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Sep. 18 2009 - 12:12 pm | 134 views | 1 recommendation | 0 comments

Citibank trader’s $100 million paycheck is proof that banks are too big

I’m surprised how under the radar the story of Andrew Hall has been flying. I guess we’ve been raging about a lot of other things, but if anything ought to get the pitchfork-wielding mob out in the streets, it’s bailed-out Citibank’s plan to pay oil trader Hall $100 million. The guy owns a castle in Germany and apparently has gotten into foodfights with his rich neighbors in Connecticut over what he can put on his lawn. And with the firm continuing to flounder at the government’s teat, he’s set to earn a staggering bonus.

Even Citigroup’s CEO Vikram Pandit said it’s too much money. From the Times today:

Andrew Hall, a trader at a Citigroup unit, is contractually entitled to a 2009 pay package that could be worth $100 million.

When asked if that sum was too much for a Citigroup employee to earn given the government support the bank has received, Mr. Pandit said, “Yes,” according to Reuters.

However, Mr. Pandit said that it was prior Citigroup management that had signed the agreement that compels the bank to pay Mr. Hall so much.

Mr. Hall’s big pay package is a serious challenge for Mr. Feinberg, the man U.S. President Barack Obama appointed to review executive pay at banks that accepted government bailouts, Reuters writes. If the pay czar is seen as soft on Mr. Hall’s pay, the public outcry could be strong. Mr. Hall’s potential $100 million payday is equal to about 2,000 times median household income in the United States in 2008.

via Citi Chief: $100 Million in Annual Pay Is Too Much – DealBook Blog – NYTimes.com.

Here’s the thing: There’s no rational reason *not* to pay Hall the $100 million he reasonably earned. As a top oil trader at Phibro, a commodities trading firm acquired by Travelers which merged with Citigroup, Hall made Citigroup *A LOT* of money. In fact, most of the pretax revenue Citi earned in 2008 according to the Wall Street Journal.

But because a bunch of other idiots at Citigroup made terrible bets on the housing bubble, an energy trader who had a lot to do with the bank not begging Uncle Sam for even more money gets punished?

Not paying Hall his $100 million would be sort of like firing a cornerback who returned an interception for a game-winning touchdown because no one on the offense could get the ball past their own 40-yard line. It holds an individual responsible for decisions he didn’t make in a business he wasn’t involved in.

Now if Hall were just some trader sitting at home all by himself making bets on the oil market, no one would blink an eyelash at his gigantor pay day. But because he’s associated with Citigroup, an association I’m sure he’s been regretting all year, the possibility remains that he could be made an example of and not paid the money he earned.

If there was ever a reason for the market not to develop these lumbering, gigantic, inefficient monster banks, this is it: when parts of your firm fail, it hinders the incentive for others to succeed. If you’re too big to fail, might it mean that many of your smaller parts aren’t big enough to succeed?


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