UPDATE 2-Goldman 3rd-qtr revenue down 20 pct, bank slashes costs
* Third-quarter net $2.88/share vs Street view $2.43
* FICC revenue falls 44 percent to $1.25 billion
* Bank slashes costs to make up for revenue drop
* Quarterly dividend raised to 55 cents/shr from 50 cents
* Shares drop 2.6 pct in premarket trading
Oct 17 (Reuters) - Goldman Sachs Group Inc on Thursday said third-quarter revenue plunged 20 percent, hurt by weak mortgage and bond-trading results, but profit dropped only slightly as the Wall Street bank slashed compensation and other expenses.
Revenue from trading fixed-income, currency and commodity products for clients, one of the bank's biggest businesses, plunged 44 percent, a much sharper decline than those posted by rivals. Goldman said revenue from investing its own money in bonds and loans fell 46 percent. The bank's shares fell 2.6 percent in pre-market trading.
"Goldman showed that they are also mortal," said Michael Holland, founder of Holland & Co, which owns financial stocks but does not own Goldman shares.
Banks across Wall Street were hurt in the third quarter by the Federal Reserve's surprise decision to continue its bond buying stimulus instead of starting to wind it down. Customer trading volume dropped because the decision assured investors that they could hold onto their bonds for longer periods without worrying about rising rates.
Goldman responded to the weaker revenue by cutting the money set aside for compensation by 35 percent, to $2.38 billion. So far this year it has set aside $10.4 billion to pay employees, down 5 percent from the first nine months of 2012.
Overall, Goldman reported net income for common shareholders of $1.43 billion, or $2.88 per share, down 2 percent from $1.46 billion, or $2.85 per share, a year earlier. Per-share earnings rose because of stock repurchases.
Analysts had been expecting earnings of $2.43 per share, on average, according to Thomson Reuters I/B/E/S. But analysts had forecast higher revenue, and most of Goldman's earnings beat came from cost-cutting.
The bank boosted its dividend for the third time in less than two years, to 55 cents per share quarterly from 50 cents. The dividend is a relatively small expenditure for the bank, but Goldman is usually loathe to boost its payout if there are better opportunities for it to invest the money elsewhere.
"The third quarter's results reflected a period of slow client activity," Chief Executive Lloyd Blankfein said in a statement.
Blankfein laid some of the blame on the budget impasse in Washington, which made companies and investors hesitant to take risk. Wall Street banks that reported earnings earlier in the month, including JPMorgan Chase & Co, Citigroup Inc and Bank of America Corp, also reported lower fixed-income trading revenue, and said that uncertainty about the Federal Reserve's plans for monetary easing had also hurt trading volumes.
(Reporting by Lauren Tara LaCapra; Editing by Dan Wilchins and John Wallace)