US financial trader brought down by eurozone crisis

Stalin

Well-Known Member
Joined
Apr 4, 2008
Messages
1,759
"..MF Global, headed by prominent Democrat Jon Corzine, former US Senator and New Jersey governor, was one of the world’s largest dealers in exchange-traded futures and options. With assets of more than $41 billion, its demise was the seventh largest bankruptcy in US corporate history and the biggest since the collapse of Lehman Brothers in September 2008.

Corzine took over the firm in March 2010. He sought to transform it from a derivatives trader into an investment bank along the lines of Goldman Sachs where he was chairman until becoming a US Senator in 1999.

Corzine’s strategy involved major bets on European sovereign debt, financed by overnight loans. The gamble was that whatever the immediate problems in the European sovereign debt market, the bonds would eventually increase in value because, as he reportedly told another Wall Street executive, “Europe wouldn’t let these countries go down.”

As a result, MF Global built up its holdings of European debt to $6.3 billion, pushing its ratio of debt to equity (leverage) to 40 to 1, on par with levels seen in the crash of 2008. According to Corzine, there was nothing to worry about. “Our judgment is that our positions have relatively little underlying principal risk in the time frame of our exposure,” he told analysts at the end of September.

Barely three weeks later, the collapse of the brokerage house began when it announced losses for the second quarter of more than $190 million. This led to credit rating downgrades to junk status after Moody’s, Standard & Poor’s and Fitch decided that the company had taken on too much risk with its European bond holdings.

Over the weekend, Corzine attempted to find a buyer but his efforts collapsed when it was discovered that large sums of money were missing from customers’ accounts. Brokerage houses are supposedly barred from trading on their own account with customers’ money. Questions are now being raised about whether the firm used clients’ money to make trades in a bid to recover its losses.

At the time of its bankruptcy, MF Global held $7.3 billion on behalf of clients. At least $600 million and possibly as much as $700 million is yet to be accounted for.

CME Group, the giant exchange where MF Global carried out its trading, said it was carrying out an investigation into the missing money, together with other regulators. “While we are unable to determine the precise scope of the firm’s violation at this stage, we are investigating the circumstances of the firm’s failure,” said CME chief executive Craig Donohue.

If it is discovered that MF Global used clients’ money to trade on its own behalf this could have implications for the entire futures brokerage market where, at least until now, segregation has been maintained. If the allegations were true, one London trader told Reuters, this “would be a disaster for all the smaller brokers and banks as nobody will trust them anymore.”

http://www.wsws.org/articles/2011/nov2011/glob-n02.shtml

Comrade Stalin
 
Werbung:
Back
Top