Wall Street isn't used to being underwhelmed by Goldman Sachs.
But even the powerhouse investment bank, which usually posts stellar results that leave its rivals in the dust, wasn't immune to the rocky financial markets at the end of last year.
The bank's net income for the last three months of the year fell 58 percent from a year earlier because of lower investment banking fees. The results beat Wall Street expectations but put Goldman in line with what it would consider ordinary banks.
In the last three months of the year, fear about the European debt crisis made the stock and bond markets volatile, and clients of all the major banks shied away from mergers and acquisitions and public offerings of stock.
Goldman's investment banking business took in 43 percent less in the fourth quarter than a year earlier. That was about the same as at Citigroup, Goldman's much weaker competitor, where fees declined 45 percent. JPMorgan Chase reported a smaller decline of 39 percent.
In the quarter before, Goldman had lost money for only the second time since it went public in 1999.
"Goldman is best in breed," said Keith Davis, an analyst at the investment firm Farr, Miller & Washington LLC and a Goldman shareholder. "But even they are being careful in seeking out profits because of the uncertainty out there."
The investment bank said Wednesday that it made $1 billion, or $1.84 per share, from October through December. The results beat the estimate of $1.28 per share from analysts surveyed by FactSet, a provider of financial data.
Goldman's revenue in the quarter fell 30 percent to $6 billion. For the year, Goldman made $4.4 billion, 47 percent less than in 2010, on revenue of $28.8 billion, down 26 percent from the previous year.
Goldman's typical clients are large hedge funds and multinational corporations that need to hedge their bets on foreign currencies, fluctuating interest rates and commodities.
The bumpy financial markets hurt revenue in those parts of Goldman's business. Revenue from client services fell 16 percent to $3.06 billion for the quarter. Transactions in commodities, currency and fixed income fell 17 percent.
Besides trading for those clients, Goldman has made big profits trading for itself _ especially when markets are volatile. In 2009, as the country grappled with a financial crisis and a deep recession, Goldman turned a record $13.4 billion profit. But regulations taking effect this year will reduce Goldman's ability to make those trades for the firm.
Stock traders played down concerns about Goldman Sachs' earning potential and sent the stock sharply higher. Goldman closed up 6.8 percent. Other big banks with large investment banking divisions followed Goldman higher.
Bank stocks took a hit on Friday when JPMorgan Chase led off the earnings season with disappointing results. Even if Goldman isn't the world-beater it was several years ago, it at least beat expectations.
Goldman's chief financial officer, David Viniar, gave investors another reason to hope: Even though the year is barely two weeks old, he said, corporate clients appear to be more willing to take risks than they were last year.
"The first two weeks of January certainly felt a lot better than the December and November period," Viniar told investors in a conference call to discuss the financial results.
Traders also bought Goldman because they want to profit if the investment bank buys back a chunk of its stock soon.
Goldman bought back 47 million shares of its own stock last year, including 9.2 million in the fourth quarter. The Federal Reserve has given the firm permission to buy back 63.5 million more shares.
Companies sometimes buy back their own stock when they have plenty of cash sitting around and few good ideas on where to invest it and make it grow. It can also be a sign that a company believes the stock is worth more than its current price.
Goldman paid an average of $128 for what it has bought so far. On Wednesday, the stock closed at $104.31.
In a figure watched carefully by Wall Street competitors and Occupy Wall Street alike, the bank said that it paid its 33,300 employees $12.2 billion in 2011, or 21 percent less than in 2010.
That averages out to $367,000 apiece, although the average can be misleading: Goldman's top investment bankers and executives earn multiple millions, but administrative staff doesn't usually earn six figures.
Analysts said they expected last year's payout to be lower and more in line with the 26 percent drop in revenue.
During its heyday, before the financial crisis of 2008, the average was closer to $500,000, and some Goldman bankers made $50 million bonuses.
CEO Lloyd Blankfein said concerns about the global economy made Goldman's clients less inclined to take risks in 2011. He said the firm saw "encouraging signs" that the economy and financial markets are improving.
Other signs don't look as healthy. The firm's investment banking transaction backlog, an indicator of future revenue and profit, decreased from the quarter before, though it was slightly higher than a year earlier.
Goldman is preparing for a tougher year not just by reducing risk but by cutting staff. While some of its top traders have recently quit because the tough regulatory environment has made it difficult for them to make profitable trades, Goldman also cut staff 7 percent in 2011, with 900 jobs cut just in the last three months.