Government queries Goldman about compensation

NEW YORK (Reuters) - The U.S. government has queried Goldman Sachs Group Inc GS.N about its compensation practices and credit derivative instruments, the firm said on Wednesday.

Traders work in the Goldman Sachs booth on the floor of the New York Stock Exchange, September 30, 2008. REUTERS/Brendan McDermid

Goldman, in a regulatory filing, said it was cooperating with the requests -- tied to hot button issues that have captivated Wall Street and Washington.

Last month, Goldman reported robust net earnings of $3.4 billion for the second quarter, soon after repaying a $10 billion bailout received from the U.S. Treasury’s Troubled Asset Relief Program.

The firm set aside $6.65 billion in the quarter for compensation expenses, adding to a firestorm of criticism about pay practices on Wall Street. So far this year Goldman has set aside $11.3 billion for compensation.

As the firm faces unwanted attention for its bonus pool, Goldman CEO Lloyd Blankfein told his staff to be cautious about making large purchases, the New York Post reported on Tuesday.

Michael Holland, a money manager with Holland & Co in New York City, called the government’s inquiry about compensation “a symbol” of Washington’s interest in curbing Wall Street pay.

“Politics is a major part of the life of Lloyd Blankfein and his cohorts,” said Holland. “I think this is a preview of things to come.”

According to the regulatory filing, Goldman’s board has received several letters from shareholders about compensation. It said the letters have included demands that the board investigate compensation in recent years, begin recouping so-called excessive compensation, and consider reforming pay practices.

The board is considering the letters, the filing said.

The government is seeking information about Goldman’s credit default instruments amid a regulatory battle in Washington over such products.

Credit derivatives have been blamed for exacerbating last year’s near collapse of the financial markets. Some lawmakers say trading in the instruments should be regulated.

Reporting by Steve Eder; editing by John Wallace