Thursday, October 27, 2011

More Upward Failure- MF Global's Jon Corzine

Yesterday morning's Wall Street Journal featured an article in the Money & Investing section detailing MF Global's troubles stemming from newly-hired CEO Jon Corzine's drive to turn the firm into a replica of the old Goldman Sachs which he once ran.

Two days ago, on Bloomberg television, Corzine was described as stumbling at MF Global, and having lost his last gig as governor of New Jersey. That was before he led MF Global to a 48% drop in its market value after announcing the firm's quarterly loss earlier this week, as well as an out sized risk exposure to European securities for a paltry $12MM of related earnings.

But Corzine's been on an upward failure trajectory for much longer than that.

A one-time bond group head, Corzine was co-head of Goldman Sachs with the less-remembered Stephen Friedman. The latter has recently attained prominence for his alleged conflict of interests during the financial crisis of 2008, when he was chairman of the board of the New York Fed.

As I began writing this post, I remembered that I wrote about Corzine's arrival at MF Global early this year, and his connection with private equity mogul J. Christopher Flowers. In that post, I described the Wall Street Journal's sarcastic asides regarding Corzine's being run out of his job as co-head at Goldman Sachs.

His next post, which he bought, was the job of US Senator from New Jersey. For a Democrat, a veritable walk-in. But Corzine showed poor judgement, leaving the Senate just before the Democrats regained the majority which would have put the former fox in regulatory control of the financial hen house.

Perhaps Corzine had presidential ambitions, because he won election as New Jersey governor after leaving his Senate seat. But, as the Bloomberg anchor noted, Corzine only lasted one term before his poor performance caught up with him by way of Chris Christie.

Now, one imagines at the behest of Chris Flowers, Corzine's attempt to morph MF Global into a miniature version of the Goldman Sachs he and his backing partner once knew, has managed to chop half the market value from the firm.

If you are unlucky enough to be an MF shareholder, perhaps you are now wondering just how a private equity guy has managed to take control of your firm, then ruin it, within a calendar year.

The only thing that could top this week's MF Global news is to learn that, as rumors swirl regarding the firm now being an acquistion target, we learn that Chris Flowers' private equity shop is involved in such an acquisition. I don't know what portion of MF's equity is owned by Flowers, but it's just possible that half the value of the rest of the firm, which would now not be paid to own 100% of the firm, might well be more than the losses Flowers has just taken on his share of MF Global.

That would be just too much, wouldn't it, if it occurred? Watching a private equity guy install a partner in a firm on the board of which one of his representatives sits as CEO of the company. Then seeing said CEO dramatically and quickly lop off half the value of the publicly-held firm. Followed by the private equity guy opportunistically buying the now-tainted firm for half of what it would have cost him last year.

Perhaps people should be wary when a failed CEO of a financial firm is installed in the same job in their firm.

Upward failure- it seems more widespread than many people realize.

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