UPDATE 5-Goldman profit falls, but beats forecasts

(Adds detail on risk, tax savings)

By Joseph A. Giannone

NEW YORK, June 17 (Reuters) - Goldman Sachs Group Inc (GS.N: Quote, Profile, Research, Stock Buzz) said on Tuesday quarterly earnings fell 11 percent as market turmoil hit trading and slowed investment banking, yet the firm again exceeded expectations by avoiding major losses on assets slammed by the credit crisis.

For more than a year, banks have been grappling with the challenges of a new world where profit engines such as mortgages, buyout finance and commercial real estate seized up. Goldman anticipated the changes earlier its rivals and was more aggressive in reducing exposure to hard-hit assets.

As a result, Goldman earnings fell for a second straight quarter, but not as much as its rivals.

"They have an uncanny ability to stay out of trouble," said Thomas Russo, portfolio manager at Gardner Russo & Gardner in Lancaster, Pennsylvania.

In the second quarter ended May 30, net income at the largest U.S. investment bank fell to $2.09 billion, or $4.58 a share, from $2.33 billion, or $4.93, a year earlier. The results beat the average analyst forecast of $3.42 by a third.

Net revenue fell 7 percent to $9.42 billion in a period that included the March panic that drove Bear Stearns into the ground and handed Lehman Brothers (LEH.N: Quote, Profile, Research, Stock Buzz) a $2.8 billion loss.

Growth in equity underwriting, mergers and prime brokerage let Goldman beat forecasts, despite $775 million in write-downs and hedging losses. Goldman generated a surprisingly high 20 percent return on equity even as Merrill Lynch (MER.N: Quote, Profile, Research, Stock Buzz) and Lehman executives forecast years of muted profit.