Citi plans to sell energy-trading unit Phibro

Financial major Citigroup is planning to sell its energy-trading unit Phibro, which came under flak for the huge pay package of $100 million handed over to its star trader Andrew Hall, says a media report.

"Citigroup is working on a sale of its controversial commodities unit in a move that could raise hundreds of millions of dollars and deflect political anger over a potential $100 million payout for its star trader Andrew Hall," British daily the Financial Times said.

Attributing to people close to the situation the report said, after weighing several options such as divesting part of the unit, opening it up to outside investors or spinning it off, Citi's executives favoured a complete divestment of the commodity trading division.

In case the deal fails to materialise, Citi would sell a majority stake in Phibro while retaining a minority interest for a few years, the report noted.

Quoting insiders the daily said, the talks for a possible sale is likely to collapse, as Citi had earlier also held talks with potential buyers but the deal did not materialise.

"Citi has had contacts with a number of investors with commodity trading interests, including Warren Buffett, to gauge their interest in Phibro over the past few months. Talks with the billionaire investor have cooled," the report said citing bankers.

Citi on Tuesday said: "We are evaluating the best way forward for all stakeholders and are exploring several options."

Though the sale of Phibro would provide Citi with a large one-off windfall but would also deprive it of a profit engine that has contributed an estimated $2 billion to its bottom line in the past five years, the FT said.

An outright divestment of Phibro would mute political and public criticism of Hall's pay -– an issue that has become emblematic of the tension between banks and regulators over reforms in Wall Street's compensation system. Hall's contract guarantees him a share of Phibro's profits and could see him collect a bonus of about $100 million this year.

Citi's discussions on Phibro come as Kenneth Feinberg, the US government's pay zar is close to announcing his decisions on pay packages for top executives of banks that rely on federal aid.

Citing people close to the situation the report said the desire to quash the compensation controversy was one of the reasons why Citi's management favoured a sale. Keeping a stake or opening up Phibro to outside investors would still leave Citi vulnerable to criticism over Hall's pay.

According to the publication, Citi executives and government officials said there had been no pressure from the authorities to sell Phibro.