.  More onerous modelling (longer holding period) for large netting sets
Goldman Sachs does not provide tax, accounting, regulatory or legal advice to our clients * Capital requirements for a bank computing market risk
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potential charges
not be relied upon as such. We are not soliciting
investment underbased
any action the Internal
upon Models
it. Approach
‟Basel III‟ Likely to Affect Composition of Both Assets and Liabilities
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Key Changes on the Asset / RWA Side Key Changes on the Liability / Capital Side
 Trading book assets now also subject to a  The Net Stable Funding Ratio and
stressed value-at-risk (VaR) capital charge requirements for increased liquidity
Trading Book
 Additional charges for counterparty risk also monitoring imply a greater focus on
Assets
apply to derivatives not cleared centrally the debt maturity term structure
Trading Book
Debt
Senior Debt
 Punitive specific risk charges apply to illiquid  The capital proposals aim to improve
securitization positions held in the trading book the quality, consistency and
Securitization
 Correlation trading positions are carved out but a transparency of the capital base by
Exposures
more involved Comprehensive Risk Charge simplifying and harmonizing the rules
replaces the Incremental Risk Charge
Tier 3  Tier 3 capital is abolished
 Increased holdings of highly liquid securities to Highly Liquid
comply with the Liquidity Coverage Ratio Securities  Tier 2 or gone concern capital is
Tier 2 harmonized (subordinated with
(Z%) original maturity of at least 5 years)
 Capital charges for resecuritizations increase Securitization
Exposures
Capital
Banking Book
 Higher capital charges for financial exposures in  Innovative capital is abolished, and
Tier 1 Tier 1s must have non-cumulative,
the banking book as correlation assumptions Financial
(Y%) deferrable distributions
increase by a factor of 1.25 Exposures
 Discussion of higher, stressed probabilities of  Paid in capital plus retained earnings

Other Banking Core Tier 1 become the predominant form of
default (PDs) may lead to increased risk weights
Book Assets (X%) Tier 1. Regulatory adjustments to be
(RWs) for banking book assets
taken from Core Tier 1
Not to scale Source: Goldman Sachs
 In addition to the Core Tier 1, Tier 1 and Tier 2 ratios of X%, Y% and Z% (still to be calibrated), a non-risk based leverage measure will apply
 Increased disclosure requirements mandated on both the asset side (securitization positions) and the liability side (capital calculations)
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Liability Side Impact I
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Core Tier 1 and Total Capital Changes
 The proposed capital rules call for a series of regulatory Median Impact on Core Tier 1
deductions from Core Tier 1 capital that are meant to
Median Impact on Total Capital
ensure that this type of capital is truly loss-absorbing
 These changes will likely have a large effect on reported
Nordic
Core Tier 1 ratios
 The key drivers include (0.1)%
(0.9)%
 Deduction of insurance subsidiaries: investments
in financial institutions outside the scope of regulatory
consolidation are deducted from Core Tier 1
 Minority interest: minority interests are eligible for UK
inclusion in Tier 1 but not Core Tier 1 capital
 Deferred tax assets: deferred tax assets are not
Benelux
recognized as capital as their realization relies on the (1.3)%
future profitability of the bank
(3.7)%
 Unrealized available-for-sale losses: unrealized
France
Germany (1.9)% (1.2)%
accounting losses can no longer be added back for
regulatory capital purposes (only relevant for Austria
countries that currently neutralize unrealized (1.4)% (0.9)% (0.2)%
accounting losses under AFS – e.g. UK, France,
Netherlands, Sweden, Norway, etc.) (0.5)%
(4.8)% (3.0)%
Italy
 Issuance of common shares likely as reported Core Tier Spain
1 ratios fall (0.6)%
(2.0)%
(1.6)%
(3.0)%
Source: Goldman Sachs. Estimated capital impact for sample of European banks
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Liability Side Impact II
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Net Stable Funding Factor
 In addition, there is increased focus on term-matched Median NSF Ratio Estimate

funding of assets, potentially requiring banks to extend
their debt maturity profile
Nordic
Available Stable Required Stable Funding
Funding (ASF) (RSF)
76%
 ASF Factor of 100%  100% for loans and long-term
- Capital (Tier 1 and Tier 2) assets
- Preferred shares  85% for loans to retail clients
- Liabilities with effective with a residual maturity of less
maturities greater than one than one year UK
year  50% for listed equities, gold,
 The portion of deposits liquid corporate bonds rated A- 83% Benelux
that could be expected to or better with a remaining
remain with the bank for maturity of more than one year Austria/ 75%
one year  20% for highly liquid corporate Germany
France
bonds rated AA or better
 5% for bonds of sovereigns or 95%
equivalent 85%
 0% for cash and securities with
a maturity of less than one year
Italy
Spain
 Initial analysis suggests that issuance of EUR 1.7tr will
be required to reach a NSF Ratio of 100% across 85%
91%
banks in Europe alone (assuming asset composition
remains unchanged)
Source: Goldman Sachs. NSF Factor estimates for a sample of European banks
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Asset Side Impact
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Indicative Impact Assessment for Credit Assets

 Risk weights for a wide variety of assets held in both the banking and the trading book will see increases under the Basel III proposals1
 Trading books will require significantly more capital:
 Trading positions will now attract an additional stressed VaR charge
 Additionally, debt instruments are subject to more stringent issuer-specific risk charges
 The most punitive impact is expected for structured credit products (in particular those held in the trading book):
 Securitization positions will attract specific risk charges equal to those in the banking book (unless they qualify for the correlation carve-out)
 The large impact is partially a result of the limited benefit that is given for positional netting (exposures must offset exactly)
Banking Book (Internal Ratings-Based) Trading Book (Internal Models Approach)
Portfolio Impact Key Drivers Impact Key Drivers

(%age change in capital requirement) (%age change in capital requirement)
Senior Financial Debt 15-30% Increase in correlation assumptions 100-200% Stressed VaR and Incremental Risk Charge
Senior Corporate Debt TBD Possible effect due to use of stressed PDs 100-200% Stressed VaR and Incremental Risk Charge
Negative Basis Package2 0% Credit Risk Mitigation still applies [50-150%] Stressed VaR applies
Liquid Synthetic CDOs 0% No changes to securitizations (under review) [250-500%] Comprehensive risk charge and floor may apply
RMBS Portfolio 0% No changes to securitizations [Up to 1,500%] Standardized securitization charge applies
CDO of RMBS 10-200% Increase in RWAs for resecuritizations [Up to 1,700%] Standardized resecuritization charge applies
Source: Goldman Sachs
1 Indicative only. Exact impact will depend on particular models and approaches used. Analysis assumes trading portfolios contain some economically offsetting positions
2 Separate counterparty risk charges apply both for CDS exposures in the trading book and in the banking book
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III- Accounting Changes
Accounting Changes
Overview of Proposed Changes to IAS 39
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Overview of Proposed Changes to IAS 39

 The IASB is in the process of introducing changes to Financial Instruments accounting guidance. The process to replace IAS 39 has been split into:
 Phase I: Classification and Measurement (IFRS 9)
 Phase II: Impairment Methodology – Move from incurred loss to expected loss framework
 Phase III: Hedge Accounting
 IFRS 9: Financial Instruments has been released for optional adoption by IFRS filers for 2009 and onwards, with mandatory adoption in 2013
 The EU has not yet endorsed IFRS 9. EU companies are able to apply IFRS 9 only if / when endorsement happens.
Current Classifications Proposed Changes

Classification Measurement
Classification Measurement
Fair Value Fair Value Amortised Fair Value Fair Value
Amortised Cost
Through OCI1 Through P&L Cost Through OCI1 Through P&L
Loans & Held To Available Fair Value Amortised Fair Value Fair Value
Receivables Maturity for Sale Through P&L Cost Through OCI Through P&L

Equity
Debt or Equity Debt or Equity Debt instruments: Debt or Equity
Criteria
Criteria
Debt instruments, instruments
Debt instruments, instruments, instruments, - vanilla features instruments,
must have intent - specific holdings
not traded in active not classified in that are traded, (or senior tranche) not classified in
and ability to hold (not traded)
market other three or elected via fair - managed collect other two
to maturity - classification is
categories value option cash flows2 categories
irrevocable
Reclassification (July 2008) 1 Other Comprehensive Income

2
The business model is to collect cash flows rather than sell the instruments prior to maturity to realise fair value
Goldman Sachs does notSIVrepresent
restructuring
that this (Late 2007)
information is accurate or complete, and it
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consult upon astax,
their such. We are not
accounting, soliciting
or legal anyregarding
advisers action based upon it.investment
any potential
Impact of Accounting Regulation
Impact of IFRS9 Implementation
Prepared for UCI
More AFS  FVTPL Amortised Cost  FVTPL

 Non-senior cash securitizations  Non-senior cash securitizations
 Occasionally managed government and  Senior cash securitizations with synthetic buckets
corporate bonds  Structured rate investments
 Quoted equity  Unquoted equity instruments
 Assets subject to ongoing P&L volatility.
Potentially significant negative impact for such
investments currently held at artificially high
levels (also subsequent hit to Tier 1 capital)
Change in P&L Volatility
AFS  Amortised Cost No or little change Amortised Cost  FVOCI

