Citigroup Inc., soon to be one-third owned by the U.S. government, is asking the Treasury for permission to pay special bonuses to many key employees, according to people familiar with the matter.
The request comes as Citigroup is grappling with broad government pay restrictions that could break apart its legendary energy-trading unit. People at that unit, Phibro, are threatening to leave because of pay caps tied to the U.S. bailout of Citigroup. Phibro has been the source of hundreds of millions of dollars in profits for the bank, and has paid out hefty compensation to its employees, including a roughly $100 million windfall last year for the unit's leader, Andrew Hall. Citigroup is looking for ways to free Phibro from the federal restrictions, including a spinoff of the unit, according to people familiar with the matter.
Meanwhile, Citigroup is trying to get U.S. approval for special bonuses for many employees in the rest of the company. In a meeting earlier this month with Treasury Secretary Timothy Geithner, Citigroup Chief Executive Vikram Pandit made the case for the stock-based bonuses. Executives are describing the bonuses as "retention" awards designed to perk up demoralized employees who the company worries are vulnerable to poaching by rival firms, people familiar with the matter said.
A person familiar with Mr. Geithner's thinking said the Treasury hadn't made a decision on whether to allow the bonuses. It is unclear how much Citigroup would pay out in bonuses if the government approved the move. A Citigroup spokesman declined to comment on details of the proposed compensation plans.
From the sounds of it, I do not blame them:
Citigroup is looking for ways to free Phibro from federal pay constraints so it can hold on to the staff of the lucrative unit, the people said. The bank is discussing plans to either spin off Phibro into an independent hedge fund or open it to outside investors, the people said. The unit currently only invests Citigroup's capital.
Phibro has been a lean and largely hidden profit center within Citigroup's investment bank. For 2008, Citigroup reported $667 million in pretax revenues in commodities trading, saying Phibro was the primary contributor to that figure.
Apparently they are just going to spin the already autonomous unit out into a separate hedge fund, just like JPMorgan is doing with their proprietary trading desks:
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