The Goldman Sachs Group Inc. reported record quarterly net earnings of US$1.62 billion for its fiscal third quarter ended August 26, driven by strong trading results.

The Wall Street investment bank said diluted earnings per common share were US$3.25 compared with US$1.74 for the third quarter of 2004 and US$1.71 for the second quarter of 2005. Annualized return on average tangible common shareholders’ equity was 32.0% for the quarter.

Net revenues in trading and principal investments were US$5.06 billion, 88% higher than the third quarter of 2004 and 80% higher than the second quarter of 2005. Fixed income, currency and commodities generated record quarterly net revenues of US$2.63 billion, reflecting strength across the franchise.

Equities produced net revenues of US$1.59 billion, 75% above last year’s third quarter. Investment banking generated net revenues of US$1.02 billion, its best quarterly performance in four years. Asset management saw net revenues of US$731 million, 23% above last year’s third quarter. Securities services achieved its second best quarter, producing net revenues of US$477 million.

“This quarter’s record results reflect the increasing confidence of our corporate and investor clients and the success our people have had in serving their needs,” said Henry Paulson, Jr., chairman and CEO. “During the third quarter, we saw increasing activity levels across all of our major businesses and believe overall market conditions support a generally optimistic outlook.”

Operating expenses were US$4.88 billion, 51% higher than the third quarter of 2004 and 37% higher than the second quarter of 2005. Compensation and benefits expenses were US$3.64 billion, 61% higher than the third quarter of 2004, commensurate with higher net revenues. The ratio of compensation and benefits to net revenues was 50.0% for the first nine months of 2005, consistent with the first nine months of 2004. Non-compensation expenses were 28% higher than the third quarter of 2004, primarily due to higher expenses from consolidated entities held for investment purposes and higher levels of business activity.