 Occasionally managed government and  Derivatives including synthetic  Unquoted equity instruments previously held at
corporate bonds securitizations cost that are elected to FVTOCI
 Reclassification at historic levels can have a  Assets held for trading
positive capital impact if the assets were  Vanilla debt instruments
carried below cost under AFS  Quoted and unquoted equities
FVTPL  Amortised Cost FVTPL  FVTOCI

 Government and corporate bonds held to  Quoted equity instruments
collect contractual cash flows
 Senior cash securitizations previously held in

trading book for regulatory capital reasons
may be reclassified to historic costs given the
onerous trading book capital treatment under
Basel III (if regulators allow)
 Reclassification to historic levels can have a
positive capital impact if the assets
previously incurred P&L losses
Less Change in Balance Sheet Volatility More

 Amortized Cost treatment may lead to volatility if the Goldman Sachs does not provide tax, accounting, regulatory or legal advice to our clients
expected
Goldman Sachsloss
doesframework
not representis implemented
that this information is accurate or complete, and it
Investors areshould nottobe
advised reliedwith
consult upon astax,
their such. We are not
accounting, soliciting
or legal anyregarding
advisers action based upon it.investment
any potential
Prepared for UCI
IV- Implementation Timeline
Implementation Timeline
Adoption of Regulatory and Accounting Changes
Prepared for UCI
Timeline
Jul-2009: Final Jul-2010: Next Basel 1-Apr-2011: deadline for US

Document: meeting to discuss Core banks to commence
Market risk and contingent capital Basel II transition period
securitization
31-Dec-2010: Implementation of
Basel III
changes 31-Dec-2012:
Apr-2010: End of
enhancements to market risk Implementation of
comment period
Dec-2009: and securitization frameworks global reforms
Consultative
Document: 1st Half 2010: Quantitative 2nd Half 2010: Review of Post 2012:
Liquidity and impact study for capital and minimum capital standards and Grandfathering /
capital changes liquidity standards calibration of levels / form transition period TBD
2H09 1Q10 2Q10 3Q10 4Q10 2011 2012 2013
Nov-2009: Mar-2010: Jun-2010: Possible Dec-2010: Final 2011: Potential EU 2013: Mandatory
IFRS Phase I Exposure draft: revised exposure Standard: Amortized adoption (could even be adoption of IFRS 9
completed Hedge Accounting draft: Derecognition (assuming EU endorses)
IFRS9
Cost and Impairment 2010) if EU endorses
2010: EU considering endorsement of Dec-2010: Final Dec-2010: Final

IFRS9 Phase I: Classification and Standard: Hedge Standard:
Measurement Accounting Derecognition
Solvency II
2010: Solvency II 2011: Solvency II Oct-2012: Formal

QIS5 (test run) shadow application implementation
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V- Appendix
 State of the Market
Appendix
State of the Market
Prepared for UCI
Investment Grade Spreads High Yield Spreads
300 5Y iTraxx 5Y CDX 2000 5Y iTraxx Xover 5Y CDXHY

250 1600
Spread (bps)
Spread (bps)
200
1200
150
800
100
50 400
0 0
Oct-07 Feb-08 Jun-08 Oct-08 Feb-09 Jul-09 Nov-09 Mar-10 Oct-07 Feb-08 Jun-08 Oct-08 Feb-09 Jul-09 Nov-09 Mar-10
Source: Goldman Sachs Source: Goldman Sachs
Past performance is not indicative of future results. Past performance is not indicative of future results.
European CMBS Swap Spreads UK RMBS Swap Spreads
2500 ALL CMBS AAA Float (3-5) ALL CMBS AA Float (3-5) 800 Perm Master Issuer 2007 1 2007-13A EUR
Holmes Master Issuer 13 A2 EUR
Swap Spread (bps)
Swap Spread (bps)

2000
600
1500
400
1000
500 200
0 0
Oct-07 Feb-08 Jun-08 Oct-08 Feb-09 Jul-09 Nov-09 Mar-10 Oct-07 Feb-08 Jun-08 Oct-08 Feb-09 Jul-09 Nov-09 Mar-10
Source: Markit Source: Markit

Past performance is not indicative of future results. Past performance is not indicative of future results.
Prepared for UCI
V- Appendix
 Proposed Changes to Basel II Framework
Proposed Changes to Basel II Framework
Strengthening the Resilience of the Banking Sector
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Strengthening the Resilience of the Banking Sector
1) Improvement of the quality, consistency, and transparency of the capital base and capital ratio calculation by
simplifying and harmonizing Tier 1 and Tier 2 capital definitions
 Ensure Tier 1 Capital is available to support financial institutions on a going-concern basis
 The proposal is likely have a very significant effect on reported Tier 1 ratios
2) Strengthening of capital requirements for counterparty credit risk
 Reduce the risk of shocks being transmitted from one financial institution to another
 Higher capital requirements for counterparty credit risk
Summary of 3) Introduction of a non-risk based leverage ratio as a non-model based simple measure of capital requirement
Proposed
 Contain model risk and ensure that attempts to arbitrage the risk-based Basel II capital requirements will not be
Changes: successful
Five Basic  Highly leveraged institutions may be very significantly affected
Measures 4) Mitigation against pro-cyclicality and building of capital buffers during high earnings periods
 Ensure that financial institutions do not enter into high-loss periods with minimal capital buffers
 Potential payout to equity stakeholders and employees in the banking sector is reduced for banks close to the
regulatory capital minimum
5) Introduction of a global minimum liquidity standard
 Ensure short and medium term liquidity requirements will not lead to failures of otherwise solvent banks
 Treasuries and highly rated and liquid paper (possibly including corporates) are likely to benefit from the liquidity
requirements
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Quality, Consistency, and Transparency of the Capital Base
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Capital Definitions
 Total Capital will consist of the sum of the following elements:
1. Tier 1 Capital (going-concern capital)
 Common Equity (effectively paid in capital plus retained earnings)

