Goldman Sachs yesterday became Wall Street’s biggest recorded victim of the credit crisis as it announced a $1.7 billion (£844 million) third-quarter loss relating to a significant deterioration in its loan book.

But the group’s lending woes failed to overshadow strong profit growth as a surge in revenues from trading and so-called principal investments prompted a 79 per cent rise in third-quarter net income to $2.85 billion. Net revenue, or revenues minus interest costs, jumped by 63 per cent to $12.33 billion.

Goldman Sachs made a $900 million profit on its sale in July of Horizon Wind Energy, the American wind farm group.

It also helped to offset the losses on highly geared loans it had either made or promised by betting against mortgages, in a move the group said boosted homeloan profits “significantly”.

Lloyd Blankfein, the chairman and chief executive, said: “Given the difficult environment of the third quarter, many of our businesses were challenged. “[Net mortgage revenue] was significantly higher, despite continued deterioration in the market environment. Significant losses on nonprime loans and securities were more than offset by gains on short mortgage positions.”

Cubillas Ding, senior analyst at Celent, a financial research and consulting firm based in Boston, added: “Despite some losses, Goldman Sachs continue in their risk-taking activity – they have been clever and swift in exploiting volatility in the mortgage market by placing short bets to generate profits to offset losses in other areas.”

Goldman Sachs also appeared to have repaired much of the damage at Global Equity Opportunities, the $3.6 billion hedge fund in which the bank and its investors were forced to inject $3 billion last month as it fell victim to the credit crunch.

David Viniar, the chief financial officer at Goldman Sachs, said yesterday that the fund, which had lost 23 per cent of its value at the time of the injection in August, has since risen by 16 per cent.

Mr Viniar added: “We think that there are going to be opportunities in the mortgage business. There are certainly going to be opportunities to buy distressed assets. “Timing is going to be very important, and it is something we are certainly looking at right now. We’ll continue to look at it and consider it over time.”

Goldman Sachs also reported a 67 per cent jump in investment banking revenues to $2.1 billion, as deal activity had held up over the quarter. Equities revenues more than doubled to $3.13 billion helped by higher trading volumes and increased commissions.

Goldman’s results came after Morgan Stanley unveiled a $940 million credit-related writedown and Lehman admitted to losses of more than $700 million in the third quarter.

“Overall, while peers like Morgan Stanley, Lehman and Bear Stearns have slipped, Goldman seems to be weathering the storm with all its pieces intact,” Mr Ding said.

Mr Viniar said that investors have notified Goldman Sachs that they intend to withdraw about $1.6 billion from its Global Alpha hedge fund, another of its ailing investment vehicles. He said that the fund, which lost about 22.5 per cent of its value in August, had begun to bounce back, Mr Viniar said he had no plans to inject further cash into the fund. The group’s shares rose by $3.58 to $209.08.

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