Goldman Sachs Profit Tops Forecasts on Investment Banking

Goldman Sachs Group eked out a 1% increase in quarterly profit on Thursday to beat expectations, yet revenue slipped as a sharp drop in fixed income trading offset record investment banking fees and strong equities income.

The world's largest investment bank by profit and market value said net earnings rose to $2.33 billion, or $4.93 a share, in the second quarter ended on May 25, from $2.29 billion, or $4.78 a share, a year earlier.

Analysts on average expected profit of $4.76 a share, according to Reuters Estimates.

Net revenue slipped 1 percent to $10.2 billion, just beating the average estimate.

Goldman shares were down 2.8 percent in premarket trading.

"The outlook for the global economy remains strong," Goldman Chairman and CEO Lloyd Blankfein said in a statement. "Favorable market conditions and investor confidence continue to drive activity levels and play to our strengths as a leading advisor, financier and investor."

Trading and principal investments revenue fell 6 percent to $6.65 billion, paced by a 24 percent drop in the bank's biggest profit engine, debt and commodities trading. Revenue booked from principal investment activities more than doubled to $784 million from last year.

Investment banking income rose 18 percent to a record $1.72 billion, fees from mergers and acquisition rose 17 percent and debt issuance rose by 50 percent, overcoming a 26 percent drop in stock underwriting.

Revenue from the bank's asset management arm increased 11 percent to $1.06 billion, as managed assets rose 28 percent to $758 billion. Noncompensation expenses rose 16 percent to $1.86 billion, while global headcount increased 17 percent to 28,012 employees.

The results come two days after rival Lehman Brothers Holdings Corp. reported a 27 percent jump in profit, trouncing expectations and sparking a rebound in brokerage stocks.

In contrast to Lehman, Goldman's results include the last week of February, when a sudden drop in China's stock market sparked a weeklong sell off in financial markets worldwide. The period also reflects weakness in the subprime mortgage market, which trimmed growth in debt trading.

Goldman stock, which hit an all-time high of $233.94 at the end of May, rose 4 percent during the fiscal quarter, outperforming the 1.3 percent gain in the AMEX Securities Broker-Dealer Index, but slightly lagging the S&P 500.