 Additional Going-Concern Capital (will help the bank avoid payment default through payments being
discretionary, and must be able to bear losses while the firm remains a going-concern)
2. Tier 2 Capital (gone-concern capital)
 Must be issued and paid-in, subordinated to depositors and general creditors of the bank, does not have any
guarantees or equivalent increasing the seniority of the instrument, must have original maturity of at least 5
years, cannot be callable for 5 years, cannot have a built-in incentive to be called, and can only be callable by
Elements issuer (not investor)
of  For each of the three categories above (1a, 1b, and 2) there will be a single set of criteria, which instruments are required to
meet, before inclusion in the relevant category, but regulatory adjustments must be applied to Tier I capital only, in an effort to
Capital harmonize currently different treatments across the globe
 Common Equity, Tier 1 Capital and Total Capital must always exceed explicit minima of x%, y% and z% of risk-weighted
assets
 The size of x%, y%, and z% will be calibrated following the impact assessment
 The predominant form of Tier 1 Capital must be Common Equity
 The Basel Committee will consider which role contingent capital, convertible securities, and instruments with write-down
features will have going forward during the July 2010 meetings
 Banks will be required to provide extensive disclosures of the capital base and capital calculations in addition to reconciling
the capital base calculation back to the balance sheet in the audited financial statements
Goldman
investment.
Prepared for UCI
Regulatory Adjustments (1)
 Stock Surplus – Share premium will only be permitted to be included in the Common Equity component of Tier 1 if the shares
giving rise to the stock surplus are also permitted to be included in the Common Equity component of Tier 1
 Minority Interest – Will not be eligible for inclusion in the Common Equity component of Tier 1
 Unrealized Gains and Losses on Debt Instruments, Loans and Receivables, etc. – No adjustment will be applied to remove
unrealised gains or losses recognised on the balance sheet from the Common Equity component of Tier 1, although the
Committee will continue to review the appropriate treatment of unrealized gains
 Goodwill and Other Intangibles – Goodwill and other intangibles will be deducted from the Common Equity component of Tier 1
Key
 Deferred Tax Assets – Deferred tax assets, which rely on future profitability of the bank to be realized, will be deducted from the
Regulatory Common Equity component of Tier 1
Adjustments
 Investments in Own Shares – All of a bank‟s investments in its own common shares will be deducted from the Common Equity
to component of Tier 1
Balance
 Investment in the Capital of Certain Financial Institutions Outside the Regulatory Scope of Consolidation – All holdings of
Sheet Items capital which form part of a reciprocal cross holding agreement or are investments in affiliated institutions (e.g. sister companies)
are to be deducted in full on a corresponding basis. For all other holdings, the corresponding deduction approach will apply when
the holdings exceed certain thresholds. For holdings of common stock the thresholds work as follows:
 If the bank has holdings of common stock in a financial institution which exceed 10% of the common stock of the financial institution
then the full amount of this holding (not just the amount above 10%) will be deducted from the bank‟s common equity
 If the bank has holdings of common stock in other financial institutions which in aggregate exceed 10% of the bank‟s common equity
(after applying all other regulatory adjustments to common equity) then the amount above 10% is required to be deducted
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Regulatory Adjustments (2)
 Shortfall of the Provisions to Expected Losses – The deduction from capital in respect of a shortfall of the stock of
provisions to expected losses under the internal ratings-based (IRB) approach will be made 100% from the Common Equity
component of Tier 1 capital
 Cash-Flow Hedge Reserve – Remove the positive and negative cash flow hedge reserve from the Common Equity
component of Tier 1 where it relates to the hedging of projected cash flows which are not recognised on the balance sheet
 Cumulative Gains and Losses due to Changes in Own Credit Risk on Fair Valued Financial Liabilities – Filter out from
the Common Equity component of Tier 1 all gains and losses resulting from changes in the fair value of liabilities which are
Key due to changes in the bank‟s own credit risk
Regulatory  Defined Benefit Pensions Fund Assets and Liabilities – Apply no filter to defined benefit pension fund liabilities and
Adjustments deduct the value of any defined benefit pension fund asset from the Common Equity component of Tier 1. Assets in the fund
to to which the bank has unrestricted and unfettered access can, with supervisory approval, offset the deduction. Such offsetting
assets will be given the risk weight they would receive if they were owned directly by the bank
Balance
 Remaining 50:50 (Tier 1 / Tier 2) Deductions – All remaining regulatory adjustments which are currently deducted 50%
Sheet Items from Tier 1 and 50% from Tier 2, and which are not addressed elsewhere in the proposal, will receive a 1250% risk weight
instead of the current deduction from capital
Goldman
investment.
Capital Requirements for Counterparty Credit Risk
Prepared for UCI
Changes to Counterparty Credit Risk (1)
 Require that the counterparty exposure be the higher of the Effective Expected Positive Exposure (Effective EPE) metric be
calculated on data that includes a period of stress and the Effective EPE as currently calculated
 Incorporate a simple bond-equivalent of the counterparty exposure to better capture CVA risk that recognizes a clearly defined set
of hedges (CDS hedges only)
 Improve monitoring for general (macro based) wrong way risk and implement an explicit Pillar 1 capital charge for specific (issuer
specific) wrong-way risk
Series  Apply a multiplier of 1.25 to the asset value correlation of exposures to regulated financial firms (with assets of at least $25 billion)
of Measures and to all exposures to unregulated financial firms such as hedge funds (regardless of size). The resulting capital requirement will
increase by up to approximately 35%
to
Address  Extend the margin period of risk to 20 days for OTC derivatives and securities financing transactions (SFTs) netting sets that are
large (i.e. over 5,000 trades), have illiquid collateral, or represent hard-to-replace derivatives. The requirements would double the
Counterparty margin period of risk for netting sets which have recently experienced a material number of extended disputes
Credit Risk  Update the “shortcut method” (used by banks that cannot model margin agreements along with exposures) to recognize that
some of the simplifying assumptions related to collateral management and margining did not reflect actual practice, in particular
margin disputes
Goldman
investment.
Capital Requirements for Counterparty Credit Risk
Prepared for UCI
Changes to Counterparty Credit Risk (2)
 Implement various improvements in the calculation of exposure at default (EAD) to promote more robust collateral management
practices (e.g. failure to address the risk of downgrade triggers and the inability of some banks to model collateral jointly with
exposures) and in the operations and risk analysis supporting the collateral management process (e.g. re-use of collateral)
 Create a separate supervisory haircut category for repo-style transactions using securitisation collateral and prohibit re-
securitisations as eligible financial collateral for regulatory capital treatment purposes
 Increase the incentives to use Central Counterparty Clearing Houses (CCPs) for OTC derivatives and recognise that collateral
and mark-to-market exposures to CCPs could have a zero percent risk weight if they comply with the stricter CPSS/IOSCO
Series recommendations for CCPs
of Measures  Enhance counterparty credit risk management requirements by:
to
 Addressing general wrong-way risk;
Address  Making the qualitative requirements for stress testing more explicit;
Counterparty  Revising the model validation standards; and
Credit Risk  Issuing supervisory guidance for sound back-testing practices of CCR
 Place additional constraints on firms‟ own estimates of Alpha (the multiplier, minimum 1.2 applied to EPE to determine exposure
at default) to avoid misspecification of the risk and promote greater consistency across firms
Goldman
investment.
Non-Risk Based Leverage Measure
Prepared for UCI
The Non-Risk Based Leverage Measure

 Definition of Capital: Tier 1 Common or Tier 1 Capital. Exact definition will be determined by impact study which will also collect
data on the use of Total Capital (as opposed to Tier 1) for the leverage ratio requirements:
 Items which are deducted completely from capital do not contribute to leverage, and should therefore also be deducted
from the measure of exposure to avoid double counting
 If a subsidiary is included in accounting consolidation but not in regulatory consolidation, the holding will be deducted from
capital for the purpose of calculating the capital measure in the leverage ratio
Leverage
 Definition of Exposure: Exposure will follow the accounting measure of exposure providing a non risk-based measure. Total
Ratio exposure should be net of provisions and valuation adjustments (e.g. credit valuation adjustments). Physical or financial collateral is
not allowed to reduce exposure (neither is netting of derivatives and loans against deposits).
=
 On-balance sheet items included in the exposure definition:
Capital  All assets (including high quality liquid assets - but study the possibility of excluding liquid assets)
Measure  Repurchase agreements and securities financing with netting disallowed (but study the possibility of including netting)
÷  Funded investment in derecognized securitizations

 Underlying portfolio for non-derecognized funded securitizations
Exposure
 Derivative exposures included without netting (but the Committee will consider netting in the impact study)
 Long credit derivatives positions included for the purpose of exposure but purchased credit protection will not be
permitted as an offset against long risk
 Off balance sheet items such as commitments (including liquidity facilities), unconditionally cancellable commitments, direct
credit substitutes, acceptances, standby letters of credit, trade letters of credit, etc. are included in exposure using a 100%
Credit Conversion Factor (but the Committee is investigating the use of standardized Credit Conversion Factors)
Goldman
investment.
Cyclicality and Build-Up of Capital Buffers During High Earnings Periods
Prepared for UCI
Proposals Addressing Cyclicality

 Cyclicality of the Minimum Requirement – The Committee is conducting an impact study on two specific proposals. The first is based
on the use of the highest average probability of default (PD) estimate applied by a bank historically to each of its exposure classes as a
proxy for a downturn PD. The second is based on the use of average of historic PD estimates for each exposure class.
 Forward Looking Provisioning – The Committee is promoting stronger provisioning practices. First, consistent with IASB proposals the
Committee is advocating a change in the accounting standards towards an expected loss approach. Second, it is updating its supervisory
guidance to be consistent with the move to such an expected loss approach. Third, it is addressing disincentives to provisioning in the
regulatory capital framework (the Committee is proposing that any shortfall of the stock of provisions to expected loss be deducted fully
from the common equity component of Tier 1 capital, rather than the present deduction of 50% from Tier 1 and 50% from Tier 2 capital)
Forward
Looking  Building Buffers through Capital Conservation – the Committee proposes a framework for the build-up of capital buffers above
minimum requirements. The Committee uses the following example (illustrative and subject to subsequent calibration) where a bank
Provisioning close to the minimum requirements would be subject to payout restrictions (dividend, buybacks, discretionary payments on capital
instruments and discretionary bonus payments to staff)
&
Building of Individual Bank Minimum Capital Conservation Standards
Capital Capital Conservation Range above the Minimum Requirement
Buffers Amount by which a Bank‟s capital exceeds the minimum Minimum Capital Conservation Ratios (expressed as a
requirement in terms of a percentage of the size of the percentage of earnings)
conservation range
[< 25%] [100%]
[25% - 50%] [80%]
[50% - 75%] [60%]
[75% - 100%] [40%]
[> 100%] [0%]
Goldman
investment.
Global Minimum Liquidity Standard
Prepared for UCI
Proposals Addressing Liquidity

