London: Financial major Citigroup is planning
to sell its energy-trading unit Phibro, which came under flak
for the huge pay package of USD 100 million handed over to its
star trader Andrew Hall, a media report said.
"Citigroup is working on a sale of its controversial
commodities unit in a move that could raise hundreds of
millions of dollars and deflect political anger over a
potential USD 100 million payout for its star trader Andrew
Hall," British daily the Financial Times said.
Attributing to people close to the situation the report
said, after weighing several options such as divesting part of
the unit, opening it up to outside investors or spinning it
off, Citi's executives favoured a complete divestment of the
commodity trading division.
In case the deal fails to materialise, Citi would sell a
majority stake in Phibro while retaining a minority interest
for a few years, the report noted.
Quoting insiders the daily said, the talks for a possible
sale is likely to collapse, as Citi had earlier also held
talks with potential buyers but the deal did not materialise.
"Citi has had contacts with a number of investors with
commodity trading interests, including Warren Buffett, to
gauge their interest in Phibro over the past few months. Talks
with the billionaire investor have cooled," the report said
Citi on Tuesday said: "We are evaluating the best way
forward for all stakeholders and are exploring several
Though the sale of Phibro would provide Citi with a large
one-off windfall but would also deprive it of a profit engine
that has contributed an estimated USD 2 billion to its bottom
line in the past five years, the FT said.
An outright divestment of Phibro would mute political and
public criticism of Hall's pay -– an issue that has become
emblematic of the tension between banks and regulators over
reforms in Wall Street's compensation system. Hall's contract
guarantees him a share of Phibro's profits and could see him
collect a bonus of about USD 100 million this year.
Citi's discussions on Phibro come as Kenneth Feinberg,
the US government's pay zar is close to announcing his
decisions on pay packages for top executives of banks that
rely on federal aid.
Citing people close to the situation the report said the
desire to quash the compensation controversy was one of the
reasons why Citi's management favoured a sale. Keeping a stake
or opening up Phibro to outside investors would still leave
Citi vulnerable to criticism over Hall's pay.
According to the publication, Citi executives and
government officials said there had been no pressure from the
authorities to sell Phibro.
First Published: Wednesday, October 07, 2009, 14:08