Former NJ Governor's investment firm Jon Corzine, MF Holdings, is racing to avert bankruptcy due to risky bets made by the former Senator and Governor. Corzine bet large on the sovereign debt of financially struggling European nations, expressing confidence that Europe and IMF would not allow these countries to default.
Jon S. Corzine, the former New Jersey governor, raced over the weekend to find a buyer for MF Global Holdings Ltd. in an attempt to rescue the securities firm he now runs from a crisis partially of his own making.
The tentative agreement, reached after a marathon weekend of negotiations, could end the short tenure for Mr. Corzine at MF Global.
Mr. Corzine, who took over as chief executive of MF Global last year, made big bets on sovereign bonds issued by European countries, according to people familiar with the situation. Those trades, which ballooned over $6 billion, helped knock MF Global's own debt ratings to junk and drained investors' confidence in the firm.
Under the tentative plan, MF Global's holding company would file for bankruptcy protection, the person familiar with the matter said. Interactive Brokers would then likely make an initial bid of about $1 billion during a court-supervised auction, the person said, though the deal was described as complicated and that number could change.
Apparently MF Holdings is not too big to fail as they are racing to avoidfiling for bankruptcy.
MF Global's swoon is one of the most dramatic examples of the global ricochet effect caused by Europe's debt crisis. MF Global is the biggest potential U.S. casualty so far.
The crisis began with fiscal troubles in Greece, which just received approval from European leaders for a second bailout. Investors are fretting that a number of other countries won't be able to pay all their obligations, which has hurt the values of sovereign bonds that Mr. Corzine purchased.
The rapid decline of MF Global represents a stunning turn of events for Mr. Corzine. A former chairman of Goldman Sachs Group Inc., he took over at MF Global in March 2010, just four months after being voted out as New Jersey governor and two months after leaving office. He set out to change MF Global from a midsize derivatives broker to full-fledged investment bank that took risks with its own capital.
Last week's broad agreement by European leaders gave troubled countries another chance to wriggle their way out of financial peril. But the 64-year-old Mr. Corzine is running out of time. MF Global posted a huge quarterly loss last week, though it blamed the shortfall on lower trading revenues and higher expenses, not the big bet on European sovereign debt.
Nervous customers are fleeing—and taking their money with them, according to people familiar with the situation. Executives have scrambled to raise cash, including selling some of the European positions, the people said. Analysts, investment bankers and MF Global employees say the company likely needs to finalize a deal by Monday. Still, MF Global isn't big enough to pose systemic risk to the U.S. financial system if a deal can't be reached, according to people on Wall Street.
Perhaps his departure will be accelerated by this unfortunate turn of events. However investors who put their money into the company's bonds in August 2011 were promised an interest rate bump should his departure be followed by an appointment to a government post by the President of the US. This special provision stunned Wall St. in its uniqueness and had been dubbed the 'Obama Clause'.
Mr. Corzine's current employer, MF Global Holdings Ltd.,is promisingto compensate investors who buy his company's bonds with an interest-rate bump if the chief executive and former U.S. senator jumps ship for a government job. In essence, the securities deal assigns a value on the man filling the corner office: a one-percentage-point cherry atop the $300 million bond offering, or up to $15 million.
According to a "Key Man Event" clause in the bond prospectus, the carrot doesn't kick in for any old government job. Rather, it gets paid only if Mr. Corzine leaves MF Global "due to his appointment to a federal position by the President of the United States," and the Senate confirms him before July 1, 2013. That is nearly six months into the next presidential term.
White House Press Secretary Jay Carney denied any knowledge of Corzine being considered for a job such as Treasury Secretary, as did people close to Corzine.