 The Basel Consultation reinforces the implementation of the Principles for Sound Liquidity Risk Management and Supervision as
published by the Basel Committee in September 2008
 Banks will be required to comply with two liquidity ratios: the liquidity coverage ratio and the net stable funding ratio
 Liquidity Coverage ratio = Stock of high quality liquid assets / Net cash outflow over a 30-day period ≥ 100%
 This metric aims to ensure that a bank maintains an adequate level of unencumbered, high quality assets that can be converted
into cash to meet its liquidity needs for a 30-day time horizon under an acute liquidity stress scenario. The envisioned stress
scenario includes both idiosyncratic and systemic shocks, such as a significant downgrade of the institution‟s public credit rating,
a partial loss of deposits and substantial calls on off-balance sheet exposures.
 The stock of eligible high quality assets includes cash, central bank reserves and sovereign paper. In addition, the Committee
Liquidity is reviewing whether to include liquid, high-quality corporate and covered bonds as eligible assets (these instruments would be
limited to 50% of the overall stock).
Ratios
 Net Stable Funding ratio = Available amount of stable funding / Required amount of stable funding ≥ 100%
&  This metric establishes a minimum acceptable amount of stable funding based on the liquidity characteristics of an institution‟s
assets and activities over a one year horizon. “Stable funding” is composed of financing instruments that are expected to be
Monitoring reliable sources of funds over a one-year time horizon under conditions of extended stress. These instruments include capital,
Tools preferred stock and liabilities with effective maturities of at least one year and the portion of deposits that would be
expected to stay with the institution for an extended period in an idiosyncratic stress event.
 The required amount of stable funding is intended to measure the portion of an institution‟s assets, off-balance sheet exposures
and other select activities, which the National Supervisor deems to require longer-term funding. To compute this amount,
the Supervisor assigns a required stable funding (RSF) factor to each asset type, which approximates the amount of that asset
that could not be monetised during a liquidity event. Very liquid assets such as cash and money market instruments are assigned
a RSF factor of 0% whereas more illiquid assets such as loans with residual maturities greater than one year are assigned a RSF
factor of 100%.
 Monitoring tools – In addition to the ratios above, banks will be required to report to their national supervisors a series of metrics such
as contractual maturity mismatch, concentration of funding (by both counterparty and instrument type), available unencumbered assets
and various market-related monitoring information.
Goldman
investment.
Prepared for UCI
V- Appendix
 Source Documents
Appendix
Source Documents
Prepared for UCI
Basel Committee on Banking Supervision

The material in this presentation is largely based on the following documents:
 Revisions to the Basel II market risk framework (July 2009)

http://www.bis.org/publ/bcbs164.htm
 Enhancement to the Basel II framework (July 2009)

 Analysis of the trading book quantitative impact study (October 2009)

 Strengthening the resilience of the banking sector (December 2009)

 International framework for liquidity risk measurement, standards and monitoring (December 2009)
Disclaimer GS Credit Structuring
Prepared for UCI
This document has been prepared by personnel in the Equities or Fixed Income, Currency and Commodities Sales/Trading Departments of one or more affiliates of The Goldman
Sachs Group, Inc. ("Goldman Sachs") and is not the product of the Global Investment Research Department or Fixed Income Research. It is not a research report and is not
intended as such.
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with the applicable laws thereof, and that you will take at your own expense whatever action is required to permit your purchase and resale of the Transaction. Where securities are issued,
EEA standard selling restrictions apply.
This material and its content are not for distribution to retail clients, as defined in the Markets in Financial Instruments Directive (2004/39/EC).
For SPVS Notes Only: Reliance on Creditworthiness of the Collateral Note Issuer
The ability of the note issuer to meet its obligations under the notes will depend on, amongst other things, the receipt by it of payments of interest and principal under the Collateral.
Consequently, Investors are exposed not only to the occurrence of Credit Events in relation to any of the Reference Entities, but also to the ability of the Collateral note issuer to perform its
obligations to make payments to the note issuer
The Transaction described herein is not principal protected
Unless specifically identified as such, the transaction is not principal or investment protected, and future returns are not guaranteed. You will not receive a fixed amount of principal or
investment at maturity of the transaction and Goldman Sachs is not liable for any loss of principal or investment that you may incur
Where the transaction is described as principal or investment protected or principal or investment guaranteed, there is protection or a guarantee only to the extent that the issuer of the
transaction does not default on its obligations, either through bankruptcy or through any other event
Relevant Information
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other Relevant Instruments and vice versa. GS may be calculation agent or sponsor of Underlyers and as such may make determinations affecting the value of the Transaction
Volatility
The price of the Transaction may be adversely affected by volatility in the price/value of the Underlyers. Volatility refers to the degree of unpredictable change over time of a certain variable
in this case the price, performance or investment return of a financial asset. A transaction that is more volatile is likely to decrease and increase in value more often and/or to a greater extent
than one that is less volatile
Foreign Exchange
Foreign currency denominated Underlyers, Products and Transactions are subject to fluctuations in exchange rates that could have an adverse effect on the value or price of, or income
derived from, the Transaction
No Correlation with Underlyer
The value of the Transaction will not necessarily correlate with the value of any Underlyers
Value of the Transaction
Assuming no change in market conditions or other factors, the value of the Transaction on the settlement date may be significantly less than the execution price on the trade date
Investment Performance
Changes in the investment performance of the Transaction or any Underlyer may also affect the value of the Transaction and could result in it being valued at zero
Prepared for UCI
Price Discrepancy
Any price quoted for the Transaction by GS may differ significantly from (i) the Transaction‟s value determined by reference to GS pricing models and (ii) any price quoted by a third party
Indicative Price(s) and Value(s)
Any indicative price(s) and value(s) expressed are as of the approximate time and/or date where indicated subject to change. Indicative price(s) and value(s) may be based on any of; the
information supplied by you, current market conditions, prices and any other factors as GS may consider relevant. The indicative price(s) are not necessarily related to transaction size and
may not reflect the price at which you may be able to transact or deal in any security, currency, commodity, derivative contract or other instrument with GS or with any other third party
Mark to Market Volatility
Mark to market of the transaction may be affected by a number of factors including, without limitation, the spread observed in the market for the underlying Reference Entities, the spread
observed in the market for tranches referenced to similar underlying assets, implied rating, and change in any other pricing parameters (including correlation and recovery rate assumptions).
Mark to markets may be extremely volatile and unpredictable. Due to the inherent leverage of the transaction with respect to the underlying portfolio, the mark to market on the investment
may be significantly more volatile than an unleveraged investment in equivalently rated corporate debt
Limited Liquidity of the Transaction
There is currently no market for the transaction. There can be no assurance that a secondary market for the transaction will develop or, if a secondary market does develop, that it will provide
the holder of the transaction with liquidity, or that it will continue for the life of the transaction. While GSI expects to make a market in the transaction, GSI is not obliged to do so. Any market-
making activity if commenced may be discontinued at any time. Moreover, the limited scope of information available to the Investors regarding the Reference Entities and the nature of any
Credit Event including uncertainty as to the extent of any reduction to be applied to the payment on the investment if a Credit Event has occurred but the amount of the relevant reduction in
the payment on maturity has not been determined, may further affect the liquidity of the transaction. Consequently, any Investor in the transaction must be prepared to hold such transaction
for an indefinite period of time or until final maturity (unless called earlier)
“Cheapest-to-Deliver” Risk
Given that Goldman Sachs, as buyer of protection, has discretion to choose the portfolio of valuation obligations used to calculate the amount of losses following a Credit Event, it is likely that
the portfolio of valuation obligations selected will be available obligations of the Reference Entity with the lowest market value that are permitted to be used to calculate loss pursuant to the
relevant documentation. This could result in a lower recovery value and hence a larger loss amount
Credit Ratings
Credit ratings represent the rating agencies‟ opinions regarding credit quality and are not a guarantee of quality. Rating agencies attempt to evaluate the safety of principal and/or interest
payments and do not evaluate the risks of fluctuations in market value. Accordingly, the credit ratings of the underlying Reference Entities or the transaction itself may not fully reflect the true
risks of the transaction. Also, rating agencies may fail to make timely changes in credit ratings in response to subsequent events, so that an issuer‟s current financial condition may be better
or worse than a rating indicates
Historical Performance may not Predict Future Performance of Transaction
Individual credits may not perform as indicated by historical performance for similarly rated credits. Furthermore, even if future credit performance is similar to that of historic performance for
the entire market, Investors must make their own determination as to whether the Reference Portfolio will reflect the experience of the universe of rated credits. Hence, Credit Event rates
experienced by this transaction may be higher than that of historical Credit Event rates, and that of future Credit Event rates for the entire market
Credit Event may vary from Defaults
Historical default statistics may not capture events that would trigger a Credit Event as specified under the credit default swap. All Credit Event definitions will be defined in the final legal
documents and will be governed by the market-standard ISDA 2003 credit derivatives definitions
Prepared for UCI
Tax/ Regulatory Impact

