(FROM THE WALL STREET JOURNAL 12/10/14)
By Christian Berthelsen
Phibro Trading LLC is closing its doors in the U.S., marking the
end of an era for a commodities firm that came to prominence under
oil trader Andrew Hall.
The 113-year-old company, founded in Germany by two scrap-metal
dealers, is winding down its U.S. operations after it failed to
find a buyer, according to a person familiar with the situation.
The sale process for units in London and Singapore continues, the
person said.
Phibro specialized in physical trading of oil and other raw
materials, seeking to profit by moving actual barrels and acting as
an intermediary between producers and consumers. The pool of
potential buyers for these kinds of operations has dwindled in
recent years amid a regulatory crackdown on Wall Street banks'
involvement in these markets.
Mr. Hall is expected to continue trading energy derivatives
through his $3 billion hedge fund, Astenbeck Capital Management
LLC, which has avoided taking much of a hit from this year's plunge
in oil prices because Mr. Hall curtailed bets and shifted to
holding cash.
Public furor over a $100 million payday for Mr. Hall in 2009,
when Phibro was part of Citigroup Inc., spurred the trading firm's
sale to Occidental Petroleum Inc. Citigroup was criticized for
guaranteeing Mr. Hall a hefty bonus at a time when the New York
bank required a bailout from the U.S. government.
The effective demise of Phibro underscores investors' fading
interest and the challenging trading conditions in many energy and
commodity markets, which in recent years have been pummeled by the
combination of rising supplies and tepid demand growth. Mr. Hall
reaped huge profits by correctly betting on rising commodity prices
in the 2000s, which was driven by rapid growth in China.
Phibro employees were being notified of the developments
Tuesday, according to the person. Analysts have said Phibro added
little to Occidental's financial performance and that executives
were uncomfortable with the volatility it sometimes brought to
results. Earlier this year, Hess Corp. also sold its internal
trading arm, Hetco.
Occidental in February said it was pulling back from proprietary
trading of crude oil and other commodities amid a corporate
reorganization, and a spokesman on Tuesday reiterated the Houston
company's plans to reduce exposure to these activities.
Phibro executives had been shopping the operation to prospective
buyers since the February announcement, according to another person
familiar with the situation.
A person familiar with Phibro's recent state of operations said
it has retained little of its heft at its prime. More recently, the
firm's activities have centered on trading blends of North Sea
crude oil.
Founded as Philipp Brothers in the early 1900s, Phibro went on
to become at one point the largest supplier of raw materials in the
world. In 1981, it acquired investment bank Salomon Brothers, and
the trading firm became part of Citigroup in 1998.
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