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NEW YORK : Goldman Sachs and Lehman Brothers, two of Wall Street's biggest investment banks, both announced sharp declines in quarterly profits on Tuesday as a credit squeeze ravages US financial markets.
Goldman's chairman and chief executive, Lloyd Blankfein, said "market conditions are clearly very difficult," while his counterpart at Lehman, Richard Fuld, said the banking industry was facing "challenging" times.
Goldman Sachs' fiscal first-quarter earnings plunged 53 percent to 1.51 billion dollars compared with the same period a year earlier while Lehman's fiscal first-quarter profits slumped 57 percent to 489 million dollars.
Despite the earnings declines, investors breathed a sigh of relief as Goldman and Lehman's respective earnings were better than most analysts had predicted.
Banking stocks have come under extreme pressure in recent weeks as a broadening credit crunch has gripped Wall Street and investors have sold off financial shares.
The liquidity squeeze, which has forced many banks to tighten their lending to preserve capital, was triggered by rising losses on mortgage investments tied to the US housing downturn.
One of Goldman and Lehman's rivals, Bear Stearns, came close to collapsing late last week following increased mortgage losses and increased credit fears.
Bear Stearns agreed to be taken over by another bank, JPMorgan Chase, on Sunday for 236 million dollars or just two dollars a share in a deal supported by the Federal Reserve.
The takeover price shocked many Wall Street veterans as Bear Stearns had had a market worth in the billions of dollars just weeks ago, but its value evaporated amid fears it would have to seek bankruptcy protection.
Goldman reported earnings per share of 3.23 dollars while Lehman announced earnings of 81 cents. Analysts had expected earnings of 2.58 dollars and 72 cents, respectively.
Although both banks profits' were rosier than forecast, investment losses - especially on mortgage-related securities - dragged down their profits considerably from a year ago.
Goldman Sachs, which has a market worth of around 64 billion dollars, revealed losses of two billion dollars related to ailing mortgage securities and credit products including corporate debt instruments.
Lehman Brothers, which is considerably smaller than Goldman with a market value of about 20 billion dollars, said its revenues had also been stressed by troubled mortgage investments.
Goldman's shares jumped nine percent to 164.59 dollars while Lehman's shares rocketed 18 percent to 37.53 dollars in the wake of their earnings reports.
Lehman's shares had tumbled 16 percent to 33.00 dollars on Monday after falling sharply on Friday as investors feared Bear Stearns woes could affect other Wall Street firms.
Goldman Sachs has managed to weather the credit squeeze in better health than many of its rivals such as Citigroup and Merrill Lynch which have divulged billions of dollars in mortgage-related losses in recent months.
Lehman's CEO said the bank's results reflected a laser-like focus on risk management and the firm's strong capital position.
"This strategy has allowed us to support our clients through these difficult and volatile markets," Fuld said.
Goldman reported quarterly revenues of 8.34 billion dollars while Lehman said its revenues were 3.5 billion. - AFP/de
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