Goldman Sachs shares fall as profit barely rises

Trading results last year included a $700 million gain from a power plant sale.

Goldman's traders took on even more risk in bonds and stocks, with average daily value at risk reaching $133 million.

Analyst Michael Hecht of Bank of America said he was disappointed that Goldman, which is bigger and broader than Lehman, was hurt more by subprime mortgage weakness. Bear Stearns Cos. on Thursday said earnings fell by a third due to mortgages and the write-down of a trading venture.

Revenue from principal investments more than doubled to $784 million from last year, fueled by a range of company and real estate stakes.

Yet the quarter also demonstrated the risk of making big direct bets with house money, as Goldman's stakes in Industrial & Commercial Bank of China and Japan's Sumitomo Mitsui Financial Group fell in value and trimmed overall earnings by 14 cents a share.

RECORD BACKLOG IN INVESTMENT BANKING

Investment banking income rose 18 percent to a record $1.72 billion for the quarter, as advisory fees from mergers and acquisitions rose 17 percent. Debt underwriting revenue rose by 50 percent, powered by loans for leveraged buyouts. These gains helped overcome a 26 percent drop in stock underwriting.

Goldman this year is the top adviser for M&A and public stock offerings worldwide. Looking ahead, Viniar said the backlog of investment banking business set a record, surpassing its previous high in the second quarter of 2000, when the 1990s technology stock bull market peaked.

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 costs rose 16 percent to $1.86 billion, with headcount soaring 17 percent to 28,012 people from last year.

Looking ahead, Viniar predicted that problems in subprime would get worse before they get better. Goldman previously expressed interest in acquiring subprime businesses, but Viniar said the company would be "very cautious."