March 13 (Bloomberg) -- Goldman Sachs Group Inc., the world's biggest securities firm by market value, said first- quarter profit rose 29 percent to a record, exceeding analysts' highest estimates, on trading gains and investment-banking fees.

Net income climbed to $3.2 billion, or $6.67 a share, in the three months ended Feb. 23 from $2.48 billion, or $5.08, a year earlier, the New York-based company said today in a statement. Goldman's profit beat expectations for a seventh straight quarter, topping the most bullish estimate of $5.60 a share from 16 analysts surveyed by Bloomberg.

Goldman, led by Chief Executive Officer Lloyd Blankfein, was propelled by the highest ever revenue from trading stocks and bonds, as well as gains of more than $1.7 billion from investments in companies including Chinese and Japanese banks. As the rest of Wall Street prepares to report first-quarter results and defaults in the subprime mortgage market soar, Goldman said it remains bullish on fees from takeover advice and underwriting.

``The current environment looks great,'' said Tom Jalics, an analyst at Cleveland, Ohio-based National City Bank, which manages about $32 billion, including about 853,000 shares of Goldman as of the end of last year. ``Firms like Goldman Sachs should be hitting on all cylinders, and they are.''

Shares of the company fell $3.57, or 1.8 percent, to $199.03 at 4:10 p.m. in composite trading on the New York Stock Exchange, after gaining as much as 2.9 percent earlier in the day.

`Subprime Troubles'

The 12-member AMEX Securities Broker/Dealer Index slid 4.4 percent after the Mortgage Bankers Association reported at midday that delinquencies among subprime home borrowers hit a four-year high in the fourth quarter. Bear Stearns Cos.'s stock declined 6.7 percent, while Lehman Brothers Holdings Inc. fell 5.9 percent.

``The mood isn't as positive as it used to be,'' said Bruce Foerster, president of South Beach Capital Markets in Miami, Florida. ``The subprime troubles show the fallibility of human beings, and if it spreads to other credit products, we'll see a negative impact on Goldman and other brokers.''

Goldman's first-quarter net revenue climbed 22 percent to $12.7 billion, compared with a 17 percent increase in operating expenses. Return on equity, a measure of how effectively Goldman reinvests earnings, increased to 38 percent in the first quarter from 36.4 percent a year earlier.

Merger Advice

The firm reported record revenue from merger advice, debt underwriting, equities trading, fixed-income trading and asset- management fees. Earnings per share were 19 percent above even the highest profit estimate of 16 analysts surveyed by Bloomberg, which ranged from $4.17 to $5.60.

``The conditions that have fueled the growth of our business in recent years remain very much intact,'' David Viniar, Goldman's chief financial officer, told analysts on a conference call today. He said the Feb. 23 date for the quarter's end, which preceded a two-week tumble in global stock markets, didn't have any effect on the firm's earnings.

Shares of Goldman have dropped 10 percent since closing at a record $220.94 on Feb. 20 amid concern that higher interest rates will reduce the value of U.S. real estate and hurt the economy. Goldman is among the lenders to New Century Financial Corp., the second-biggest U.S. provider of mortgages to people with bad credit histories. The Irvine, California-based company said yesterday it doesn't have the cash to pay creditors.

`Modest' Losses

More than 20 lenders have closed or put themselves up for sale as defaults on subprime mortgages climbed to a seven-year high, according to Bloomberg data, fanning concern that investment banks may sustain losses from the declining value of home loans and mortgage-backed securities.

Goldman's losses from so-called residual holdings of mortgage backed-securities are ``modest'' and any writedowns on loans to failing mortgage lenders ``will not be terribly meaningful for Goldman Sachs,'' Viniar told analysts.

``We have handled the turmoil in the market pretty well,'' Viniar said. ``We really haven't seen any contagion to the credit markets'' more broadly, he said.

Goldman is the first of four U.S. securities firms reporting earnings this month. Lehman Brothers, the fourth largest by market value, and Bear Stearns, the fifth biggest, are scheduled in the next two days and Morgan Stanley, the second largest, will report next week. Merrill Lynch & Co.'s first quarter ends in March. All of the companies are based in New York.

`Staggering' Numbers

``The numbers are just staggering,'' said Carl Salvato, who helps manage $350 million, including Goldman shares, at Great American Companies in Tampa, Florida. ``It's really hard to find anything problematic here, including their comments on subprime.''

Investment-banking revenue at Goldman rose 17 percent as fees for advising on takeovers increased and income from underwriting stocks and bonds advanced. The firm's ``backlog'' of uncompleted advisory and underwriting assignments is at the highest level since 2000, Viniar said.

``There is still tremendous activity going on, the volume of activity has not slowed,'' Viniar said on a conference call with reporters. ``We have not seen any slowdown in activity or slowdown in sentiment.''

About half of Goldman's revenue came from outside the U.S. for the first time, as the firm's businesses in Asia and Europe are growing faster than the U.S., Viniar said. Goldman employed 26,959 people as of Feb. 23 and plans to increase that number by less than 10 percent this year, with faster growth in Asia and Europe, Viniar said.

Trading Revenue

``Goldman is the poster child for the new investment bank,'' said James Ellman, who helps manage $200 million, including Goldman shares, at SeaCliff Capital in San Francisco. ``It's not a U.S.-only business any more and it's much more diversified in terms of its client base and market exposure.''

Goldman, the world's No. 1 M&A adviser for the past five years, helped arrange $305 billion of takeovers completed during its fiscal first quarter, second only to New York-based Citigroup Inc. and up from about $209 billion in the same period a year earlier, according to data compiled by Bloomberg. Goldman managed $9.1 billion of global share offerings during the period, down from $13.3 billion a year earlier, the data show.

Revenue from trading fixed-income, currencies and commodities, Goldman's biggest business, rose 20 percent to $4.6 billion. Equities trading revenue climbed 26 percent to $3.1 billion.

First-quarter asset-management revenue tumbled 28 percent to $1.1 billion as the performance of some Goldman hedge funds, primarily the Global Alpha fund, wasn't good enough to garner performance-related fees. So-called incentive fees plunged 88 percent to $90 million in the quarter from $739 million a year earlier, while management fees climbed 31 percent to a record $982 million.

Goldman's assets under management advanced 26 percent to $719 billion, an all-time high for the firm.

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

Last Updated: March 13, 2007 16:17 EDT