Citigroup spins off subsidiary to pay trader $100 million

[Hannah Bell]

Citigroup announced Friday plans to sell its energy-trading subsidiary Phibro to Occidental Petroleum, the fourth largest US energy company, by the end of 2009. The $250 million sale appears largely designed to fulfill Citigroup’s obligation to pay one energy trader, Andrew Hall, a promised $100 million bonus.

Citi last year received $45 billion dollars in federal bailout money, which, unlike rivals Goldman Sachs and Morgan Stanley, it has not paid back. Citi’s bonus payments are thus subject to scrutiny by the federal government’s so-called pay czar, Kenneth R. Feinberg, who has power to approve the pay packages of top executives at firms receiving “exceptional” government assistance.

Last year, Citigroup paid Andrew Hall, the head of Phibro, $98.9 million, and was slated to pay him another $100 million this year. With the latest arrangement, Hall will still receive this bonus, but from Occidental, the firm’s new owner, and not Citigroup.

The deal came after “intensive” discussions between the Citigroup and Feinberg, who indicated that a decision by Citi to pay Hall his bonus would be unacceptable, according to sources quoted in the Wall Street Journal and New York Times. The Times indicated that Feinberg thought that the popular outrage sparked by such a payout would be more than White House wanted to deal with.

In response, Citigroup sold off Phibro, along with its obligations to pay Hall, at a bargain basement price...The Financial Times LEX column laughed off suggestions that the sale was motivated by anything other than Hall’s pay package. “Only someone just emerging from a lengthy coma” it wrote, “would have swallowed Citigroup’s explanation for the sale of its Phibro commodities unit as ‘consistent with Citi’s core strategy of a client-centered business model.’ Not unless that business model involves intentionally losing money.”

The column continued, “The sale was all about reconciling public anger with banker pay and an ironclad contract with head trader Andrew Hall for a $100m bonus. The sale price, said to be about Phibro’s net asset value of $250m, would have been a steal even at the height of the financial panic.”


http://www.wsws.org/articles/2009/oct2009/citi-o14.shtml

[HamdenRice]

1. WSWS is an unreliable source. Nothing they write can be accepted as truthful on face value. nt

[Hannah Bell]

2. similar to your posts.