There’s a new report out today describing how MF Global blew up, which is not to be confused with the other two reports describing how MF Global blew up, and really enough is enough. If you’re interested in how MF Global blew up, basically Jon Corzine decided to put all its money into ultimately-not-all-that-horrible peripheral European sovereign bonds with repo-to-maturity funding, and the markets moved against him and he faced huge margin calls, and MF Global couldn’t meet those margin calls and went kaput, and at some point between the margin calls and the kaput MF Global seems to have used some client money to meet the margin calls, and that was a no-no, etc. Read more here or here or here or in the report.1
Still the report does have fun new details about just what a mess MF Global was. This one may have boggled me the most:
The Company’s efforts to sell its Euro RTM portfolio suffered a setback when Abelow brought a representative of the investment bank Jefferies & Company (“Jefferies”) to meet with Corzine to discuss selling the portfolio. Corzine refused to meet with the representative because he was in the process of auctioning some commercial paper, and needed to complete the sales before the close of the London market. Consequently, no sale of the Euro RTMs was discussed with Jefferies at this time.
This was on October 26, a day before the downgrade that ultimately sparked MF Global’s October 31 bankruptcy. I am trying and failing to imagine another financial company CEO missing his last chance to sell off a position in the bond trading book because he was too busy pricing a CP deal. Most financial companies have, y’know, treasury departments to sell their CP, and bond traders to trade their bonds.
Earlier this week, the NFA met to discuss the possibility of a lifetime ban of Jon Corzine from the futures industry. Two directors in particular– John Roe and James Koutoulas– wanted him out and wanted him out bad. Guy thought he could take down a once proud brokerage firm for yuks and then get off scot free? He had another thing coming, Roe and Koutoulas probably said to each other while putting the finishing touches on a press release they planned to send out announcing the news, in addition to skywriting plane they put a deposit on to spell out “Hit the bricks, pal,” over Corzine’s house. Unfortunately, the duo will most likely lose their $150 and most definitely have to save the party hats they sent others to pick up for another time. It seems in their excitement to tell JSC that he was “finished here,” Roe and Koutalas failed to make sure he was actually a member of their organization. Read more »
This House Financial Services investigations subcommittee hatchet job on MF Global is, I don’t know, pretty reasonable and not-that-hatchety? It’s 100 pages and not exactly full of new news, but it’s a good read, stuff happens, there’s a clear story arc, heros and villains (kidding, just villains), you’re in suspense until the end. There’s some law of narrative that demands that every financial disaster be a parable for something, and the Fall of the House of Corzine obliges nicely. It reads like the sort of fairy tale where three whatevers come to the guy and tell him “repent repent a thing will happen” and each time he’s like “naaaah” but the third time the thing happens and he’s all “huh, wish I’d repented.”
The thing that was going to happen – which has the benefit of being inevitable in this report though I guess maybe not in real time – was that MF Global’s inventory of fairly short-dated peripheral Eurozone sovereign bonds, which it had bought and then financed via repo-to-maturity transactions, were going to be the death of it. And people kept telling Corzine that and he was all “I SAID NAAAAAH.” And then they were the death of it.
The first people who told him were his auditors at PwC in late 2010, who were troubled by how MF Global was accounting for the repos-to-maturity.1 The RTMs were accounted for as a sale plus a derivative purchase liability; the forward was required to be marked to market but MF Global used its own models to determine that the mark-to-market was so small as to be immaterial because Corzine was pretty sure the chances of default were low. PwC were unamused and advocated a mark-to-market that marked more to the actual market.
House Republicans condemned former MF Global Holdings Ltd. Chief Executive Jon S. Corzine for making poor decisions that led to the firm’s collapse, but the lawmakers stopped short of saying anyone at the company broke the law by taking customer money. MF Global filed for bankruptcy a year ago, and the futures firm’s customers are still owed an estimated $1.6 billion. Mr. Corzine, a former Democratic senator and New Jersey governor, has faced widespread criticism but no criminal charges in connection with the collapse. “Choices made by Jon Corzine during his tenure as chairman and CEO sealed MF Global’s fate,” Rep. Randy Neugebauer (R., Texas), the chairman of the House Financial Services Subcommittee on Oversight and Investigations, said in a statement. Mr. Neugebauer’s committee on Wednesday released excerpts of its report on the futures firm’s collapse. [WSJ]
Waxing nostalgic for the dearly departed brokerage firm? Don’t have any connection to the place or sentimental feelings for it whatsoever but in need of a new wardrobe? You’re in luck. An online auction of MF Global “memorabilia” is being held through Wednesday and all shit must go! Read more »
Jon S. Corzine met with federal investigators last week to discuss MF Global Holdings and the estimated $1.6 billion that went missing from customer accounts when the brokerage firm failed, according to people familiar with the meeting. The discussions, held in New York over two days, were the first time the former MF Global chairman and chief executive spoke to Justice Department investigators about the New York company’s final days. The criminal investigators, as well as civil regulators at the Commodity Futures Trading Commission and Securities and Exchange Commission, have been probing MF Global’s demise to determine if there was any intent to remove money from customer accounts that should have been kept separate from the firm’s own funds under federal rules…Progress on the criminal probe has been slow, and people involved with the investigation say it is increasingly likely that no criminal charges will be filed. [WSJ, related]
According to Dealbook, the big guy is merely “weighing” whether or not he wants to start one but it seems more than a little obvious this thing is happening. He’s got the office space, the passion, and the tattoo on his ass that reads “Each time a door closes, a bigger, more fucking awesome one opens.” Mornings at home with Maury followed by early afternoons with his Soaps were fun for a while but it’s not the life for him. He needs a desk and a purpose and that purpose is making you big money. All you have to give him is a little something called “2 and 20.” (3 and 50 if you really want to show your support.) Is that so much to ask? Hank Paulson, can he count on you for $100 million to start? Make it 250mm and the whole pushing him out of Goldman and driving a stake through his heart incident is forgotten. Get in on the ground floor.
The memo even explored why Gensler ran the New York Marathon with Corzine’s number more than 20 years ago. According to the report, Gensler learned that Corzine had registered to run the 1991 race. Gensler asked Corzine’s secretary if Corzine was actually going to run. Several weeks later, the secretary informed Gensler that Corzine had decided against running and wouldn’t need the number, the memo said. The secretary gave the number to Gensler. [Bloomberg via DI]