Citigroup (C) May Give Up On Phibro

Pressure from the government may be forcing Citigroup’s (C) hand. Its Phibro energy group has generated $2 billion in profit over the last five years, but it has cost the bank in compensation expenses. Andrew J. Hall, who runs the unit, is due $100 million in pay for the current year. That has not made shareholders, taxpayers, and the government happy.

Hall is just another example of a banker who has convinced his employer that he is indispensable and has talked himself into a good pay package. That would be one way to look at it. The other is that Hall has gotten what he deserved.

The New York Times reported that Citi may solve the $100 million problem by giving Hall a majority interest in Phibro or by selling it altogether. That would allow government pressure to ruin one of Citi’s better franchises. The bank will post more large losses on its credit card and commercial property portfolios. Citi could use a few units that produce handsome profits to offset those losses.

Citi will probably consider itself better off being rid of the Phibro problem. The government is already hovering over the big bank, looking at all of its important decisions. That is not surprising because the taxpayers now own 34% of the firm. But, Citi needs Hall and the few big producers like him. They are worth their weight in gold, but the Administration, facing Congressional and public outcries over management compensation, can’t let Citi make a sane decision on what the best bankers should be paid.

Douglas A. McIntyre