GOLDMAN Sachs brought more cheer to the City yesterday as it recorded third-quarter earnings of $3.2bn (&pound;1.97bn), well ahead of analysts&rsquo; expectations, thanks to the continued strength of its fixed income operations.<br /><br />&ldquo;Although the world continues to face serious economic challenges, we are seeing improving conditions and evidence of stabilisation, even growth, across a number of sectors,&rdquo; said chief executive Lloyd Blankfein.<br /><br />As Goldman unveiled its figures, it was already bracing itself for another row over bonuses, after revealing it had set aside $16.7bn for compensation in the first nine months, putting it on track to dole out a record $22bn at the end of the year.<br /><br />Chief financial officer David Viniar said the company was &ldquo;cognisant of what&rsquo;s going on in the world&rdquo;, but pointed out that Goldman bankers had delivered massive profits, saying &ldquo;we have to be fair to those people&rdquo;.<br /><br />The Wall Street giant is considering making a donation of around $1bn from its compensation pool to charity, in an effort to appease public ire over its bonus payouts.<br /><br />Group income of $3.19bn was more than three times the $845m earned in the equivalent period last year, with fixed income and equities driving the bank to $12bn in revenues, double that seen in 2008.<br /><br />Revenue in fixed income, currency and commodity trading (FICC), ballooned to $5.99bn compared to $1.6bn in the last year&rsquo;s third quarter, while equities revenue reached $2.78bn from $1.56bn. <br /><br />Principal investments also delivered a strong performance, increasing revenue to $1.26bn from last year&rsquo;s $453m loss, although the bank lost $66m on real estate investments.<br /><br />Goldman said the decline in activity in mergers and acquisitions had dented investment banking revenues, which dropped to $899m compared to $1.29bn in 2008.<br /><br />But despite the decline in activity, the bank retained top spot in worldwide mergers and acquisitions, ranking first in global announced transactions for the year to date.<br /><br />Goldman&rsquo;s tier one capital ratio, a key marker of financial strength, was up to 14.5 per cent as of 25 September, from 13.8 per cent at the end of June.<br /><br />The bank has repaid the $10bn it received&nbsp; in state aid.<br />