Goldman Sachs Group Inc (GS.N) reported a 7 percent drop in fourth-quarter profit as sharp market moves in December hit its bond-trading business.
Fixed-income trading, long a strength for the bank, came under pressure last year due to stricter capital rules in the aftermath of the financial crisis and relatively calm markets that discouraged clients from trading.
Just when it seemed things were picking up, erratic moves in the market last month, caused by factors ranging from plunging oil prices to worries about Greece, spooked investors again.
"Volatility in absence of liquidity" hurt Goldman and other big banks in the quarter, Harvey Schwartz, Goldman's chief financial officer, said on a call with analysts.
Goldman's revenue from trading fixed-income securities, currencies and commodities (FICC) fell 19 percent, excluding gains from repayment of debt and the sale of most of its European insurance business in 2013.
Overall, FICC revenue fell 29 percent to $1.22 billion, mainly due to a weaker performance in mortgages and credit products such as corporate bonds. This was partially offset by higher revenue from trading commodities and currencies.
A writedown on a loan to troubled Portuguese lender Banco Espirito Santo also hurt FICC trading, as Reuters reported earlier this week.
The business, which once contributed about 40 percent of Goldman's revenue, has been on a decline since 2009 as new rules also discourage banks from trading on their own account and it accounted for only about 16 percent of revenue in the quarter.
JPMorgan Chase & Co's (JPM.N) FICC revenue fell 14 percent in the period, Citigroup Inc's (C.N) 16 percent and Bank of America Corp's (BAC.N) 30 percent.
Goldman's shares were down less than 1 percent at $177.53 in midday trading on the New York Stock Exchange.
Schwartz deflected a question about whether Goldman should break itself up, saying the bank was not as large or as complex as universal banking rivals facing the same question.
The issue of whether banks that are "too big to fail" should be broken up was recently mooted in a report on JPMorgan by Goldman Sachs analysts.
Goldman's investment banking business also had a weaker quarter, with revenue falling 16 percent to $1.44 billion due to lower revenue from both equity and debt underwriting.
Overall net income fell to $2.17 billion, or $4.38 per share, from $2.33 billion, or 4.60 per share, a year earlier. Analysts had expected earnings of $4.32 per share, according to Thomson Reuters I/B/E/S.
Of the big U.S. banks reporting this week, only Wells Fargo & Co (WFC.N) managed a rise in profit, largely because it is more focused on retail and commercial banking.
Goldman used 36.8 percent of its revenue for compensation last year, down slightly from 2013. Average annual compensation per employee fell to $373,265 from $376,507 as the number of employees rose slightly.
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