Goldman Sachs Reaps Big Profits from Fixed Income

Goldman's compensation costs were lower than some analysts predicted. Sandler O'Neill analyst Jeff Harte wrote that lower compensation accounted for 30 cents a share more than he had accounted for in his earnings model.

If Goldman is really making so much money so easily, competition is bound to be coming. However, Viniar said he believes when that happens, it will likely be accompanied by a rise in merger activity, allowing Goldman's investment banking division to pick up some of the slack.

Several analysts asked Viniar about Goldman's very large capital cushion, wondering whether the company may begin to buy back some of its shares. Tangible common equity levels are 50% higher than they were 18 months ago, according to analyst Chris Kotowski of Oppenheimer & Co.

In response, Viniar repeatedly stressed that the firm wants to hold onto this capital until management becomes more confident that risks to the economy have lessened and until they have more clarity about new capital requirements currently being debated by regulators.

Investment banking revenues were $1.44 billion, down 15% from a year ago but up 75% from the first quarter. Goldman posted net revenues of $811 million in principal investments, including $948 million in its investment in Industrial and Commercial Bank of China Limited. Goldman lost $499 million on real estate investments, and another $700 million on commercial mortgage loans.

Despite the blowout results, Goldman shares were down fractionally to $148.97 in recent trading.

Morgan Stanley (MS Quote), Goldman's historic rival, will report earnings next week. JPMorgan Chase (JPM Quote), which during the crisis has perhaps taken over from Morgan Stanley as Goldman's most formidable competitor, will disclose its second quarter results on Thursday.