Underwriting was a bright spot thanks to Goldman's role in a large number of initial public offerings. In the last quarter, though, overall investment banking revenue declined to $1.17 billion from $1.16 billion last year.
This is not likely a sign Goldman is in trouble, but is reflective of the difficult operating environment.
Bond trading was hurt by uncertainty about the Federal Reserve's actions on winding down its quantitative easing bond buying program known as QE3, and the —budget impasse in Washington. Meanwhile, corporate executives are only talking about doing deals—but not following through as they are reluctant to commit capital with the political winds continuing to blow crosswise.
"As longer-term U.S. budget issues are resolved, we could see an improvement in corporate and investor sentiment that would help lay the basis for a more sustained recovery," Blankfein said in a statement.
Goldman is obviously banking on that recovery.
The confidence reflected in its decision to raise its quarterly dividend by five cents a share to 55 cents.
—By CNBC's Mary Thompson. Follow her on Twitter @MThompsonCNBC.