Dec. 16 (Bloomberg) -- Goldman Sachs Group Inc. reported a fourth-quarter loss of $2.12 billion, the first since the company went public in 1999, as asset values and investment-banking fees declined.

The loss of $4.97 a share in the three months ended Nov. 28 compared with net income of $3.22 billion, or $7.01, in the same period a year earlier, the New York-based company said today in a statement. The average estimate of 18 analysts surveyed by Bloomberg was for a loss of $3.73 per share.

Chief Executive Officer Lloyd Blankfein and six deputies gave up bonuses this year after the worst financial crisis since the Great Depression forced Goldman Sachs to convert to a bank- holding company and accept $10 billion from the U.S. government. The firm that set a Wall Street profit record in 2007 cut 10 percent of its employees last month as its stock plummeted 69 percent this year.

``They're a survivor and they continue to pick up market share, but it's going to be volatile and you have to be able to stomach some risk,'' said William Fitzpatrick, an equity analyst at Optique Capital Management in Milwaukee, which oversees $1 billion and owns Goldman Sachs shares. Revenue is ``going to be challenged for at least a 12- to 18-month period,'' he said.

Goldman Sachs's book value per share declined to $98.68 in the fourth quarter from $99.30 at the end of August, and its return on equity, a gauge of how effectively the firm invests earnings, dropped to 4.9 percent for the year from 32.7 percent in 2007.

`Extraordinarily Difficult'

Goldman rose to $68.01 before the opening of the New York Stock Exchange, from $66.46 at the close yesterday, as futures on the Standard & Poor's 500 Index gained 0.7 percent at 8:48 a.m.

``Our results for the fourth quarter reflect extraordinarily difficult operating conditions, including a sharp decline in values across virtually every asset class,'' Blankfein said in the statement.

Moody's Investors Service lowered its long-term credit rating on Goldman Sachs to A1 from Aa3 after earnings were released, citing the ``ongoing credit-market crisis'' and a ``persistent difficult operating environment.''

Fourth-quarter revenue was negative $1.58 billion, compared with revenue of $10.7 billion a year earlier, while revenue for the full year slumped 52 percent to $22.2 billion from $46 billion in 2007. Compensation and benefits, the biggest expense, fell to a negative $490 million in the quarter, bringing the full-year cost to $10.9 billion, down 46 percent from a record $20.2 billion in 2007.

Writedowns and Losses

The company booked a $1.3 billion writedown on leveraged loans, or $1 billion when offsetting hedges were included, and a $700 million loss on commercial-mortgage loans and securities. Principal investments recorded a net loss of $3.6 billion in the quarter, including $2 billion from corporate investments, $961 million from real-estate investments and $631 million on the firm's stake in Industrial & Commercial Bank of China Ltd.

Glenn Schorr, an analyst at UBS AG in New York, estimated in a Dec. 2 note to investors that Goldman Sachs would post a loss of $5.50 a share in the fourth quarter. Included was an estimate of $4 billion in mark-to-market losses from private equity and principal investments, and as much as a $2.5 billion writedown on commercial real estate and leveraged loans.

Guy Moszkowski, an analyst at Merrill Lynch & Co. in New York, was expecting a $3.5 billion markdown on Goldman Sachs's private equity and principal investments, and a $2 billion writedown in leveraged finance and mortgage-related holdings, according to a Dec. 3 note.

Fixed Income

Fixed-income, currencies and commodities posted fourth- quarter negative revenue of $3.4 billion, compared with $3.3 billion a year earlier. For the full year, the unit's revenue tumbled 77 percent to $3.7 billion from $16.2 billion in 2007.

Equities revenue climbed 2 percent to $2.64 billion in the quarter and fell 19 percent for the full year to $9.21 billion.

Investment-banking revenue dropped 48 percent to $1.03 billion. Asset-management revenue declined 19 percent to $945 million in the quarter as assets under management fell $84 billion to $779 billion.

The firm's investment-banking transaction backlog decreased during the quarter and ended 2008 ``significantly lower'' than at the end of last year, the company said.

``I am a bit surprised by the extent of the decline in investment banking,'' Douglas Ciocca, managing director at Renaissance Financial Corp., who oversees $1 billion, said in a Bloomberg Television interview. ``It looks like they may have thrown in more in the writedown category than we anticipated.''

Morgan Stanley

Goldman Sachs and smaller rival Morgan Stanley, the only two of the biggest five U.S. securities firms to survive, changed into banks after investors lost confidence in companies that rely on debt-market funding.

Merrill Lynch, the third-biggest U.S. securities firm, agreed to sell itself to Bank of America Corp. in September just as Lehman Brothers Holdings Inc., the fourth-biggest, went bankrupt. Bear Stearns Cos., the smallest of the five, sold itself to JPMorgan Chase & Co. in March.

Morgan Stanley will post fourth-quarter results tomorrow.

Warren Buffett's Berkshire Hathaway Inc. in September bought $5 billion of preferred stock in Goldman Sachs, which raised an additional $5.75 billion by selling common shares for $123 apiece to investors. The infusions failed to restore investors' confidence, and the firm received $10 billion from the U.S. government in October as part of a $700 billion financial- industry rescue plan.

To contact the reporter on this story: Christine Harper in New York at charper@bloomberg.net.

Last Updated: December 16, 2008 08:53 EST