Goldman Sachs Earnings Fall 70%

The investment bank Goldman Sachs has defiantly rejected predictions of the death of the traditional Wall Street business model in spite of the worst slump in its profits since it went public in 1999.

Goldman's third-quarter earnings dived 70% to $810m (£450m) as the credit crunch crippled financial markets and its usual flow of advisory fees on corporate deals evaporated.

But by remaining in the black, Goldman fared better than most of its rivals and senior executives rejected suggestions that the standalone structure of Wall Street banks was under threat.

"It's not the business model, it's the performance that matters," said Goldman's chief financial officer, David Viniar.

"We have, and always will, make our share of mistakes but we will protect our franchise at all costs."

Viniar said Goldman's 32,600 employees had "a lot of compassion" for those who lost their jobs this week when Lehman Brothers collapsed. Lehman's demise followed the implosion of Bear Stearns and came as Merrill Lynch surrendered its independence to Bank of America.

"We're not happy about what has happened," said Viniar. "We feel for the people in these institutions. They were very good institutions which made mistakes, and got caught up in a terrible market."

Goldman's investment banking division suffered a 40% fall in revenue to $1.29bn, including a 56% plunge in financial advisory fees, blamed on an industry-wide decrease in mergers and acquisitions.

In its trading and principal investments division, the bank's revenue plunged by 67% to $2.7bn. Goldman revealed that it made a $500m loss on residential mortgage-related securities and a $325m loss on commercial mortgages. Its principal investments operation made a $453m loss, largely due to corporate and property investments.

But Viniar said Goldman had no inclination to follow Merrill by linking up with a high-street bank to improve its funding options, insisting that the firm had all the access to capital that it needs.

"Our access to market liquidity is very robust," he said.

Until recently, Goldman was viewed as one of Wall Street's few winners from the global credit crunch. It made record profits last year because its traders correctly forecast a slump in the sub-prime mortgage industry.

Experts say that the collapse in the credit market and evaporation of deal-making activity have inevitably taken its toll. "The business is just not happening and therefore Goldman can't take advantage of what doesn't exist," Richard Bove, a banking analyst at Ladenburg Thalmann, told Bloomberg News.

Goldman's staff are among the highest paid in the financial industry - the firm's chief executive, Lloyd Blankfein, took home $68.5m last year. But Goldman's bankers are likely to feel the credit crunch in their pay checks this year. The company said its payroll expenditure dropped by 51% to $2.9bn during the quarter, in spite of a small rise in staff numbers.