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NEW YORK (

TheStreet

) --

Citigroup

(C) - Get Citigroup Inc. Report

has agreed to sell ts highly profitable but controversial Phibro commodities-focused hedge fund to

Occidental Petroleum Corp.

(OXY) - Get Occidental Petroleum Corporation Report

.

Occidental Pete said in its statement the worth of the deal was approximately net asset value, and estimated its total investment in Phibro would be $250 million. The company also supplied a few performance figures for Phibro, saying the operation's earnings have averaged $371 million per year for the past five years. It expects the deal to close by the end of 2009.

"The decision to sell Phibro was the outcome of an evaluation of a variety ofalternatives and is consistent with Citi's core strategy of a client-centeredbusiness model," stated a press release announcing the sale; It added Citi would continue to execute commodities trades on behalf of clients.

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Phibro is run out of a souped up Connecticut farmhouse by Andrew Hall, a slim, U.K.-born trader in his late 50's who was owed a $100 million bonus by Citigroup -- presenting a tough decision for Treasury "pay czar" Ken Feinberg. The press release announcing the sale says "certain executives of Phibro have agreed with Citi that their compensation for 2009 will be deferred and reinvested into Phibro and will be paid out in future years."

"This decision has nothing to do with creating value for shareholders and it has a lot to do with the government's perception of how a bank should run, and proprietary trading is not one of the things the government wants banks to be doing," said Richard Bove, analyst with Rochdale Securities.

Bove believes the government's view will create problems for other banks that do lots of proprietary trading, including

JPMorgan Chase

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and

Goldman Sachs

(GS) - Get Goldman Sachs Group, Inc. Report

.

Shares of Citigroup dipped 2 cents to $4.63 in morning action, while Occidental Pete's stock fell 40 cents to $79.66.

Written by Dan Freed in New York

.