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.