NEW YORK (BLOOMBERG) - Goldman Sachs Group Inc. reported a 65 per cent drop in fourth-quarter profit after an agreement to settle a U.S. probe into its handling of mortgage-backed securities reduced earnings by US$1.54 billion (S$2.21 billion).

Net income declined to US$765 million, or US$1.27 a share, from US$2.17 billion, or US$4.38, a year earlier, the New York-based company said Wednesday in a statement.

Goldman Sachs, led by Chief Executive Officer Lloyd Blankfein, said earlier this month it reached a US$5.1 billion agreement in principle on the mortgage case, cutting fourth- quarter profit and closing out a year of record legal and litigation costs. Authorities have already penalized three of the biggest U.S. banks - JPMorgan Chase & Co., Bank of America Corp. and Citigroup Inc. - more than US$37 billion for their role in selling faulty mortgage-backed securities before the financial crisis.

Goldman Sachs has dropped 13 per cent this year, compared with a 10 per cent decline for the Standard & Poor's 500 Financials Index.

Revenue from trading in fixed-income, currencies and commodities markets rose 1.2 per cent to US$1.18 billion, excluding accounting adjustments. That roughly matched the US$1.19 billion average of four analysts surveyed by Bloomberg. Equity-trading revenue of US$1.77 billion fell 7.1 percent over the year earlier and beat analysts' US$1.68 billion estimate.

Mr Blankfein, 61, who has resisted calls to scale back in bond trading, may cut more than 5 per cent of traders and salesmen in that business this quarter, a person with knowledge of the matter said last week. Morgan Stanley said in December it was taking a US$150 million severance charge as it pared its fixed- income trading business. The cuts affected 1,200 employees, a person briefed on the matter said.

On Tuesday, Morgan Stanley and Bank of America said profit improved as expenses shrank. Cost cuts also bolstered results at JPMorgan and Citigroup, which reported earnings last week.