Goldman profit plunges 70 pct amid market slump

By Joseph A. Giannone

NEW YORK (Reuters) - Goldman Sachs Group Inc said quarterly profit plunged 70 percent as the worst market slump in decades led to weaker-than-expected revenues, knocking the stock to its lowest level in nearly three years.

Still, the larger of the two major U.S. investment banks still standing, beat profit expectations on Tuesday, even as it recorded $1.1 billion in write-downs and losses from its principal investments. It was the biggest earnings decline since Goldman went public in 1999.

Goldman shares dropped 2.5 percent in afternoon trading.

The results upset investors during a week in which Lehman Brothers filed for bankruptcy and Merrill Lynch agreed to sell itself to Bank of America.

"People were hoping for some good news in a sea of gloom, and I don't think they got it," said Matt McCormick, portfolio manager and analyst at Bahl & Gaynor Investment Counsel.

Banks and brokers have recorded more than half a trillion dollars in write-downs over the past year as the U.S. mortgage crunch has widened into a full-blown credit crisis that shows no signs of abating.

Goldman so far has navigated the turmoil better than its peers, avoiding big write-downs. Yet Goldman executives acknowledged their business follows the global economy and right now conditions are grim.

In response, the company is playing defense -- hoarding capital and cash, and shedding risky assets.

"We've become even more cautious in our approach," Goldman Chief Financial Officer David Viniar told reporters.

IN THE BLACK

Net income fell to $845 million, or $1.81 a share, for the fiscal quarter ended August 29, from $2.85 billion, or $6.13, a year earlier. Net revenue fell by half to $6.04 billion as deal activity slowed, trading conditions worsened and a broad range of assets fell in price.

Earnings beat analysts' reduced expectations of $1.75 a share, but revenue fell short of the consensus target of $6.3 billion, according to Reuters Estimates.

Goldman shares fell $3.40 to $132.10 after dropping as low as $117.24 on the New York Stock Exchange.

On Monday they dropped 12 percent to a five-year low, the biggest one-day drop in more than eight years, as the credit crunch picked up momentum in its second year.

Morgan Stanley, which is to report its quarterly results on Thursday, saw its shares drop as much as 27 percent. In afternoon trade, they were down 13.4 percent to $27.99 as investors worried that its report will be equally grim.