In its first full public quarter, Goldman Sachs Group Inc. reported $638 million in earnings, or $1.31 per share, easily beating the analysts consensus by 22 cents.
Pro forma earnings for the third quarter, which ended Aug. 27, increased 2.2% from the previous quarter and 94% from a year earlier, when earnings totaled $329 million, or 69 cents per share. Goldman's fiscal year closes in November.
"The stronger-than-expected investment banking more than offset weaker-than-expected trading," said Raphael Soifer, an analyst at Brown Brothers Harriman & Co.
Investment banking revenues, which include Goldman's top-ranked mergers and acquisition advisory practice, jumped to $1.15 billion. That was up 15% from the previous quarter and 20% from a year earlier.
It attributed the revenue growth in investment banking to increased underwriting and mergers and acquisition advisory in the technology, energy and power, and retail sectors, as well as to activity in European and Asian markets. Some 30% to 40% of the group's revenues come from outside the United States.
Goldman's strong results during a difficult quarter underscored the advantage large investment houses have over commercial banks aiming to compete in such corporate-finance-driven business lines as debt underwriting, trading, and mergers and acquisition advice.
The company said gains in investment banking should continue for the rest of the year. It told analysts Tuesday that it has a strong backlog of investment banking deals that have been filed.
"As long as markets hold up reasonably well, they have a good pipeline for their fourth quarter," said Robert Lee, an analyst at PaineWebber Group Inc.
Earnings were also boosted by the $328 million of net revenue contributed by the company's principal investments, which included mark-to-market gains from merchant banking investments such as its 22% stake in Internet brokerage Wit Capital Group Inc.
Balancing those gains, net revenues from trading of fixed-income products, currencies, and commodities fell 27% from the previous quarter, to $661 million.
Though revenues from trading "were not as strong as the second quarter, they were better than I had expected given the backup in the bond market and choppy equities market this quarter," said Mr. Lee.
One of the last private Wall Street firms, Goldman went public in May when it issued $3.66 billion of stock. Pro forma results have been calculated to reflect the firm's past performance as if it had been incorporated during previous fiscal periods.
At the end of trading Tuesday, Goldman's stock was down 2.66%, to $59.125. Its results could bode well for the other U.S. investment houses with November fiscal years, such as Morgan Stanley, Dean Witter & Co., and Lehman Brothers, which also issue third-quarter earnings reports this week. "But there still may be significant differences, depending on whether they have comparable results from investment portfolios and trading," Mr. Soifer said.
As of Monday night, Morgan Stanley was expected to earn $1.61 per share and Lehman Brothers was expected to bring in $1.99 per share, according to a First Call analysts' survey.