Interesting Wall Street Journal Article On $100 Million A Year Commodities Trader (C, OXY)

We found an interesting Wall Street Journal article about legendary energy trader Andrew Hall's recent struggles. According to the piece, Hall's commodities fund posted a decline of more than 10% last month.

"Unfortunately, we did not dodge the onslaught," Mr. Hall, 59 years old, wrote in a June 1 letter to his investors. "We did reduce risk but not fast enough. We did hedge but not well enough. And we did re-enter some markets that we had exited, prematurely, as it turned out."

Hall heads energy trading operation Phibro LLC and also runs a hedge fund, Astenbeck Capital Management. Citigroup C sold Phibro to Occidental Petroleum OXY late last year.

Under Hall's management Phibro had been incredibly profitable for Citi (C), but the bank sold the energy trading unit to Occidental (OXY) because of Hall's massive pay package and the inherently risky nature of the operation.

According to the WSJ, Phibro's earnings averaged $371 million a year for the five years before the Occidental (OXY) deal. OXY acquired Phibro for the bargain basement price of $370 million, which was essentially the value of the unit's net assets at the time of the transaction.

At the time, Citi was under enormous pressure to get rid of the profitable business because of Hall's pay package, which was around $100 million in 2008, and the casino nature of commodities trading. Neither of these factors looked good considering the massive injection of taxpayer funds Citi had received in the wake of the financial crisis.

The entire Wall Street Journal article, which is highly recommended, can be found here.