Goldman scores but shows strains

Wall Street powerhouse Goldman Sachs delivered earnings ahead of forecasts, but investor worries about growth in some key businesses sent shares lower.

NEW YORK (CNNMoney.com) -- Goldman Sachs appeared to stay a step ahead of the credit crunch, as the Wall Street powerhouse reported better-than-expected quarterly results Tuesday.

But slower growth in some of the bank's key divisions worried investors, sending its stock lower, as Goldman Sachs (GS, Fortune 500) shares fell more than 3 percent in midday trade on the New York Stock Exchange.

Adding to those fears were remarks by the company's Chief Financial Officer David Viniar, who said that he remained "cautious" about the company's near-term outlook given the current market conditions.

As in the previous quarter, the Wall Street firm reported earnings that beat forecasts. Net income at the bank climbed to $3.22 billion, or $7.01 a share, from $3.15 billion, or $6.59 a share a year ago. Analysts were expecting earnings of $6.61 a share.

Net revenue also came in slightly ahead of expectations, climbing 14 percent to $10.7 billion.

But facing difficult market conditions during the month of November, the Wall Street firm saw a decline in revenue from the previous quarter in a number of key areas, including its fixed-income, debt underwriting and mergers and acquisitions businesses.

Net revenue in Goldman's trading business, by far its biggest division, dropped 16 percent in the past three months, even though it climbed 47 percent from a year ago. The company's investment banking and asset-management divisions also experienced declines from the previous quarter.

"If you look back in the third quarter, the difference is you are getting a slowdown in some of the core businesses," said Brad Hintz, who covers the Wall Street firm for Sanford Bernstein & Co.

Offsetting some of those declines was the sale of assets including an $800 million sale of more than a dozen power plants.

Speaking to analysts in a conference call following the earnings release, Goldman's Viniar said the company took writedowns on its mortgage holdings, but declined to provide a dollar figure, calling the amount "relatively modest."

He noted, however, that he believed that the market was getting "closer to the bottom" of the current credit crisis.

While offering a "cautious" near-term outlook, Viniar said he was "very optimistic" about the company's prospects longer term, warning that global economic growth would be the "fundamental driver of business."

Until now, Goldman Sachs was thought to be immune from credit market turmoil after posting a surge in revenue and profit last quarter. Goldman had insulated itself by betting against mortgage securities, at a time when rivals like Merrill Lynch (MER, Fortune 500) were ramping up their bets on these exotic securities.

Goldman, however, wasn't the only one to show signs of strain this quarter. Last week, Lehman Brothers (LEH, Fortune 500) saw a decline in its quarterly profits, while suffering a $830 million hit in its fixed-income division.

Bear Stearns (BSC, Fortune 500) and Morgan Stanley (MS, Fortune 500), which have been harder hit by the credit crisis, are slated to report their results later this week.