Citigroup Returns to Banking by Divesting Its Oil Trading Arm

In what should become the template for the banking industry and Wall Street in all its manifestations, Citigroup this week disposed of its oil trading arm, Phibro, selling it lock, stock, and oil barrel to Occidental Petroleum. Along with the disposal goes the $100 mm owed its senior oil trader, Andy Hall. In doing so, Citigroup took an initial step in getting back to its business at hand: namely, being a bank and not a commodities casino with their proprietary trading which entails taking naked positions in both physical product and oil derivatives, using federal bailout funds, FDIC insured deposits, access to less than 1 percent money at the Fed window, varied government support programs and the implied government guarantee of too big to fail.

In what the Financial Times would tut tut as "rais[ing] concerns over government interference" one can only respond by commenting that the government's intervention on this issue is long overdue. This is especially true for an institution that would, in all likelihood, have gone the way of Lehman Brothers were it not for $45 billion in emergency government support and government guarantees for over $300 billion of troubled mortgages and toxic assets in the government's gargantuan efforts to stabilize the bank. Most importantly, as it does for Citigroup, and as it would for Morgan Stanley, Goldman, JPMorgan Chase and their likes, the government permits Citigroup to redeploy billions in capital to businesses large and small, homeowners, and to the sinews of what a capital starved economy needs to get back on its feet. In other words, to function as banks to service the economic needs of the nation.

That the government forced Citigroup's hand is, or should be, a first step in ridding all banks of their in-house trading/speculating desks and/or divisions. Until this is accomplished, strict oversight must be maintained on compensation/bonus payouts to those "bankers" engaged in these activities. Had Citigroup gone the way of Lehman its obligation to pay Mr. Hall would have been determined by the judiciousness of the bankruptcy court. After all the Fed, the Treasury, or more simply said the government was never meant to become the casino banker it has morphed into being. It is scandalous that those in government vested with the responsibility of financial oversight have permitted a culture of "heads they win, tails we lose" to take hold and to grow into a financial Frankenstein.

And thank you to Andy Hall for having put this issue in such clear perspective. He and his team now have the ability to play the oil trading game to their heart's content. But it will be with their and Occidental's money and not ours.

 

 

Comments

[kelo]

I am glad citigroup gave up its oil trading commodity. I think oil should not even be in the stock market but have a flat rate of $40 dollars a barrel. If oil companies can not make a profit than they should give it up. Those speculators on wall street today said that oil would go to 100 a barrel in the next two or three months. Americans need to prove them wrong by using less gas. I only drive an average of 15k miles a year on both my cars. I walk 10 blocks to the grocery store. So please put these speculators out of buisness drive less and take public transportation.

[holeybuybull]

Doesn't Citigroup have partial Saudi ownership?

[politicky]

Lemmee guess, the Prince got his money out of it and he is sooooooooo, outta there?

The Saudis switching to oil sales in a basket of currencies?

[Ruble]

Did the Lenders Learn any Lesson?

The “First Time Homebuyer Credit” was to encourage able and potential buyers to make purchase now rather than wait for a “better time.” In practice, I have seen something recently and it’s making me nervous about the whole “boosting housing market.” While buyers are trying to take advantage of the credit, lending banks are digging the same hole. Some of the buyers are given mortgage loans that are way over buyers’ heads. We all remember how it was before the crash in 2008, don’t we? The results of that lack of common sense regulation, greed and irresponsible lending practice brought us this housing market crisis and part of current economic condition.

I guess that is what the banks are hoping again. Give people loan that they can’t pay after few months or years and they will foreclose the houses. The foreclose issue is a matter of the future, for now business looks great - lets party with bonuses and commissions. In the foreclosed stage, the primary lenders will sell the house to other banks by calling it “troubled asset.” The “risk taking” secondary banks will end up with homeowners who can’t make payments and they will call it “toxic assets.” Banks will go to the Treasury Secretary and ask for bail out by stating that they have participated in “boosting housing market." Therefore, the tax money must be given to banks who are “too big to fail” for the country.