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.