June 17 (Bloomberg) -- Goldman Sachs Group Inc., the world's biggest securities firm, said second-quarter profit fell a less-than-estimated 11 percent as gains in commodities, prime brokerage and asset management offset fixed-income losses.

Net income declined to $2.09 billion, or $4.58 a share, in the three months ended May 30 from $2.33 billion, or $4.93, a year earlier, the New York-based company said in a statement today. The earnings, which beat the highest estimate of 19 analysts surveyed by Bloomberg, are the lowest second-quarter result since 2005.

Chief Executive Officer Lloyd Blankfein reported Goldman's second straight quarterly profit drop as losses on mortgage- related securities spread to other debt. Goldman has fared better than most of its rivals in the credit crunch. Lehman Brothers Holdings Inc., the fourth-biggest U.S. securities firm by market value, reported a $2.8 billion second-quarter loss yesterday, its first as a public company.

``The magnitude of the beat is pretty astounding,'' Peter Sorrentino, a senior portfolio manager at Huntington Asset Advisors in Cincinnati, which manages $16.5 billion and holds Goldman shares, said in a Bloomberg Radio interview. ``They had enough of an arm's length distance so that when the stuff blew up it didn't splash back on them the way it did on others.''

Goldman rose $4.17, or 2.3 percent, to $186.26 in New York trading. The stock was the only one of the world's 10 biggest investment banks to advance in 2007, when the company reported a fourth consecutive year of record profits.

Share Comparison

So far in 2008 the stock is down 15 percent, compared with the 20 percent drop of the 11-member Amex Securities Broker/Dealer Index. Goldman's earnings exceeded analysts' estimates for the 12th consecutive quarter.

Goldman's second-quarter revenue decreased 7.5 percent to $9.42 billion from $10.2 billion a year earlier. The annualized return on average common shareholders' equity, a measure of how well the firm reinvests stockholders' money, was 20.4 percent, compared with 14.8 percent in the first quarter and 26.7 percent in the second quarter of 2007.

The company benefited from a lower tax rate, which declined to 27.7 percent for the first half of the year from 34.1 percent from the firm's 2007 fiscal year.

The 29 percent drop in fixed-income revenue was affected by $775 million of writedowns and credit market losses, Goldman said in the statement. Lehman said yesterday it had negative fixed-income revenue of $3 billion in the second quarter as the New York-based firm marked down the value of debt securities and lost money on investments designed to help hedge the losses.

Commodities Trading

Goldman, which dominates the business of commodities trading along with Morgan Stanley, said revenue from commodities was higher in the second quarter. The firm doesn't provide any separate figures for the business, instead reporting it under the broader category of fixed-income, currencies and commodities.

Crude oil futures doubled in the past year, and the price of products from gold to corn soared to record highs. Finance ministers from the Group of Eight nations said June 15 that surging food and fuel prices replaced the credit squeeze as the biggest threat to the world economy.

``For 20 years inflation was in the financial asset world and so we had great bond returns in the '80s, great stock returns in the '90s,'' said Huntington's Sorrentino. ``Now inflation is moved back into hard assets, it's gone out of real estate and it's into commodities.''

Equities Trading

Goldman's revenue from asset management rose 10 percent from a year earlier as funds under management jumped to a record $895 billion, the company said. Securities services, which contains Goldman's prime brokerage for hedge fund clients, reported a 30 percent increase in revenue to $985 million in the quarter.

Revenue from trading equities was little changed at $2.49 billion as the Standard & Poor's 500 Index climbed 5 percent during the quarter. Goldman said that higher net revenue from client business was offset by ``significantly lower'' revenue from proprietary trading.

Financial advisory revenue, which includes the firm's top- ranked mergers and acquisitions group, rose 13 percent to $800 million in the quarter from a year earlier. Debt underwriting fell 59 percent, while equity underwriting climbed 72 percent.

Gains on principal investments declined 8 percent to $725 million. The value of Goldman's stake in Beijing-based Industrial & Commercial Bank of China Ltd. increased by $214 million.

Morgan Stanley, the second-biggest U.S. securities firm after Goldman, is scheduled to report earnings tomorrow. The average estimate of analysts surveyed by Bloomberg is for a 59 percent drop in net income.

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

Last Updated: June 17, 2008 09:19 EDT