Citi Finally Sells Phibro

It’s been obvious that Citi (C) had to sell Phibro since April, so the first reaction to today’s news is “what took you so long”.

Interestingly, we now, finally, get to see some numbers on just how profitable Phibro has been:

From 1997 until the second quarter of 2009, Phibro averaged approximately $200 million per year in pre-tax earnings, while over the last five years Phibro’s earnings averaged $371 million per year. Phibro has been profitable each fiscal year since 1997, attaining profitability in 80 percent of all quarters.

If Andrew Hall was really in line for a $100 million bonus this year, that’s an enormous chunk of Phibro’s medium-term profitability. Paying Hall on the basis of average annual earnings over the past five years makes a certain amount of sense, but paying him 27% of average annual earnings over the past five years is more than a little excessive.

In any case, you can see why Citi says, in its own news release , that the numbers here “are not material to Citigroup’s earnings”: by the time Citi offsets Phibro’s annual profits (after payouts to Hall) with the amount that Oxy is paying for the company, the most important result here is that Citi has managed to lose its highest-paid employee (who owns a castle). That’s going to be very helpful when it comes to pay negotiations with Kenneth Feinberg.

Comments

[bridanp2:]

27% seems a little (okay very) excessive, but if that's what they signed up for, they should have had to pay. According to the release, they basically just dumped it to Occidental, and the only real return is that they don't have to pay those enormous salaries.

Oct 09 11:54 AM

[baji kimran:]

Small point here:

The calculation of pre-tax earnings should account for all salary and bonuses paid.. If this is true, the calculation for Andrew Hall's percentage of earnings should be = 100 / (100+371) = 21.2%. Suspiciously close to the 2:20 charges typical for hedge funds.

A bigger mystery from the initial news reports is the dirt cheap price. I would love to buy a company that generates $371 million/year pre-tax for $250 million. Something is inconsistent here, either the $250 million price is wrong or there is much more to this story (possibly Philbro is currently racking up large losses this year?)

Oct 09 12:18 PM

[Tack:]

This sale was an utter giveaway and just demonstrates the insidious effects of government meddling and reprobation in the affairs of private enterprise. Phibro was donated to Occidental just to solve a political problem, at huge commercial expense.

Oct 09 01:54 PM