By Antoine Gara

It's time for Warren Buffett to consider diversifying his investments beyond regional banks by buying up shares of Goldman Sachs (GS), after it reported far better than expected earnings. These included growth across its key trading and banking businesses and a tight control on expenses.

Buffett, whose top financial sector holding is Wells Fargo (WFC), might want to rethink his principles on investing only in banks with simple business models and use Goldman as a way to benefit from low interest rates.

Goldman's management of its expenses and a predictable focus on share buybacks has the nation's top investment bank fulfilling some key criteria of the Oracle of Omaha's investing principles.

In fourth-quarter earnings, Goldman Sachs reported better-than-expected​ adjusted earnings of $2.89 billion, on revenue of $9.24 billion, beating estimates of $1.78 billion and $7.83 billion respectively.

Adjusted earnings per share of $5.60 nearly doubled an adjusted estimate of $3.66 a share, according to analyst forecasts compiled by Bloomberg. Earnings at Goldman reflected growth in top line profitability and strong legwork on bottom line expenses.

It's the latter that might peak Buffett's interest and signal that Goldman Sachs is a changed bank from when the Oracle took a multi-billion dollar preferred stake in the company to help it survive the financial crisis.

In contrast to pre-crisis-era Wall Street, Goldman Sachs is doing the heavy lifting to drive overall expenses lower. Staff layoffs and relocations of back office staff to low cost financial centers helped the bank reduce overall expenses as a proportion of revenues to below 40%, exceeding analyst estimates.

While the absolute amount of expenses was unchanged from 2011 levels, Goldman's falling expense ratios reflect operating leverage, especially in some investment banking and trading businesses.

Meanwhile, Goldman Sachs is one of just a few large cap banks that's been able to predictably lower its share count through stock buybacks, a key component of some of Buffett's largest holdings such as a stake in IBM (IBM).

In the fourth quarter, Goldman bought back $1.53 billion in shares, exceeding an estimate of $1.2 billion, according to forecasts from Morgan Stanley banking analyst Betsy Graseck. For 2012, the bank bought back nearly $5 billion in stock, or a total of 42 million shares.

Given top line revenue gains across Goldman's businesses in 2012 and share count reductions, the investment bank is on a trajectory to grow its earnings per share, even if its balance sheet shrinks to reflect post-crisis regulations.

In contrast to Buffett's top bank holding, Wells Fargo, which is facing uncertainty on key earnings streams, Goldman Sachs stands poised to benefit in 2013 from the Federal Reserve's low interest rates.

While some, including Morningstar analyst Michael Wong, expect that in 2013 Goldman's strong debt underwriting and trading revenue may tail off, the prospect of an increase in merger and acquisition activity as corporations attempt to take advantage of low interest rates may play to the investment bank's favor.

In fourth-quarter earnings, Goldman's individual investment banking, equities trading and fixed income currency and commodity trading units all beat estimates.

Full-year investment banking revenue was nearly $5 billion, a 13% gain from 2011 levels, while Goldman's Institutional Client Services revenue was $18.12 billion for the year, a 5% increase. Those units and Goldman's equity trading business gained between 36% and 64% in the fourth quarter, when compared with year-ago levels.

Prior to earnings, Bernstein Research analyst Brad Hintz forecast $2.3 billion in net institutional equities revenue, $1.7 billion in net fixed income currency and commodity trading revenue and $1.2 billion in net investment banking revenue, in line with Goldman's previous guidance.

Return on equity (ROE), the percentage Goldman earns by reinvesting its retained earnings, came in at 10.7 %, beating a full year estimate of just over 9%. For the fourth quarter ROE was 16.5%, beating an estimate of 10.3%.

Given Goldman's far better than expected growth figures and its management of expense, Buffett might be well suited to take a look at investing in the investment bank. Meanwhile, Goldman's falling share count and growing earnings per share fall in line with some of Buffett's top investing principles.

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