There may be a tax or regulatory impact of investing in this transaction. Goldman Sachs does not provide any opinion on these issues and any Investor should consult with its advisors prior to
investing in the Transaction
Creditworthiness of Goldman Sachs
Payments will be required to be made by Goldman Sachs affiliates, guaranteed by The Goldman Sachs Group Inc (together “Goldman Sachs”), throughout the life of the transaction.
Consequently, Investors are exposed not only to the occurrence of Credit Events in relation to any of the Reference Entities, but also to the ability of Goldman Sachs to perform its obligations
to make payments to the Investors. Currently The Goldman Sachs Group Inc is assigned an Aa3 rating by Moody‟s and an A+ rating by S&P for its long-term unsecured senior debt
Conflicts of interest
The price and/or the redemption amount (where relevant) of the Transaction may be adversely affected by trading, hedging and other transactions by GS relating to the Transaction and/or
any Underlyers. In particular:GS, its officers, directors and employees, including persons involved in the preparation or issuance of this document may, from time to time be an active
participant on both sides of the market and have long or short positions in, or buy and sell (on a principal basis or otherwise,) and act as market makers in the Underlyer or in securities,
commodities, futures, options or any other derivative or instrument and investments identical to or related to the Transaction. Hedging activities by GS relating to the Transaction may affect
the price of Relevant Instruments and the price of the Transaction.
Both potential and actual conflicts of interest involving Goldman Sachs may arise in connection with their other business activities. Among other things, Goldman Sachs may have invested,
and may from time to time invest, for its own account or the account of others in (1) collateral held, or potentially held, by the issuer, (2) indices which include, or may be correlated with, one
or more such collateral and/or (3) synthetic securities which reference such collateral or securities correlated with one or more such collateral. Such investments may include synthetic, short
and similar transactions pursuant to which Goldman, Sachs & Co. and/or its affiliates would benefit (potentially substantially) if the market value of such collateral were to decline. In addition,
the existence of such transactions could, independently, adversely impact (a) the market value of such collateral, (b) the issuer's ability to perform its obligations under the securities and (c)
the return realized by investors in the notes. Neither Goldman Sachs nor any affiliate thereof has any obligation to take into account the interests of the issuer, the holders of the notes or any
party in deciding to enter into any such Investment.
No Reliance
No Advice: Goldman Sachs does not provide investment, accounting, tax or legal advice in respect of the transaction and shall not have a fiduciary relationship with any Investor. In
particular, Goldman Sachs does not make any representations as to (a) the suitability of the transaction, (b) the appropriate accounting treatment or possible tax consequences of the
transaction or (c) the future performance of the transaction either in absolute terms or relative to competing investments. Investors should obtain their own independent accounting, tax and
legal advice and should consult their own professional investment advisor to ascertain the suitability of the transaction, including such independent investigation and analysis regarding the
risks, security arrangements and cash-flows associated with the transaction as they deem appropriate to evaluate the merits and risks of the transaction
Goldman Sachs may, by virtue of its status as an underwriter, advisor or otherwise, possess or have access to non-publicly available information relating to the Collateral (i.e. an SPV note),
the issuer(s) thereof, the Reference Entities and/or the obligations of the Reference Entities and has not undertaken, and does not intend, to disclose, such status or non-public information in
connection with the transaction. Accordingly, this presentation may not contain all information that would be material to the evaluation of the merits and risks of entering into the transaction
As calculation agent, Goldman Sachs will have the authority to make determinations that could affect the market value of the transaction and the amount you receive at maturity
Prepared for UCI
Goldman Sachs does not make any representation, recommendation or warranty, express or implied, regarding the accuracy, adequacy, reasonableness or completeness of the information
contained herein or in any further information, notice or other document which may at any time be supplied in connection with the transaction and accepts no responsibility or liability
therefore. Goldman Sachs is currently and may be from time to time in the future an active participant on both sides of the market and have long or short positions in, or buy and sell,
securities, commodities, futures, options, indices or other derivatives identical or related to those mentioned herein and hedging activities by Goldman Sachs relating to the transaction may
affect the price of such transaction and the value of the transaction. Goldman Sachs may have potential conflicts of interest due to present or future relationships between Goldman Sachs
and any Collateral, the issuer thereof, any Reference Entity or any obligation of any Reference Entity
Confidentiality and Disclosure of Information: This document is confidential. It may not be (i) copied, photocopied, or duplicated in any form, by any means or (ii) redistributed without the prior
written consent of GS. However, any information regarding the Transaction that may be relevant to the U.S. federal income tax treatment of the Transaction (excluding the identities of the
parties) or which is necessary to support any U.S. federal income tax benefits may be disclosed to the relevant authorities without contractual limitation of any kind.
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Please note – Any description of the intended structure, portfolio and other details of the proposed transaction are provided here as information only, is in all respects subject to change, and
will be entirely superseded by the final documentation provided to any prospective Investors. You should not rely on this document, but should carefully read all of the legal documentation
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<特定投資家用資料＞
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商号等/ゴールドマン・サックス証券株式会社金融商品取引業者関東財務局長（金商）第６９号
加入協会/ 日本証券業協会、（社）金融先物取引業協会
© Copyright 2009 The Goldman Sachs Group, Inc. All rights reserved
Prepared for UCI
For Professional Investors Only

Not for Onward Distribution
Potential Regulatory and Accounting Changes

Positioning for Market Impacts
This is not research and is not intended as such. This has been prepared by individuals
on the sales/trading desks of the Securities Division. This material does not represent a
formal or official view of Goldman Sachs as the views expressed herein are solely those of
the author(s), which may differ from those of Global Investment Research
All information and ideas within are based on current advice from consultation papers and
proposed banking regulation framework changes which have not been finalized, hence the analysis
within is subject to change and may be different to what the final advice is
Strictly Private and Confidential

No disclosure may be made to third parties regarding any information disclosed in this
presentation without the prior permission of Goldman Sachs
June 2010
Table of Contents GS Credit Structuring
Prepared for UCI
I Relative Winners and Losers
II Long Trade Ideas

A. Long Granite RMBS
III Short Trade Ideas

B. Short Tight BBB Credits
C. Short Tight Top CSO Reference Credits
D. Short „7y‟ CDX IG9 15-30%
IV Rates Trade Ideas

E. 2y1y 3s6s Euribor Basis Widener
Prepared for UCI
I- Relative Winners and Losers
Return on Equity Analysis GS Credit Structuring
Comparison Across Credit Assets Prepared for UCI
Return on Equity Comparison Sample Credit Assets
Pre-crisis Post-crisis  IG Corps: investment grade corporates, approximated by the 5y on-the-run iTraxx Main index
 HY Corps: high-yield corporates, approximated by the 5y on-the-run iTraxx X-Over index
Many pre-crisis AAA  Financials: credit exposures to financial entities, approximated by the 5y on-the-run iTraxx
RMBS have been AAA RMBS
Main Senior Financials sub-index
downgraded multiple
 Resi Mortgages: residential mortgages with substantial security over the loan amount
Increasing Capital Efficiency

Increasing Capital Efficiency
notches and are now

inefficient under Basel II /  AAA RMBS: residential mortgage-backed securities rated AAA that are the most senior in the
III capital structure
 B RMBS: residential mortgage-backed securities rated B
HY Corps Resi Mortgages  Synth Mezz: synthetic junior mezzanine tranche, approximated by the 5y iTraxx Main 6-9%
tranche
 Government Securities: these are excluded as highly-rated government securities in many
AAA RMBS instances face a capital charge of zero, but generate negative returns above the swap rate
HY Corps
Resi mortgages  In this analysis, RMBS rated AAA currently have the highest post-crisis return-on-equity
(ROE). Junior securitization positions (both cash and synthetic) have relatively low
Synthetic Mezz Financials ROEs, as do IG Corporates and Financials
IG Corps
IG Corps  While low-rated RBMS were never efficient under Basel II, some banks likely do hold
Financials these securities as many originally-AAA RMBS have been downgraded multiple notches
B RMBS
B RMBS Synthetic Mezz Assumptions
Source: Goldman Sachs. Not to scale. For illustrative purposes only
 The ROE is computed as ( Spread – Loss Rate ) / Capital Charge (specific assumptions
Asset Class Pre-crisis ROE Post-crisis ROE detailed on the next slide)
IG Corps 8.0% 14.0%  Pre-crisis ROEs use Basel II capital charges 1 and indicative 2006 spread levels. Post-crisis
HY Corps 28.0% 26.0% ROEs use Basel III capital charges1 and indicative 2010 spread levels
Financials 5.0% 17.3%  These numbers are indicative only and heavily dependent on the loss assumptions used
Resi Mortgages 14.3% 64.3%
 Spreads and investor loss expectations may differ significantly for individual assets within the
AAA RMBS 17.9% 267.9% broader credit asset classes considered
B RMBS 0.4% 5.5%
 All securities are assumed to be held in the banking book, except the synthetic mezzanine
Synth Mezz 10.0% 8.3% tranche, which is assumed to be held in the trading book 2
Source: Goldman Sachs. For illustrative purposes only 1 Note that European banks were required to implement Basel II by no later than 2008. Basel III has not yet been
This analysis should be considered in conjunction with the presentation entitled „Regulation implemented and is only in proposal form
2 Note that some banks may hold synthetic securitizations in the banking book
and Accounting: Changing Landscape‟
Return on Equity Analysis GS Credit Structuring
Analysis Assumptions Prepared for UCI
Spread, Loss Rate and Capital Assumptions
2006 2010 Capital Charges  Spreads shown are indicative spreads for the
Excess Excess beginning of 2006 and 2010
Asset Class Spread Loss Rate Spread Loss Rate Basel II Basel III
Return Return  Loss rates indicate a reflection of investor loss
IG Corps 0.5% 0.1% 0.4% 1.0% 0.3% 0.7% 5.0% 5.0% expectations and may differ substantially across
investors
HY Corps 3.3% 0.5% 2.8% 4.1% 1.5% 2.6% 10.0% 10.0%
Financials 0.2% 0.0% 0.2% 1.1% 0.2% 0.9% 4.0% 5.2%  Capital charges are calculated for indicative
instruments within the relevant asset class. Actual
Resi Mortgages 0.5% 0.1% 0.4% 2.0% 0.2% 1.8% 2.8% 2.8%
capital charges may differ
AAA RMBS 0.1% 0.0% 0.1% 1.5% 0.0% 1.5% 0.6% 0.6%
 Sample risk-weighted asset (RWA) numbers for
B RMBS 0.5% 0.1% 0.4% 8.0% 2.5% 5.5% 100.0% 100.0%
Basel II and Basel III are shown below. Capital
Synth Mezz 0.3% 0.0% 0.3% 3.0% 0.5% 2.5% 3.0% 30.0%
requirements are computed as 8% of the RWAs
Source: Goldman Sachs. For illustrative purposes only
Basel II Capital Charges Proposed Basel III Capital Charges

