NEW YORK, Oct 11 – Citigroup is letting go of its US$100 million man, Andrew J. Hall, and the lucrative energy trading business he ran, after Washington’s special compensation master threatened a public showdown over his nine-figure bonus.
The bank handed its energy trading operation, Phibro, to Occidental Petroleum on Friday, averting one of the most closely watched clashes between a Wall Street firm and the Obama administration over executive pay.
Occidental was drawn to a bargain and potential profits, analysts said. The price of the transaction was not disclosed, but Occidental said its net investment would be only about US$250 million and that it was paying roughly the net asset value of the business.
Analysts concluded that Citi had sold Phibro for a pittance.
Hall, the unit’s star trader, will invest in the business alongside other executives, and his 2009 compensation will be paid out in future years based on the unit’s performance.
A British-born naturalised American citizen, Hall has kept a low profile but has become a lightning rod for criticism over Wall Street compensation.
He collects contemporary art and has over the years acquired an extensive collection, including pieces from Andy Warhol and Bruce Nauman. He displays his art in his 1,000-year-old castle in Germany.
The Obama administration’s pay czar, Kenneth Feinberg, who is reviewing compensation at major bailout recipients, would have struggled to change Hall’s 2009 pay package because he lacks legal authority over contracts put in place before Feb11 this year.
Citigroup officials maintained that bonuses pledged to Phibro employees should be exempt from scrutiny because they stemmed from a pay agreement struck last year, before the current compensation rules took effect. But Feinberg disagreed and pressed Citigroup to fix the problem and to reduce Hall’s pay in future years.
Phibro has been profitable in recent years but had lost money in the past. The unit brought in about US$371 million in earnings for Citigroup in each of the last five years, profits that came even as huge losses elsewhere at Citigroup hobbled the banking giant.
In 1998, Citigroup put the unit on the auction block because of its wildly fluctuating profits, but the bank never found a buyer.
Government regulators have particular sway over Citigroup, which has yet to repay a US$45 billion taxpayer bailout and is roughly one-third owned by taxpayers.
Last month, Citigroup chief executive Vikram Pandit said that US$100 million was too much for an employee to earn, given the bank’s circumstances.
Hall and his team trade out of a former dairy farm in Westport, Connecticut. The Phibro unit operates almost completely separately from the rest of Citigroup, meaning that removing it should have no impact on the bank’s other businesses.
Long-time Citigroup shareholder William Smith, who was critical of the deal, saw it as the latest sign of Washington’s heavy hand.
“The message is that Vikram Pandit is not the CEO of the company,” he said. “You take the only division in the last 10 years that has consistently made money, and you give it away because you can’t take government backlash. Nobody in their right mind would do this deal.” – Straits Times
Show/Hide comments
Show/Hide comment form
