Goldman Sachs Profit Tops $3B on Strong Trading

Financial professionals laugh in the Goldman Sachs booth on the floor of the New York Stock Exchange...

Financial professionals laugh in the Goldman Sachs booth on the floor of the New York Stock Exchange during afternoon trading December 16, 2008 in New York City. Goldman Sachs again showed its trading prowess, helping the Wall Street firm earn more than $3 billion in the third quarter.

(Chris Hondros/Getty Images)

Goldman Sachs Group Inc.'s third-quarter earnings more than tripled from the depths of the financial crisis as income from the company's trading operations offset a drop in its investment banking business.

Goldman's stock fell 2.5 percent Thursday as investors reacted to the slide in investment banking revenue, the result of a general slowdown in takeover activity. Shares fell $4.71 to $187.57 in afternoon trading.

Some profit taking after the better-than-expected results also sent the stock falling, analysts said.

Goldman earned $3.03 billion, or $5.25 per share, easily beating analysts' expectations for a profit of $4.24 per share. The bank earned $810 million, or $1.81 per share during its fiscal third quarter last year, which ended in August. During the peak of the credit crisis last fall, Goldman became a bank holding company and changed to calendar quarterly reporting periods.

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Goldman also had $5.35 billion in compensation expenses during this July-September period.

The company said bond, commodities and currency trading buoyed its profits for the second straight quarter.

"They're just good traders," said David Easthope, a senior analyst at consulting firm Celent. Trading and investment revenue nearly quadrupled from the third quarter last year and dipped 7 percent from record results in the second quarter.

But investment banking revenue, considered the foundation of the company's business, fell to $899 million in the third quarter. The results were 31 percent worse than the similar quarter last year as the credit crisis was worsening and 38 percent worse than the most recent quarter.

Goldman attributed the drop to a decline in bond underwriting as the still troubled credit markets limited the amount that companies could borrow to complete deals.

The weakness in Goldman's core business might have given investors pause, analysts said.

"Most people attach greater value to (investment banking) because its a fee-driven business," said John Jay, a senior analyst at financial consulting firm Aite Group.