 RWAs for corporate and securitization exposures are based on credit ratings and  Corporate, financial and securitization RWAs continue to be computed in the
are shown in the table below (the treatment of financials generally follows the same fashion as under the Basel II rules for Standardised Banks (although
treatment of corporates) RWAs for re-securitizations increase)
 For Internal Rating Based (IRB) banks, capital requirements for financials
Rating Corporates Securitizations may be ~30% higher than previously
AAA – AA 20% 20%  Capital requirements for trading book exposures, particularly securitizations in
A 50% 50% the trading book, are expected to increase significantly under Basel III
BBB 100% 100%  For more information, please see the presentation entitled „Regulation and
BB 100% 350% Accounting: Changing Landscape‟
B and below 150% Deduct
 Residential mortgages: RWA of 35%

 Trading book exposures: VaR-based capital charge (99th percentile, 10-day)
Prepared for UCI
II- Long Ideas
A. Long Granite RMBS GS Credit Structuring
Position for increased demand for high-ROE assets… Prepared for UCI
Trade Details1 Introduction to Granite3

Master Trust: Granite  Granite is the £25bn RMBS Master Trust with loans originated by
Northern Rock
A Notes (AAA): £ 91.3 / $ 91.45 / € 91.45
 Having failed to substitute loans in November 2008, the transaction
C Notes (BBB): £ 43.5 / $ 42.25 / € 43.5 became sequential and Northern Rock‟s interest in the trust
(approx. £3.5bn) went subordinate for principal but pro-rata for
Trade Rationale losses
WHY?  The weighted-average life of the AAAs is expected to be around 3 -
 Position for potential flows by buying Granite A notes (Aaa/AAA/AAA), 3.5 years
currently the cheapest AAA bonds backed by „prime‟ UK collateral.
 The AAAs are currently not on negative watch by any rating
Investors seeking higher yield could also consider the C tranche
agency and offer a minimum of 20.7% subordination versus an
(Baa2/BB/BBB), which is trading at equity-type yields also making it
original rating agency requirement of 11.6%
attractive from a ROE perspective
 Senior bonds could also benefit from Amortized Cost treatment under Simplified UK Master Trust Structure3
potential accounting changes (IFRS 9), further incentivizing banks to invest
 UK RMBS has outperformed US RMBS2 (see next slide): Trustee Seller
– Not a single original AAA UK „prime‟ RMBS has been downgraded Cash Portfolio
– Unlike in the US, UK mortgages are full recourse to the borrower Principal and
– Tighter supply in the UK has kept UK house prices slightly higher Cash interest
than they were in mid-2006 while they have fallen 30% in the US
KEY RISKS: Master Seller Share
Trust
 A deterioration in the UK housing and economic situation, especially Investor Share
(Issuer)
unemployment could cause an increase in mortgage losses in the UK
 An increase in defaults and / or a decrease in recovery rates could cause: Issue Principal and
– Interest and principal losses to the RMBS Swap
proceeds Interest
– Slower pre-payment performance Counter-
 The mark-to-market performance of the trade is exposed to changes in the party Notes
liquidity premium. In particular, the suspension of central bank repo
AAA A
facilities could lead to an increase in the liquidity premium
Source: Goldman Sachs.
 The trade is also exposed to an increase in interest rates and changes in AA BBB For illustrative purposes only.
FX (depending on the currency chosen)
1 Indicative level as of May 26, 2010.
2 “Housing and Spare Capacity”, UK Economics Analyst. April 1, 2010. <https://360.gs.com/gs/portal/?st=1&action=action.binary&d=8837408&fn=/document.pdf>
3 You should not consider investing in Granite until you have read the full Granite Investor Presentation (http://www.sec.gov/Archives/edgar/data/1305478/000090514807003822/efc7-1434_fwp.htm) and related offering material
A. Long Granite RMBS GS Credit Structuring
Historical spreads and UK housing data Prepared for UCI
Historical Prices Spare Housing Capacity
120 Granite 2007-1 3A2 (AAA) Granite 2007-1 3B1 (AA) 1.18 1.06
Granite 2007-1 3M1 (A) Granite 2007-1 3C1 (BBB) US (lhs) UK (rhs)
Houses / Households
100 1.16
Mid Price (Points)
Houses / Households
1.05
80 1.14
60 1.12 1.04
40 1.10
1.03
20 1.08
0 1.06 1.02
Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jun-09 Dec-09 1968 1973 1978 1983 1988 1993 1998 2003 2008
Source: Markit. Past performance not indicative of future results. Source: ONS, US BEA
Mortgage Write-offs (annualized) Housing Equity
Debt / Value of Housing Stock (%)

3.0 55
UK US UK US
2.5
45
% of Loans
2.0
1.5 35
1.0
25
0.5
0.0 15
1993 1995 1997 1999 2001 2003 2005 2007 2009 1970 1975 1980 1985 1990 1995 2000 2005 2010
Source: Bank of England, US Federal Reserve Source: National Sources
Prepared for UCI
III- Short Ideas
B. Short Tight BBB Credits GS Credit Structuring
Position for wider corporate credit on the back of Basel III market technicals… Prepared for UCI
Trade Details1 Historical Spreads1
Bullet maturity: 20-Jun-2015 250 BBB Basket

Reference Portfolio: 46 names (17 Europe, 29 US) 200 iTraxx Main 5y OTR
Spread (bps)
Premium Paid: [78] bps p.a. plus 0% upfront
150
100
Trade Rationale
50
WHY?
 BBB corporates are trading particularly tight to their capital charge 0
of 8% (for a bank under the standardized approach) May-07 Oct-07 Mar-08 Aug-08 Jan-09 Jun-09 Nov-09 Apr-10
 Furthermore, it is unlikely that BBB credits will benefit from
inclusion into liquidity buffers under the new rules (unlike AA
corporates, which may be included with haircuts)
S&P Industry Breakdown
 Under the proposed Basel III regulations, banks would become
capital-constrained, possibly forcing them to restructure their asset 25%
portfolios to optimize the return on equity (ROE)
Frequency (%)
20%
 To position for lower bank demand for BBB credits, go short a
basket of BBB names trading tight to the median BBB spread 15%
 This short benefits from an asymmetric pay-off pattern with a 10%

limited downside (spread payments until trade maturity) and from 5%
limited time decay
0%
Property
Manufacturing
Other
(defensive)
Services and
Electronics
Transportation
Industrial and
Consumer
Products
Consumer
Aerospace,
Autos and
KEY RISKS:
TMT +
Energy,
Utilities
Retail
Basic
 Risks to this trade include a further rally in credit spreads leading
to mark-to-market (MTM) losses and the passage of time without
spread widening
Source: Goldman Sachs.
1 Indicative level as of May 26, 2010. Source: Goldman Sachs. Past performance is not indicative of future results.
C. Short Tight Top CSO Reference Entities GS Credit Structuring
Position for wider corporate credit and a potential CSO unwind… Prepared for UCI
Trade Details1 Historical Spread Changes of Portfolio vs CDX OTR1

Bullet maturity: 20-Jun-2015 14 CSO Basket
Relative Spread Change

Underperformance
Reference Portfolio: 51 names (22 Europe, 29 US) 12 during selloff
iTraxx Main 5y OTR
Premium Paid: [116] bps p.a. plus 0% upfront 10
8
Trade Rationale
6
WHY? 4
 The capital framework governing bank trading books is set to be
2
revised as early as December 2010. Under the proposed changes,
capital charges for credit correlation positions are anticipated to be 0
punitive, particularly because only limited benefit may be given for May-07 Oct-07 Mar-08 Aug-08 Jan-09 Jun-09 Nov-09 Apr-10
imperfect hedges
 As a result, dealers may decide to unwind bespoke deals together S&P Rating Breakdown
with their hedges. As dealers have generally bought mezzanine
protection, an unwind would imply correlation books buying back
25%
single-name protection in the CDS market
 Go short a basket of names2 commonly referenced in bespoke CDOs 20%
Frequency (%)
(with current spreads below 150 bps). These names underperformed
during the recent selloff when we also saw significant unwinds of 15%
CDOs
 If further synthetic CDO unwinds materialize on the back of increased 10%
capital charges coupled with the increasing cost of dynamic hedging,
5%
this would likely result in increased pressure on these single names 3
KEY RISKS: 0%
AAA
AA+
AA
AA-
A+
A-
BBB+
BBB
BBB-
BB+
BB
 Risks to this trade include a further rally in credit spreads leading to
MTM losses and the passage of time without spread widening Source: Goldman Sachs.
S&P Rating
1 Indicative
level as of May 26, 2010. Source: Goldman Sachs. Past performance is not indicative of future results.
2 “The Most Widely Referenced Corporate Obligors in Rated U.S. Synthetic CDOs,” Standard & Poor‟s, December 16, 2008 and “European Synthetic CDO Portfolio Overlap Means Recent Corporate Credit
Events Cause Widespread Rating Actions,” Standard & Poor‟s, December 4, 2008
3The Credit Line – The new Basel II proposals: Implications for CDS markets; February 26th, 2010: <https://360.gs.com/gs/portal/?st=1&action=action.binary&d=8662374&fn=/document.pdf>
D. Short „7y‟ iTraxx Main S9 12-22% GS Credit Structuring
Position for wider corporate credit with positive convexity… Prepared for UCI
Trade Details1 Historical Spreads and Deltas1
Bullet maturity: 20-Dec-2014 300 250

