Citigroup offloads its $100 million man
Posted
Oct 09 2009, 12:48 PM
by
Kim Peterson
Rating:
Citigroup (C) had a giant headache in the form of Andrew Hall, its rockstar energy trader in line for a controversial $100 million bonus.
Could
a bank that received $45 billion in bailout funds really get away with
paying one employee $100 million? The very idea was outrageous to
investors and taxpayers. Yet Hall was reportedly demanding the bonus,
since it had been contractually promised to him if he performed well
over the year.
The whole debacle became an ongoing problem for Citigroup, and so the bank decided to sell Hall's energy-trading group to Occidental Petroleum (OXY) for an undisclosed amount.
Bing: Who is Andrew Hall?
But in saying goodbye to Hall, Citigroup loses one of its most profitable segments. Hall's
group, Phibro, has made money since 1997 and over the last five
years averaged $371 million in annual earnings. Numbers like that are
why Hall gets promised a $100 million bonus.
Why sell it? Citigroup had little choice, an analyst tells The Wall Street Journal.
Perhaps the nail in Phibro's coffin came when Citigroup's chief
executive admitted last month that a $100 million bonus was too high
for a bank employee.
After the CEO says something like that, the bank couldn't go through with the payment without looking foolish.
There
was another reason to dump Phibro. Federal regulators are working on
rules that could severely crimp speculative oil trading, the Journal
reported. Phibro might have been hindered under those rules, but would
have more freedom at an oil producer like Occidental.
And what
about Phibro's $100 million man? Occidental now says that "significant
portions of current and future bonuses" will be deferred and paid out
in future years.
In other words, everyone is doing everything they can to sweep the bonus controversy under the rug.
Then later, when no one is paying attention, Hall will get the money he is owed.
At the time of this writing, Kim Peterson did not own any shares of the companies mentioned in personal or client accounts.
