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Goldman Sachs Sees Slowing of Client Activity as Buffett Takes Stake

Tickers in this article: GS JPM

Updated from 8:03 a.m. ET with analyst commentary, updated share prices and CFO comment

NEW YORK ( TheStreet) -- Goldman Sachs's   third-quarter earnings  beat expectations, even as the nation's largest standalone investment bank saw its revenue fall sharply from a drop off in the firm's trading and investment banking activity.

Goldman Sachs reported earnings of $2.88 a share, on $6.72 billion in third-quarter revenue. While revenue fell sharply from second quarter and year-ago levels, the firm's bottom-line proved to be resilient as expenses continue to fall.

The Lloyd Blankfein-run bank was forecast by Wall Street analysts to earn $2.47 in earnings per share on $7.35 billion in revenue, according to data compiled by Bloomberg, a drop in revenue and profit results from this time a year ago. Goldman's net income, however, grew slightly year-over-year, beating expectations.

Generally, the third quarter is a slow time for Wall Street, however, it can be leading indicator of expectations heading into the final quarter of the year.

"The third quarter's results reflected a period of slow client activity," Lloyd C. Blankfein, Goldman's Chairman and CEO said in a statement.

"As longer term U.S. budget issues are resolved, we could see an improvement in corporate and investor sentiment that would help lay the basis for a more sustained recovery," he added.

Heading into earnings, analysts forecast Goldman's fixed income currency and commodities unit would face the sharpest quarter-over-quarter drop off given a sharp rise in interest rates during the quarter and uncertainty over government policy in Washington.

While expectations generally were for Goldman's FICC unit to see its revenue drop below $2 billion, an over 20% slide from the second quarter, the bank posted far weaker-than-expected results. Goldman's FICC division earned revenue of just $1.25 billion, a 44% year-over-year decline that reflected significantly lower activity in mortgages and interest rate products and currencies.

Goldman's debt and equity underwriting businesses were also expected to post a sharp fall in revenue, however bright spots were forecast to be the firm's equity trading business and its investment management unit.

One key component of Goldman's earnings in recent quarters is its investment and lending division. That unit houses Goldman's private equity investments and some of its remaining proprietary fixed income and equity investments. Gains in the investment and lending unit has driven much of Goldman's earnings growth in 2013, however, investors have generally discounted earnings from the division.

Goldman's investment and lending division reported $1.48 billion in revenue beating expectations of $1.21 billion in revenue from the business. Goldman booked gains of nearly$1 billion from its private equity investments, as well as $300 million in gains from debt holdings.

Shares in Goldman Sachs were falling over 2% in pre-market trading to $158.60.