* Results hurt by decline in asset value, confidence *
Goldman Sachs Group lost $428 mln in the third quarter, only its second quarterly loss as a public company, as its investment portfolio tanked and trading revenue fell.
The results underscore how investment banks can face headaches from their assets even as regulators clamp down on risk-taking.
Goldman, the largest U.S. investment bank by assets, signaled that it is taking steps to cut costs, including employee pay, for the benefit of shareholders. Its shares rose 2.4% in early trading to $99.23.
In a statement, Chief Executive Lloyd Blankfein blamed the loss on difficult market conditions and a lack of confidence among investors and corporate clients.
"Our results were significantly impacted by the environment and we were disappointed to record a loss in the quarter," Blankfein said.
The loss amounted to 84 cents a share, much deeper than the loss of 16 cents expected, on average, by analysts.
Since going public in 1999, the only other quarter in which Goldman was in the red was a $1.6 bln loss in the fourth quarter of 2008, after the demise of Lehman Brothers.
The bank's third-quarter net revenue totaled $3.6 bln, down 60% from a year earlier — its sixth consecutive year-over-year revenue decline. Wall Street has struggled with new regulations and choppy markets.
As profitability shrinks in the industry — Goldman generated a return on equity of just 6% for the first three quarters of 2011, even ignoring a special charge — the bank is cutting costs. It cut its workforce by 4% during the quarter, helping to lower compensation costs by 59%.
During the pre-crisis era, Goldman could generate a return on equity of more than 30% per quarter.
Although revenue declined in some of Goldman's core banking and trading businesses, the main source of losses was its Investing & Lending division, which uses the firm's own capital to make long-term investments.
Revenue from that division has fluctuated wildly since Goldman restructured into different business segments at the start of 2011.
The division reported negative revenue of $2.48 bln for the third quarter as asset values dropped sharply. Goldman's stock investment in Industrial and Commercial Bank of China alone generated more than $1 bln of paper losses.
The U.S. financial reform law known as Dodd-Frank features a provision called the Volcker Rule, which is meant to limit banks' betting with their own money. Regulators last week released a draft of the rule. which focuses on short-term trading.
Big declines in Goldman's bond-trading and underwriting revenue also weighed on results, more than offsetting gains from equity sales and trading and its advisory business.
Goldman's fixed income, currency and commodities client trading business — once a key profit driver for the bank — reported $1.73 bln in revenue, a 36% decline from a year earlier.
Equities sales and trading is now a larger slice of Goldman's revenue pie, as higher trading volumes led to bigger commissions. That business reported $2.3 bln in revenue, up 18%.
The bank's underwriting business suffered as clients held back on issuing new securities into volatile markets. Underwriting revenue dropped 61% to $258 mln, while advisory revenue rose 5% to $523 mln.
In the year-earlier third quarter Goldman posted a profit of $2.98 per share.