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Goldman Sachs roars back with profits of $3bn

Goldman Sachs yesterday posted profits of more than $3bn in the last three months, providing further evidence some banks have returned to health a year after the sector almost collapsed, and set aside $5.35bn (£3.3bn) in the quarter to cover pay and bonus payments to its staff.

So far this year, Goldman Sachs has allocated $16.7bn to pay employees, compared with $11.4bn after the first three quarters of last year.

Elsewhere, Citigroup posted a loss in the third quarter as spiraling consumer losses overwhelmed its strong trading results.

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The big banking group said it had a loss of $3.2bn, compared with a loss of $2.9bn in the third quarter a year ago. The bank reported a profit from continuing operations of $101m.

The results included $8bn in credit losses and come as chief executive Vikram Pandit has been struggling to turn around the troubled bank, in which US taxpayers own a 34% stake.

Goldman reported net revenues of $12.37bn and net earnings of $3.19bn for the third quarter to September 25. In investment banking, revenues were down 31% from a year ago at £899m. Income from financial advisory fees totalled $325m, 47% lower than in the third quarter of 2008.

But revenues from trading and principal investments were “significantly higher” than this time last year, at $10.03bn – although still 7% less than in the record

second quarter of this year.

The bank’s fixed income division generated the bulk of the profits during the last quarter, with net revenues of $5.99bn – partly due to sales of government bonds.

“Although the world continues to face serious economic challenges, we are seeing improving conditions and evidence of stabilisation, even growth, across a number of sectors,” said Lloyd Blankfein, Goldman’s chairman and chief executive.

Goldman stunned financial markets in the summer with news of a 65% leap in second quarter profits, to $3.44bn.

The group, which employs 31,000 staff globally, has been seen as one of the strongest banks throughout the financial crisis.

It had less exposure to toxic mortgage-backed securities than other companies and has been more aggressive in its trading.

The current market conditions have also been helping bank profits rebound.

Investment banks trade everything from government and company bonds to currencies, shares, commodities and complex derivatives.

As well as advising on takeovers and mergers, they help clients raise funds through issuing debt in the form of bonds, or equity – through the issue of new shares in a rights issue for example – and promise to buy up any left over through a process known as underwriting.

JP Morgan Chase kicked off the US bank reporting season on Wednesday with better-than-expected profit forecasts, and indicated its bankers are in line for huge bonus payments.

Goldman’s bonus payments for the third quarter are higher than those handed out a year ago but less than rival JP Morgan’s $7.3bn announced on Wednesday.

Goldman’s 5500 UK staff will get a share of the bonus pot. Analysts say the average London worker will earn £467,000 in salary and bonuses – 13% more than in 2007.

The payouts will be given to the investment bank’s staff even though the Treasury announced that Goldman and 10 other rivals with UK operations, including Bank of America and JP Morgan, have agreed to back recommendations from the G20 group of nations to curb pay and bonuses.

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