Citi faces two vexing issues with the payments due to Andrew J. Hall, the head of Phibro. The first is that Hall has a contract which is apparently based on sharing in the profits at Citi’s energy trading unit. The banks faces legal liabilities because of that agreement
The more severe problem is that people like Hall account for significant and important profits at banks like Citi, banks that are still at risk for posted huge losses from commercial real estate loans, credit cards, and investments in derivatives. Hall may be well-paid for his work, but the fact is that he makes a positive contribution to Citi’s bottom line. Cit needs those earnings to partially offset severe trouble in may of its other businesses.
Citi has a chance to alienate Hall which will almost certainly cause him to leave the bank and may trigger a lawsuit over the compensation contract. The government “pay czar” may simply prevent Citi from paying out the money due to Hall. That will send a message to all of the other star employees at big banks that it is time for them to leave and work for smaller, privately held firms or start their own companies, and that will pull billions of dollars in profitable business out financial firms in desperate need of maintaining their most profitable operations.
Douglas A. McIntyre
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