I had a strange feeling of deja vu as I left work on Friday. MF Global had dropped precipitously after a poor second quarter earnings report came out on Tuesday and there were numerous reports that they were looking to sell. Then on Friday word came out that ratings agency Fitch had downgraded their debt to junk status.
I thought here we go again. Bears Stearns imploded on a Sunday night and so did Lehman. With Lehman, Treasury Secretary Hank Paulson called in the heads of all the major investment banks to try and strike a deal before the following Monday’s opening bell. When the Federal Reserve and Treasury refused to back the toxic portion of Lehman’s book ala Bear Stearns there were no takers and the rest was history. Today word leaked out that its board was talking to potential buyers over the weekend.
MF Global is not an investment bank but its celebrity CEO Jon Corzine had designs of turning it into one. When he discussed his plans with us last year, I found it a little odd because it appeared they were in a pretty competitive spot in the retail futures brokerage world. Given what transpired in recent years, it seemed the retail futures world was a safer, if less sexy, space.
The fate of MF Global has not yet been determined, though it is beginning to appear to be a case of “be careful what you wish for…”
Apparently MF had exposure to a considerable amount of European sovereign debt. Not your basic retail futures brokerage exposure. Back in February MF Global was approved as a primary dealer by the Federal Reserve Bank of New York. Coincidently I happened to be at a dinner with a couple of MF Global brokers on the night of that announcement. At the time it was news worthy of celebration and evidence that Corzine’s plan to transform the firm was progressing nicely. (Another odd coincidence is that Societe Generale, part owner of futures broker Newedge that is reportedly up for sale, gained primary dealer status at the same time.)
One curious report had Corzine shopping MF Global, or parts of it, to his former firm Goldman Sachs. There are not many synergies between the two firms but Goldman traders are always looking for an edge and may want to put their eyes on some of MF Global client positions. The business itself would not appear to be a target of Goldman.
As for Corzine, this would be a big blow coming less that two years after he was turned out by the people of New Jersey. One report has Corzine set to collect $12 million plus in severance based on an MF Global SEC filing if a deal is struck. If that occurs the Occupy Wall Street crowd will have a new poster boy. Corzine took over MF Global in March 2010, about 18 months ago. At the time, its CEO Bernie Dan had appeared to have righted the ship and stabilized the stock around $8. As of Friday’s close MF Global stock was trading at a buck and change with pretty poor odds it would answer the bell Monday morning.
The question is what would Corzine have gotten if he actually increased shareholder value? By the time most of you read this we should know more about MF Global’s fate.