Citigroup Sells Phibro

Citigroup has sold its energy trading division which has had average annual earnings of $375 million over the last 5 years to Occidental Petroleum for $250 million which is less than 1 year's profits for the energy trading hedge fund. Generally, the price of an acquisition if several times the annual earnings of the subsidiary being sold. So, why did Citi sell Phibro for $250 million when the price would typically have been in the area of $1.5b? You may recall that there has been a lot of controversy in the press over the $100 million pay package for Andrew J. Hall who is an energy trader at Phibro. I suspect that Occidental as part of the acquisition agreement has agreed to pay Hall the $100 million bonus that Citi owed Hall. Essentially, I believe that Citi is still effectively paying the bonus funded through a lower than normal sale price of Phibro but since Occidental will be making out the check, the bonus will not be subject to review of the US Government.

The US taxpayer has lent Citi $49 billion and should insist that Citi receive a fair price for the sale of Phibro and block the sale as currently structured. If the $100 million bonus to Andrew Hall was inappropriate then it should be dealt with directly rather than permitting Citi to do an end run. I also find it irritating that the energy trading activities of Phibro have made Citi and Andrew Hall so much money in the past through speculative energy trading which has only resulted in $4 gallon gas and unemployment and higher costs for the rest of us.