Tranche Spread (LHS)
Tranche Spread (bps)

Tranche: 15-30% (14.29-29.29%)2
Index Spread (bps)

250 Index Spread (RHS) 200
Reference Index: CDX IG S9 200
150
Premium Paid: [124] bps p.a. plus 0% 150
upfront 100
100
Trade Rationale
50 50
WHY?
0 0
 Market technicals resulting from Basel III proposals may push
corporate credit wider as banks seek to optimize the ROE on their May-07 Oct-07 Mar-08 Aug-08 Jan-09 Jun-09 Nov-09 Apr-10
asset portfolios
 In addition, changes to the trading book capital rules will likely
introduce significantly higher capital charges for synthetic tranches Convexity of 12-22% Tranche Relative to IG Index1
 As a result, dealers may decide to unwind bespokes and hedges
on the estimated $165 bn2 outstanding risk-adjusted senior
tranches
 Go short „7y‟ iTraxx Main S9 12-22%, potentially benefitting from
convexity of the senior tranches. Benefit from positive convexity for
large spread widening moves
 Compared to other hedging strategies (e.g. equity put options),
credit shorts have favorable time decay
KEY RISKS:
 The main risks to this trade are spread tightening and large
negative moves in correlation skew
1 Indicative level as of May 26, 2010; iTraxx Main S9 ref is 138 bps. Source: Goldman Sachs. Past performance not indicative of future results. Tranche attach and exhaust shown to 2 decimal places
2 The Credit Line – The new Basel II proposals: Implications for CDS markets; February 26th, 2010: <https://360.gs.com/gs/portal/?st=1&action=action.binary&d=8662374&fn=/document.pdf>
Prepared for UCI
IV- Rates Trade Ideas
E. 2y1y 3s6s Euribor Basis Widener GS Credit Structuring
Position for Euribor basis widening… Prepared for UCI
Trade Details1 EUR 3s6s Basis: Spot v 2yr Forward
Format: EUR Basis Swap 0.5 EUR 3s6s Basis - 1y Spot EUR 3s6s Basis - 2y into 1y
Start: May 2012 0.4
End: May 2013
Basis (bps)
0.3
Client pays: 3m EUR + [ 16.5 bps ], quarterly 0.2
Client receives: 6m EUR, semi-annually 0.1
Trade Rationale 0.0

May-07 Oct-07 Mar-08 Aug-08 Jan-09 Jun-09 Nov-09 Apr-10
WHY? -0.1
Source: Goldman Sachs. Past performance not indicative of future results.
 As regulators focus on short-term liquidity risk management, the
term premium between shorter and longer-dated wholesale bank
funding may increase
 Currently, forwards in EUR are pricing tighter than spot. In the UK GBP 3s6s Basis: Spot v 1yr Forward
where liquidity regulations are scheduled to come into force before
Basel III, the forward is now trading above spot as the GBP 3s6s 0.8 GBP 3s6s Basis - 1y Spot GBP 3s6s Basis - 1y into 1y
basis became well-bid by UK banks
 The Euribor basis may follow suit as regulations are implemented 0.6
broadly in Europe
Basis (bps)
0.4
 The 2y1y 3s6s Euribor basis widener is a positive roll-down
investment (if the curve shape remains unchanged) with good
0.2
mark-to-market potential, which should also benefit if another
credit or funding pressure in the European interbank market were
0.0
to realize (right-way risk)
May-07 Oct-07 Mar-08 Aug-08 Jan-09 Jun-09 Nov-09 Apr-10
-0.2
KEY RISKS:
Source: Goldman Sachs. Past performance not indicative of future results.
 Upon expiry of the forward, the spot 3s6s may trade at lower levels
and the downside is potentially unlimited
1 Indicative level as of May 26, 2010.
Prepared for UCI
This document has been prepared by personnel in the Equities or Fixed Income, Currency and Commodities Sales/Trading Departments of one or more affiliates of The Goldman
Sachs Group, Inc. ("Goldman Sachs") and is not the product of the Global Investment Research Department or Fixed Income Research. It is not a research report and is not
intended as such.
REPRESENTATION
If a transaction arises as a result of this document you agree that you will not offer, sell or deliver the Transaction in any jurisdiction except under circumstances that will result in compliance
with the applicable laws thereof, and that you will take at your own expense whatever action is required to permit your purchase and resale of the Transaction. Where securities are issued,
EEA standard selling restrictions apply.
This material and its content are not for distribution to retail clients, as defined in the Markets in Financial Instruments Directive (2004/39/EC).
For SPVS Notes Only: Reliance on Creditworthiness of the Collateral Note Issuer
The ability of the note issuer to meet its obligations under the notes will depend on, amongst other things, the receipt by it of payments of interest and principal under the Collateral.
Consequently, Investors are exposed not only to the occurrence of Credit Events in relation to any of the Reference Entities, but also to the ability of the Collateral note issuer to perform its
obligations to make payments to the note issuer
The Transaction described herein is not principal protected
Unless specifically identified as such, the transaction is not principal or investment protected, and future returns are not guaranteed. You will not receive a fixed amount of principal or
investment at maturity of the transaction and Goldman Sachs is not liable for any loss of principal or investment that you may incur
Where the transaction is described as principal or investment protected or principal or investment guaranteed, there is protection or a guarantee only to the extent that the issuer of the
transaction does not default on its obligations, either through bankruptcy or through any other event
Relevant Information
GS may have access to information relating to the Transaction described within (the Transaction), or any indices or assets (which may include, without limit, shares of one or more issuers,
commodities, currencies or baskets of the foregoing) to which it is referenced or which otherwise underlie it (Underlyers) and any derivative instruments referencing it (together Relevant
Instruments). GS will not be obliged to disclose any such Relevant Information to you
GS‟ Interests
GS may be an active participant on both sides of the market for the Relevant Instruments at any time. GS hedging and trading activities with respect to the Transaction may affect the value of
other Relevant Instruments and vice versa. GS may be calculation agent or sponsor of Underlyers and as such may make determinations affecting the value of the Transaction
Volatility
The price of the Transaction may be adversely affected by volatility in the price/value of the Underlyers. Volatility refers to the degree of unpredictable change over time of a certain variable
in this case the price, performance or investment return of a financial asset. A transaction that is more volatile is likely to decrease and increase in value more often and/or to a greater extent
than one that is less volatile
Foreign Exchange
Foreign currency denominated Underlyers, Products and Transactions are subject to fluctuations in exchange rates that could have an adverse effect on the value or price of, or income
derived from, the Transaction
No Correlation with Underlyer
The value of the Transaction will not necessarily correlate with the value of any Underlyers
Value of the Transaction
Assuming no change in market conditions or other factors, the value of the Transaction on the settlement date may be significantly less than the execution price on the trade date
Investment Performance
Changes in the investment performance of the Transaction or any Underlyer may also affect the value of the Transaction and could result in it being valued at zero
Prepared for UCI
Price Discrepancy
Any price quoted for the Transaction by GS may differ significantly from (i) the Transaction‟s value determined by reference to GS pricing models and (ii) any price quoted by a third party
Indicative Price(s) and Value(s)
Any indicative price(s) and value(s) expressed are as of the approximate time and/or date where indicated subject to change. Indicative price(s) and value(s) may be based on any of; the
information supplied by you, current market conditions, prices and any other factors as GS may consider relevant. The indicative price(s) are not necessarily related to transaction size and
may not reflect the price at which you may be able to transact or deal in any security, currency, commodity, derivative contract or other instrument with GS or with any other third party
Mark to Market Volatility
Mark to market of the transaction may be affected by a number of factors including, without limitation, the spread observed in the market for the underlying Reference Entities, the spread
observed in the market for tranches referenced to similar underlying assets, implied rating, and change in any other pricing parameters (including correlation and recovery rate assumptions).
Mark to markets may be extremely volatile and unpredictable. Due to the inherent leverage of the transaction with respect to the underlying portfolio, the mark to market on the investment
may be significantly more volatile than an unleveraged investment in equivalently rated corporate debt
Limited Liquidity of the Transaction
There is currently no market for the transaction. There can be no assurance that a secondary market for the transaction will develop or, if a secondary market does develop, that it will provide
the holder of the transaction with liquidity, or that it will continue for the life of the transaction. While GSI expects to make a market in the transaction, GSI is not obliged to do so. Any market-
making activity if commenced may be discontinued at any time. Moreover, the limited scope of information available to the Investors regarding the Reference Entities and the nature of any
Credit Event including uncertainty as to the extent of any reduction to be applied to the payment on the investment if a Credit Event has occurred but the amount of the relevant reduction in
the payment on maturity has not been determined, may further affect the liquidity of the transaction. Consequently, any Investor in the transaction must be prepared to hold such transaction
for an indefinite period of time or until final maturity (unless called earlier)
“Cheapest-to-Deliver” Risk
Given that Goldman Sachs, as buyer of protection, has discretion to choose the portfolio of valuation obligations used to calculate the amount of losses following a Credit Event, it is likely that
the portfolio of valuation obligations selected will be available obligations of the Reference Entity with the lowest market value that are permitted to be used to calculate loss pursuant to the
relevant documentation. This could result in a lower recovery value and hence a larger loss amount
Credit Ratings
Credit ratings represent the rating agencies‟ opinions regarding credit quality and are not a guarantee of quality. Rating agencies attempt to evaluate the safety of principal and/or interest
payments and do not evaluate the risks of fluctuations in market value. Accordingly, the credit ratings of the underlying Reference Entities or the transaction itself may not fully reflect the true
risks of the transaction. Also, rating agencies may fail to make timely changes in credit ratings in response to subsequent events, so that an issuer‟s current financial condition may be better
or worse than a rating indicates
Historical Performance may not Predict Future Performance of Transaction
Individual credits may not perform as indicated by historical performance for similarly rated credits. Furthermore, even if future credit performance is similar to that of historic performance for
the entire market, Investors must make their own determination as to whether the Reference Portfolio will reflect the experience of the universe of rated credits. Hence, Credit Event rates
experienced by this transaction may be higher than that of historical Credit Event rates, and that of future Credit Event rates for the entire market
Credit Event may vary from Defaults
Historical default statistics may not capture events that would trigger a Credit Event as specified under the credit default swap. All Credit Event definitions will be defined in the final legal
documents and will be governed by the market-standard ISDA 2003 credit derivatives definitions
Prepared for UCI
Tax/ Regulatory Impact

