The WSJ reports Citi may owe star energy trader Andrew J. “Andy” Hall $100 million. Gasp!
That “gasp” is sincere, by the way. That’salottamoney.
When I read the Journal piece the green envy monster perched on my left shoulder, as she tends to do in such cases. I instinctively cheered the prospect of Kenneth Feinberg, Obama’s pay czar at the Treasury Department, ripping up government-controlled Citi’s contract with Hall. Or trying to, and thereby provoking a big public fight with fat-cat Hall for all of us to salivate over like so many Romans in the Coliseum.
Then I started thinking. And Ms. Monster faded away. Could Hall have actually earned the money via his purportedly profitable Citi unit Phibro LLC? Could he be one of a few Citigroup employees who actually delivers for the company and its shareholders?
Is there anything inherently distasteful or immoral in successfully matching risks with return, as Hall appears to have done for years, thereby delivering himself and his employer generous profits?
Isn’t he smart to have crafted a lifestyle described this way by WSJ colleagues Mike Siconolfi and Ann Davis:
“A far cry from the buttoned-down Wall Streeter, Mr. Hall leaves the office most afternoons to go rowing or to practice calisthenics with a ballet teacher. Outside the energy markets, Mr. Hall ranks among world’s top collectors of contemporary art, favoring often-shocking works that explore subjects including the human toll of the Nazis.”
I realize that the financial crisis was largely a result of banking types taking foolish risks and foisting them on far too many people who had stopped using their brains. Are we now to punish those who risk wisely?
As the WSJ writes: “Hanging in the balance in the Hall matter is an important source of profits for Citigroup, which is trying to rebound after a disastrous 2008. Phibro, with a small core group of traders, has generated hundreds of millions of dollars in profit for Citigroup over the years. This spring, after the new pay curbs were unveiled, Mr. Hall and others on his team threatened to leave if their pay was cut by the new compensation rules, people familiar with the matter said.”
Feinberg and the Obama administration have to be ultra-careful with this case and similar ones that will undoubtedly crop up. Hall will leave if his pay and reputational prospects dim at Citi. Goldman Sachs, hedge fund firm GLG – and a few other non-risk-averse players – would likely be happy to take the team. U.S. and U.K. taxpayers – now owning a slew of financial institutions – could find themselves (ourselves!) stuck with laggard companies completely at the mercy of independent entrepreneurial rivals.
Here’s what I’d like to see Feinberg and the government attempt to do: If popular politics mandate the effective removal of mega-earners like Hall – the mood across the country is fairly ugly at the moment – the Obama administration should permit creation of risk-incubator programs inside taxpayer-owned firms. They’d be aimed at tapping up-and-coming Andy Halls who have intriguing and important – and, yes, risky – ideas for new lines of business. The program would apply to financial and non-financial firms (such as GM) now owned by Uncle Sam, and could help preserve and nurture a measure of boldness and innovation within the companies.