Wednesday, October 7, 2009
Prophesizing Phibro's Future
The Financial Times today clinches what many industry-watchers have foreseen: that Citi is trying to sell its oil-trading unit Phibro. It is no surprise given the clamor that arose when CEO Andy Hall's pay packet was revealed. Although a $100m bonus seems ludicrous to most people, it seems Hall deserves it. Phibro has made Citi around $2bn in profits over the last five years, using little of the bank's cash for leverage. Trading and hedging physical oil is not for the faint-hearted, nor for the inexperienced - especially in the oil price climate we have witnessed over the past two years. Hall has not lost money in over 15 years, sources tell me, which is pretty good going in any business. So, after reading some of the blogs on Hall and talking to my favorite oil biz source, here are my predictions. 1.) Trafigura or Glencore will buy Phibro. They have stacks of cash, no fear of doing business in - ahem - sensitive countries, and retain the maverick spirit that Phibro had pre-Salomon Smith Barney/Citi. OR: 2.) Andy Hall is hired by one of the above or another high-roller trading company or hedge fund. Why buy the cow when you can buy just the milk supply? Fox Business News (that paragon of quality financial markets information) said in August that Hall had already told his CT household staff to pack up for London. I have doubts that Hall would move to London, however, in the midst of the FSA's crack down on executive compensation. My bet is Geneva.