updated 6/16/2005 11:06:58 AM ET 2005-06-16T15:06:58

Wall Street firm Goldman Sachs Group Inc. on Thursday reported a sharp drop in second-quarter earnings as investment banking and trading revenues fell. Profits came in below analysts’ estimates.

Chairman and Chief Executive Officer Henry M. Paulson Jr. blamed tough market conditions.

The firm’s competitors were less affected by the difficult trading environment. On Wednesday, Bear Stearns Cos. Inc. reported a 5 percent increase in second-quarter earnings on the strength of its institutional stock trading business. Lehman Brothers Holdings Inc. reported similarly strong earnings a day earlier.

Goldman Sachs said that net income for the three months ended May 27 totaled $865 million, or $1.71 a share, down 27 percent from $1.19 billion, or $2.31 a share, a year earlier.

Net revenue for the quarter totaled $4.81 billion, down 13 percent from $5.51 billion a year earlier.

Analysts surveyed by Thomson Financial had projected second-quarter earnings of $1.87 a share on $4.96 billion in revenue.

The second-quarter results reflected drops in revenue in both the investment banking and trading divisions.

Net revenues in investment banking totaled $815 million, a 14 percent drop from the $953 million reported in the year-earlier quarter. Revenues from trading and principal investments were $2.81 billion, down 22 percent from $3.63 billion a year earlier.

Revenues rose in 27 percent in asset management and securities services, totaling $1.18 billion in the second quarter compared with $931 million a year earlier.

In a statement accompanying the report, Paulson said: “Market conditions in the second quarter were more challenging. However, the economic outlook continues to be favorable, and our client franchise remains broad and deep, and we retain our leadership position in critical businesses.”

The company said it ranked No. 1 in global mergers and acquisitions and in initial public offerings. It said assets under management rose 18 percent from a year earlier to a record $490 billion.

Net income for the first six months of the year was $2.38 billion, or $4.65 a share, a drop of 4 percent from profits of $2.48 billion, or $4.81 a share, in the second quarter of 2004.

Revenue for the six months ending May 27 were $11.21 billion, down 2 percent from $11.44 billion in 2004.

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