Citi selling its jewels
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Occidental Petroleum is buying Citi’s commodities trading unit Phibro for roughly its net asset value. How much that is, exactly, is hard to tell. Occidental said its net investment in Phibro is expected to be about $250 million.
The bigger figure, of course, is the $100 million associated with star trader Andrew Hall. His pay package has been the subject of much hand-wringing at Citi and in Washington.
Phibro’s management team, headed by Hall, and its employees will remain with the unit after the sale, expected to close by year-end. Citigroup shares were fractionally lower in morning trading on the New York Stock Exchange, while Occidental shares were up about 1 percent.
The problem, as many pundits are pointing out, is that Phibro is a profitable business, and Citi needs funds to repay a $45 billion government bailout. Like so many asset sales put together by institutions on the government drip — AIG in particular — the golden eggs tend to sell better than the rotten ones.
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In one year, this will be cited as a politically and fear motivated mistake of colossal proportions. To avoid paying $100 mm in compensation that it legally owes to a trader that has generated 15 years of consistent profits, the government will have flushed over $1 billion of taxpayer and shareholder value. When Oxy spins out Phibro into a separate company or sells it for $2 bn in a year, the idiocracy behind this decision should be forced to pay the bill. In a clash of political expediency and economics, political expediency will be roadkill.
In this day and age of the corporate bail out, you cannot justify one dude making $100mm The real idiocracy is allowing companies to be too big to fail. Nuf said.