Occasionally oil industry remuneration makes the headlines; Lee Raymond's golden goodbye from ExxonMobil or the former-BP trader Jimmy Dyer using BP's leverage (unfairly, say some) at the Cushing WTI delivery point to net bumper bonuses. Or the biggest oil-trading baddie of them all -- Marc Rich -- who seemingly broke just about every white-collar crime in the book in making a ton of money.
So it was only a matter of time before the thorny subject of excessive bonuses reared its head in the world of oil. The latest oil-trading media star is, as The Wall Street Journal described him -- "secretive" Andrew Hall, overlord of Citigroup's highly-profitable energy-trading unit, Phibro.
Under the terms of his lucrative deal, Hall may be entitled to another $100 million bonus this year, on top of the $100 million he reportedly netted last year and an overall several hundred million in the past decade.
The problem is Citigroup had a disastrous 2008 and were it not for the beleaguered US taxpayer would almost certainly not exist now. Citigroup collected something in the region of $45 billion in bailout money and since it's not in a position to repay it, bonuses are subject to close scrutiny from the both the government and a weary public.
In the 1990s, Phibro would regularly take high-profile positions in the physical oil markets. Many a big play in Brent, Dubai, or the Rotterdam fuel oil and gasoil barge markets would have the name Phibro stamped all over it. But in recent years, Phibro has focused more on long-term plays, particularly getting it right on the oil-price rally with a trading strategy put in place in 2003. Hall now wants the company to honor a previously-agreed compensation package, which leaves a significant chunk of Phibro's profits for the trading team.
Much of the executive pay row has centered on bosses collecting millions of dollars in bonuses for well, doing a terrible job. How many banking or motor executives oversaw the collapse or near-collapse of their companies between 2003 and 2008 , yet are executive members of the global super-rich club?
During that that time, Hall and the trading team netted significant profits for Citigroup and since Hall's remuneration is determined by the profitability of his unit, it's clearly a case of rewarding success, as opposed to failure.
And therein lies the dilemma for President Obama's pay tsar Kenneth Feinberg: should those making the bucks that will eventually enable banks to repay the bailout money (or so the theory goes) be curbed the same as everyone else?
Public opinion will remain extremely hostile toward the banks for at least the foreseeable future and Joe Sixpack couldn't care less who made what and when. All he knows is that hundreds of billions went to the banks, so why are they still paying these guys so much? He may not even be aware the government will likely take around a one third stake in Citigroup, so has an incentive to keep the best traders.
The case of Andy Hall and the Phibro team will be a big test for Obama's credibility and his promise to curb payouts in the banking industry.
Hall's track record would ensure a rush of offers from trading rivals, or a flood of money were he to start his own oil investment fund. Citigroup wants to keep him, the government can probably see the benefits of him remaining with the company, but how to sell it to a skeptical public?
A well thought-out compromise is probably in order, or Citigroup and Joe Sixpack will lose one of their top earners.
what would have happened if Citi was left to flounder and he was forced to liquidate all his positions? Bust and no 100 mil. It's another case of a guy levering someone else's $$$ and getting "lucky" looking to case in. When he lost 100mil in 1st gulf war price colaspe did the bank ask him to cover any of it? no. You work for the company and this idea of seperate units is a joke. sell the division and seehow much leverage they can get on their own. If you are borrowing against Citi's $$ that is cheeper and more abundant than anything they could have done on their own. Do the shareholders get to decide which groups within the Co. they get to "participate in the profits" with? NO . Then why should the emplyeees? JOKE.