Goldman Sachs succumbed to the global crisis in the fourth quarter with a $2.1 billion (£1.35 billion) after-tax loss, the Wall Street bank’s first quarterly fall into the red in ten years.

Executives saw their pay packets hit after Goldman slashed its 2008 compensation pool by $500 million from what it had planned to pay in late August to reflect the dire three months to November 28.

The fourth-quarter loss compared with a record net profit of $3.2 billion in the final quarter last year. Salaries, bonuses and benefits for 2008 will be down by 46 per cent on last year’s bumper packages. The pay cuts come despite the bank yesterday reporting a full-year after-tax profit of $2.3 billion.

Shares in the bank jumped more than 14 per cent to close at $76, reflecting investors’ relief that the fourth-quarter loss was not worse. Goldman Sachs suffered across almost all of its businesses in the final quarter. Investment banking revenue before expenses was down 48 per cent to just over $1 billion.

The fixed income, currency and commodities (FICC) division made a loss before expenses of $3.4 billion, pushing the bank’s trading and principal investments business, of which it is part, to a loss before expenses of almost $4.4 billion. This business made a $6.9 billion after-tax profit in the fourth quarter last year. Asset management and prime broking made $1.7 billion after-tax profit, just down from $1.8 billion in the same period in 2007.

The bank has raised an extra $20.7 billion by selling $10 billion of equity to the US Government as part of its $700 million banks bailout and the rest from investors including Warren Buffett’s Berkshire Hathaway. This brought its Tier one ratio up from 11.6 per cent in the third quarter to 15.6 per cent at the year end.

Moody’s cut Goldman’s credit rating from A1 to Aa3 and said that the outlook was negative because of its exposure to credit markets and a difficult operating environment.

Times Recommends

• Lies and cover-up at MG Rover exposed by report
• High oil prices push manufacturing costs up
• Primark founder steps down as chief executive