When Goldman Sachs Group (GS) reports on its second quarter tomorrow, analysts estimate that earnings will total $2 billion. That sounds like a big number, but two years ago, when it paid its workers an average bonus of $661,000, it earned $2.3 billion in the second quarter. It looks like Goldman is going to try to pay near-record bonuses in 2009 despite less than record earnings.

How so? Goldman's 2009 pay, expected to average $643,000 for its 28,000 employees, is only 3 percent lower than its average 2007 bonus of $661,000, which seems a bit high if its 13 percent lower earnings for the second quarter of 2009 -- compared to the same quarter in 2007 -- continue for the rest of the year. (Interestingly, the current $18 billion in 2009 bonuses is 10 percent less than the $20 billion estimated in early June.)

This raises several questions: How would anyone but Goldman know that it will report $2 billion in earnings? If so, is Goldman violating the rules regarding discussing its earnings during the so-called quiet period? If it turns out that Goldman did make that much, how did it make a profit when its peers are suffering? Beyond vague references to trading, why is Goldman not required to disclose the sources of its profit? And why is Goldman so eager to pay such high bonuses this year?

It appears impossible that outsiders would be able to estimate so precisely how much profit Goldman would make without some inside information. But these outsider believe that Goldman made its money by taking more risk -- its Value at Risk (VAR) rose over 20 percent in the first quarter -- and outsiders believe that its VAR was high in the second quarter as well.

In taking greater risk, outsiders believe that Goldman made money trading bonds, stocks, currencies, and commodities like oil. They also believe Goldman made money from the high-margin business of underwriting stock offerings, which rose as other financial institutions struggled to raise capital. But it's unclear why other banks could not have done the same thing -- at least in trading.

Why is Goldman going to try to pay such high bonuses this year? As I posted, it could be fear of comp cop, Kenneth Feinberg. But now that Goldman has paid back its $10 billion in TARP money, it may hope to be able to avoid the reach of his claws. This, despite the fact that Goldman still relies on cheap government financing for its borrowing needs.

Nevertheless, with 6.5 million people unemployed, it is probably not good optics for Goldman to be paying its 28,000 people so much. After all, such earnings during bleak economic times might make others -- from Wall Street to Main Street -- just a tinge envious.

Update. Bloomberg surveys analysts who expect Goldman to earn $2.17 billion in the second quarter and analyst Meredith Whitney rates Goldman a buy with a price target of $186 -- the stock is already up 68 percent this year.

Peter Cohan is president of Peter S. Cohan & Associates. He also teaches management at Babson College. His eighth book is You Can't Order Change: Lessons from Jim McNerney's Turnaround at Boeing. He has no financial interest in the securities mentioned.


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