There may be a tax or regulatory impact of investing in this transaction. Goldman Sachs does not provide any opinion on these issues and any Investor should consult with its advisors prior to
investing in the Transaction
Creditworthiness of Goldman Sachs
Payments will be required to be made by Goldman Sachs affiliates, guaranteed by The Goldman Sachs Group Inc (together “Goldman Sachs”), throughout the life of the transaction.
Consequently, Investors are exposed not only to the occurrence of Credit Events in relation to any of the Reference Entities, but also to the ability of Goldman Sachs to perform its obligations
to make payments to the Investors. Currently The Goldman Sachs Group Inc is assigned an Aa3 rating by Moody‟s and an A+ rating by S&P for its long-term unsecured senior debt
Conflicts of interest
The price and/or the redemption amount (where relevant) of the Transaction may be adversely affected by trading, hedging and other transactions by GS relating to the Transaction and/or
any Underlyers. In particular:GS, its officers, directors and employees, including persons involved in the preparation or issuance of this document may, from time to time be an active
participant on both sides of the market and have long or short positions in, or buy and sell (on a principal basis or otherwise,) and act as market makers in the Underlyer or in securities,
commodities, futures, options or any other derivative or instrument and investments identical to or related to the Transaction. Hedging activities by GS relating to the Transaction may affect
the price of Relevant Instruments and the price of the Transaction.
Both potential and actual conflicts of interest involving Goldman Sachs may arise in connection with their other business activities. Among other things, Goldman Sachs may have invested,
and may from time to time invest, for its own account or the account of others in (1) collateral held, or potentially held, by the issuer, (2) indices which include, or may be correlated with, one
or more such collateral and/or (3) synthetic securities which reference such collateral or securities correlated with one or more such collateral. Such investments may include synthetic, short
and similar transactions pursuant to which Goldman, Sachs & Co. and/or its affiliates would benefit (potentially substantially) if the market value of such collateral were to decline. In addition,
the existence of such transactions could, independently, adversely impact (a) the market value of such collateral, (b) the issuer's ability to perform its obligations under the securities and (c)
the return realized by investors in the notes. Neither Goldman Sachs nor any affiliate thereof has any obligation to take into account the interests of the issuer, the holders of the notes or any
party in deciding to enter into any such Investment.
No Reliance
No Advice: Goldman Sachs does not provide investment, accounting, tax or legal advice in respect of the transaction and shall not have a fiduciary relationship with any Investor. In
particular, Goldman Sachs does not make any representations as to (a) the suitability of the transaction, (b) the appropriate accounting treatment or possible tax consequences of the
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connection with the transaction. Accordingly, this presentation may not contain all information that would be material to the evaluation of the merits and risks of entering into the transaction
As calculation agent, Goldman Sachs will have the authority to make determinations that could affect the market value of the transaction and the amount you receive at maturity
Prepared for UCI
Goldman Sachs does not make any representation, recommendation or warranty, express or implied, regarding the accuracy, adequacy, reasonableness or completeness of the information
contained herein or in any further information, notice or other document which may at any time be supplied in connection with the transaction and accepts no responsibility or liability
therefore. Goldman Sachs is currently and may be from time to time in the future an active participant on both sides of the market and have long or short positions in, or buy and sell,
securities, commodities, futures, options, indices or other derivatives identical or related to those mentioned herein and hedging activities by Goldman Sachs relating to the transaction may
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Regulation and Accounting - Changing Landscape Credit Markets (May 2010)

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Regulation and Accounting - Changing Landscape Credit Markets (May 2010)

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Regulation and Accounting: Changing Landscape

Strictly Private and Confidential

II BANKING REGULATION CHANGES

III ACCOUNTING CHANGES

II- Banking Regulation Changes

Bank Regulatory Framework

Basel Committee on Banking Supervision (BCBS)

European Regulatory Framework US Regulatory Framework

Current Situation Current Situation

Evolution of Banking Book Capital Requirements

Banking Book Capital Requirement = Notional x Risk Weight (RW) x 8%

Evolution of Trading Book Capital Requirements

 CapitalGMR = Max[ VaRt-1, m • VaRavg(60) ] where 3 ≤ m ≤ 4 + Max[ sVaRt-1, ms • sVaRavg(60) ] where 3 ≤ m c, ms ≤ 4

 Discussion of higher, stressed probabilities of  Paid in capital plus retained earnings

Core Tier 1 and Total Capital Changes

Net Stable Funding Factor

 In addition, there is increased focus on term-matched Median NSF Ratio Estimate

Indicative Impact Assessment for Credit Assets

Banking Book (Internal Ratings-Based) Trading Book (Internal Models Approach)

Portfolio Impact Key Drivers Impact Key Drivers

III- Accounting Changes

Overview of Proposed Changes to IAS 39

Current Classifications Proposed Changes

Source: Goldman Sachs

Reclassification (July 2008) 1 Other Comprehensive Income

More AFS  FVTPL Amortised Cost  FVTPL

AFS  Amortised Cost No or little change Amortised Cost  FVOCI

FVTPL  Amortised Cost FVTPL  FVTOCI

Source: Goldman Sachs

Less Change in Balance Sheet Volatility More

IV- Implementation Timeline

Jul-2009: Final Jul-2010: Next Basel 1-Apr-2011: deadline for US

2H09 1Q10 2Q10 3Q10 4Q10 2011 2012 2013

Cost and Impairment 2010) if EU endorses

2010: EU considering endorsement of Dec-2010: Final Dec-2010: Final

2010: Solvency II 2011: Solvency II Oct-2012: Formal

Source: Goldman Sachs

Investment Grade Spreads High Yield Spreads

300 5Y iTraxx 5Y CDX 2000 5Y iTraxx Xover 5Y CDXHY

European CMBS Swap Spreads UK RMBS Swap Spreads

Swap Spread (bps)

Source: Markit Source: Markit

Strengthening the Resilience of the Banking Sector

 Common Equity (effectively paid in capital plus retained earnings)

 The predominant form of Tier 1 Capital must be Common Equity

Regulatory Adjustments (1)

Regulatory Adjustments (2)

Changes to Counterparty Credit Risk (1)

Changes to Counterparty Credit Risk (2)

The Non-Risk Based Leverage Measure

÷  Funded investment in derecognized securitizations

Proposals Addressing Cyclicality

Capital Capital Conservation Range above the Minimum Requirement

Proposals Addressing Liquidity

Basel Committee on Banking Supervision

 Revisions to the Basel II market risk framework (July 2009)

 Enhancement to the Basel II framework (July 2009)

 Analysis of the trading book quantitative impact study (October 2009)

 Strengthening the resilience of the banking sector (December 2009)

Tax/ Regulatory Impact

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