Andrew Hall May Move Phibro’s Operations to London

According to FBN, Andrew Hall – the head of Citigroup’s (NYSE:C) highly profitable Phibro commodity trading unit – may pull the entire energy trading arm of the troubled banking conglomerate from its base in Westport, Conn. and drop anchor in London if he doesn’t get his bonus in cash. Hall received a controversial $100 million bonus in 2008 from Citigroup, which was given a federal bail-out of $45 billion.

The controversy surrounding the size of Mr Hall’s bonus, given the fact Citigroup has lost about $35 bln since the crisis began and is now 34% owned by the US Treasury, have prompted federal regulators in recent discussions they had with senior executives at Citigroup, to sent strong signals that they would reject Mr. Hall’s proposed pay package as excessive. In fact, the White House has called the bonus as “out of whack” in light of Citigroup’s financial position.

Citigroup in the meantime is still trying to convince Hall and his lucrative trading operation to remain with the bank and has emphasized in several occasions that despite the size of the bonus, the trading unit headed by Hall has a consistent track record of profitability and attractive returns on capital for the bank and its shareholders.

Mr Hall’s $100m bonus is based on a pay-structure which dates back to the days when Phibro was owned by Salomon Brothers – which was subsequently bought by Citigroup in 1998 – and rewarded senior traders by returning in excess of 20%-30% of the profits to them.

While the New York-based bank doesn’t report Phibro’s detailed profit results, a footnote disclosure in the company’s annual report, notes FBN, says that the bank raked in nearly $700M in 2008 sales from “principal transactions” related to commodities, a sum that “primarily includes” Phibro’s results. Needless to say, Phibro is a highly profitable unit within Citi, and therefore important to the bank’s return to financial strength.

Hall however, seems to have made up his mind. According to FBN’s report, he has already told his house staff to get ready to leave his place in Southport, Conn.

Hall’s departure, if indeed happens, would undoubtedly be a big loss for the beleaguered Citigroup and an embarrassment for its chief executive Vikram Pandit, who is in the process of trying to restructure the New York-based bank.

3 Comments on Andrew Hall May Move Phibro’s Operations to London

  1. My wife’s take on the Andrew Hall controversy. “He made the company $600 million last year and paid him $100 million. I wish I could gets $6 worth of value for every $1 I pay those VOE students I hire to come in after school and on weekends.”

  2. A piece of advice I wish I had paid more attention to, earlier, is, …”When you have $10,000 in the Bank, you don’t have to take shit from anyone”.

    Mr. Hall is in a far better position than the one it was suggested I work toward.

    Here is the bottom line : If Hall leaves Citibank, my money follows him. It is certain he knows that. And for the simplest of reasons. Anyone who will give me $5 out of every six HE earns… can work for me anytime.

    It is understandable that Politicians may not think this cool, but if you will please notice : Politics is not business. Business is not politics. And when you mix them, Freedom becomes very rare.

    The forced renegotiation of Mr. Halls CONTRACT (!!!!!!!!!!!) is one of those events that compare to the Camels nose in the tent or the Romans crossing the Rubicon. It bodes BIG CHANGE. Your choice is either say, “None of that, Thank you!” or you can wait for the BIG CHANGE.

    Just how much authority does a guvment have? The authority to unilaterally redefine a contract? Just like a treaty with a tribe of …should I continue?

  3. If Mr Hall wants the profits, he’s welcome to borrow against his own assets and run the trading desk as a private enterprise on his own. He can keep all of the gains, shoulder all of the risk, and suffer any losses, margin calls, or forced liquidations. If he wants to gamble with my tax dollars, he gets to play by my government’s rules. No one is forcing him to play with Citigroup’s borrowed money.

    The reason Mr Hall won’t do this is that he wants the profits, but not the liability, which is the achilles heel of our banking system today. You can’t cry socialism when it was never written into the Constitution that you right to profit off of speculative dividends won with tax dollars- without any possibility of financial liability in the event of a loss.

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