Goldman Sachs facing compensation, derivative inquiries

Aug 5, 2009 @ 5:22 pm

By Associated Press

Goldman Sachs Group Inc., one of the banking industry's top performers, said today that government agencies have asked about its compensation practices and use of credit derivatives.

Compensation, especially bonuses, and credit derivatives have been among the most hot-button topics in the financial services industry since the credit crisis peaked last fall.

In a filing with the Securities and Exchange Commission, Goldman said it is cooperating with the requests from undisclosed regulators. A spokesman from Goldman declined to provide further details about the inquiries.

Politicians have recently questioned the methods big banks use to determine compensation packages, especially in the wake the government's bailout last fall of the banking sector, known as the Troubled Asset Relief Program.

Last week, New York Attorney General Andrew Cuomo released details on bonuses paid in 2008 to the initial nine banks the government agreed to provide with TARP funds, including Goldman Sachs.

Goldman, which received $10 billion as part of the program, paid out $4.82 billion in bonuses in 2008. The New York-based bank repaid the TARP money it received in June.

Banks that have yet to repay the bailout money face government restrictions on compensation.

Cuomo said Wall Street banks have failed in recent years to tie bonuses to the actual performance.

Banks have also faced criticism for use of risky derivatives contracts, which have been partly blamed for the collapse of Goldman's competitor Lehman Brothers Holdings Inc. and the near-collapse of insurer American International Group Inc. Fearing more fallout after Lehman and AIG's problems, the government launched the bank bailout program.

Goldman, however, has been quickly able to rebound from last fall's sector-wide troubles to return to its perch as a highly profitable Wall Street trading giant.

During the second quarter, Goldman ramped back up its aggressive trading practices as markets began to stabilize and posted a profit of more than $2.7 billion. Profits were strengthened by fixed income, currency and commodities trading.

Shares of Goldman rose $1.48 to $166.65 in afternoon trading.

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