Monday, October 31, 2011

MF Global, Corzine: Too Much Leverage?

Risky "prop trading" and too much leverage -- especially with respect to European debt -- during these treacherous times, has taken a toll on one of the larger and prouder names within the financial industry.  It appears that Interactive Brokers is one of the leading bidders on MF Global's assets.

The tentative plan calls for MF Global's holding company to file for bankruptcy protection and derivatives trader Interactive Brokers Group Inc to buy the assets, The Wall Street Journal and The Financial Times reported.

The company, which under Corzine ramped up more risky proprietary trading, is suffering because of low interest rates and bets it made on European sovereign debt, making it possibly the most prominent U.S. casualty yet from the eurozone debt crisis.

Read more here:


This article talks about MF Global & Corzine's history + risk taking.

The company insisted it was being prudent with its risk taking. In its most recently quarterly presentation last week, it argued it had low levels of illiquid assets, known as "level 3" assets. It pointed out that European sovereign investments are relatively safe, because they mature relatively soon -- by the end of 2012 -- and the European Financial Stability Facility backstops these countries through mid 2013.

Some former employees agree. On a risk scale of 1 to 10, "Corzine took us from being around 1 to maybe 3 or 4. He didn't take us to 11," said one former trader.

To these people, Corzine did exactly what the company needed to do to keep growing. And some who worked with him said portraits of him as a gunslinging trader are misguided.

"I can't speak to MF Global, but if he applied the same process there as he did when was conducting the affairs of government, I have to say he is a thoughtful, careful and prudent businessperson," said Steven Goldman, who served as Corzine's commissioner of banking and insurance in New Jersey from 2006 to 2009 and is now a partner at law firm Kramer Levin Naftalis & Frankel. "Decisions were never made from the hip."

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