Citigroup Gets Fresh Boost, Pestered By Andrew Hall For Mega Bonus

While little banks in one horse towns keep going to the wall, and others enjoy profits large enough for your brain to not really comprehend and just file away next to “quantum mechanics” and “infinity”, Citigroup lurches along, quaffing the adrenal boosts administered with comforting regularity by the US government. And here comes another one.

Citi needs more capital to deal with the ongoing losses that keep turning up on its books (and which some analysts think will carry on to the tune of $3bn next year). So it’s put the squeeze on its investors, encouraging them to exchange their preference shares for common stock, in an “offer you can’t refuse” sort of way. The government will also exchange its holdings this week, thus providing Citi with some fresh, accessible funds, but the deal also sees the government now owning over a third of the bank.

It’s the latest example of Citi shoring up its balance sheet with emergency measures rather than profit-generating assets. Their investors are demoralised, and the ratings agencies are giving them the stink-eye – further rights issues could do more harm than good. The only thing that’s really working for them is sell-offs – the sale of Smith Barney prevented them from filing a loss last quarter, and now their Italian consumer finance business is the latest to go. This follows the splitting of the bank into a moderately shafted half, Citicorp, and a scorched-earth, apocalyptic asset wasteland called Citi Holdings. The former continues to enjoy the easy profits of retail and investment banking, while the latter is burdened with bad loans, 5.1% of which are unlikely to be paid back.

It’s not just the macro level – they’re also getting spanked over executive pay. Andrew Hall is set to receive £60m after Phibro, the Citi-owned oil trades platform, is raking it in after some ballsy bets went right; Kenneth Feinberg, star attorney and Obama’s executive pay attack dog, won’t be best pleased. Hall is an art lover who has some jaunty Julian Opies on his front lawn and who championed Julian Schnabel in the artist’s wilderness years; his plays in the long-term oil futures markets secured him $125m in 2005 alone, and Phibro is one of Citi’s few big money-spinners. Hall therefore must think he has a strong argument for the bonus, and that he shouldn’t be punished for the failures of other units, but Phibro’s pay structure, that allows execs 20-30% of what the unit makes, belongs to the Gekko years. Citi is in too dire straits to let that sort of payment continue – they may end up siding with Feinberg on this one.

Citi have been hiring some new board members from outside its ranks, respectable names like Robert Joss, the former dean of Stanford’s graduate business program. They’re going to need to bring some fresher thinking to Citi, who at the moment are living very much hand-to-mouth.

Posted by Ben Beaumont-Thomas in Hot Money | July 27, 2009 11:35AM |