Andrew Hall, the head of Citigroup’s (NYSE:C) Philbro commodities trading unit, has been a thorn in the side of the bank since it was disclosed that he made as much as $100 million. Congress, the Administration, and the public were up in arms over how a bank that was getting tens of billions of dollars in aid could pay one executive that much.
The problem for the government was that Hall has a contract and that deal gives him a percentage of the profits from Philbro. He made a lot of money for Citi and in the process fairly enriched himself. That has not quieted critics.
Citi has probably found a way out of its embarrassing compensation mess. According to the FT, “Citi’s executives favour a complete divestment of the commodity trading division.”
A sale of Philbro is a good example of how regulators are forcing some banks to throw the baby out with the bath water. The Administration wants to clamp down on high compensation at large financial firms which are still getting government aid. The new pay czar recently hinted that he would cut cash compensation of senior bank managements and replace some of those payouts with stock which cannot be sold for several years. The theory is that this new program for rewarding managements will make them think about long term earnings and risks.
Hall’s pay package may be objectionable to the government and the public, but he has only been compensated lavishly because he has made a substantial contribution to Citi’s bottom line. The bank may push him out by selling Philbro, but in the process it will cut itself off from one of its most promising lines of business.
Douglas A. McIntyre
Top Gaining Stocks
Top Losing Stocks