I Agree 1000% with you Preston. Landis82 is right too, Mr Hall is a TRUE star trader in the same league as Tudor, Kovner etc. Phibro is the one bit of Citi which is working really well and making lots of money ($800 millions last year in profits). The Oil trading world doesn't need the US exchanges, the US need those players BIG time.
These are contracts, not bonuses. And from the sound of it he's not speculating either. He's arbitraging the futures price and the spot price. He can do this by taking physical possesion of oil at the spot, storing it, and covering his futures contract which was in significant contango for a long time. Any financially sophisticated person can do this if they have enough resources to be able to store the oil. His group does that, levered up, and made a killing on what's essentially a riskless trade. Far from strip mining the economy, this kind of arbitrage is beneficial because it will serve to bring prices more in line with where they should be. In this case, the futures price of oil was too high relative to the spot, and it just takes a few million to keep exploiting the inefficiency. Not to take any credit away from him or his group, but he's not the only Wall Street trading firm that does this. Let's just say the individual doesn't have the capacity to take advantage of these discrepancies, at least not on a scale that will overcome spot delivery costs. Kudos to him. Great trade, but only institutions can do it.
Same protectionist lunacy just happened with US Forex markets and the NFA. They banned a few rather mundane practices in retail FX such as Hedging (going long and short on the same position) and applying FIFO accounts to trades (first in first out) all of which DONT matter much to retail traders since they still lose money at the 98% level and institutional traders dont even deal with these things since they minimally impact almost nothing. BUT...what did get IMPACTED was the tax generating base of New York and New Jersey where the FX firms held accounts, in case the NFA forgot about globalization the entire account structure has shifted to London almost overnight. Now taxes and business are being generated and done in London and not the US. Way to go, saved retail traders an extra week of account life and cost the US an industry. Maybe this genius will continue and throw all prop traders out of the US next.
Seriously, if you can demand a 100 mil contract, is there a reason why you won't start your own firm?
Are you serious? Phibro is one of the ultimate trading houses for commodities on a global basis. Traders need the balance sheet and Hall is no different. Why would one start their own firm when his team gets 30% of the profits and uses the banks balance sheet? Plus - he does not have to dance for clients.
I believe this has already been answered above. This guy's reasons for structuring his business in this way or that is the result of a number of professional and personal considerations. Most likely he has a vision that involves trading in this type of setup for a while then moving on.
Well, can he restructure his relationship with citi as a client and take on multiple banks as client instead? No reason why he has to restrict himself to one bank only. Looks like this question has been asked before. I just have to look back..
This doesn't sound too complicated. As long as the future premium cover tankers rental cost, physical delivery cost...etc. If it is a sure bet, you can leverage to the teeth too. I am surprised that tanker companies don't do this themselves.