The last months of MF Global(Read article summary)
The company cut back on paper and instituted other cost-cutting initiatives, but its problems were bigger than that.
In their last desperate months, the management of MF Global instituted cost cutting initiatives to try and save the company. The Wall Street Journalâ€™s Aaron Lucchetti and Mike Spector write that a memo went out to the firmâ€™s 2,800 employees telling them to start printing on both sides of paper and listed other ways to save the company money.
The paper austerity program wasnâ€™t enough to keep the company out of bankruptcy as MF Global filed Chapter 11 on Oct. 31. Saving a few sheets here and there couldnâ€™t overcome the leverage built up by way of the rehypothecation of their clientsâ€™ collateral.
The management of Security Pacific Bank stopped providing coffee and Wall Street Journal subscriptions in its last months as the bank lost $775 million in 1991 and $1.45 billion the next year. There was a paper recycling mandate as well.
Security Pacific was famous for being deal makers, lending on real estate and doing business with big-name, big-ego clients. Senior management believed â€śwe canâ€™t possibly make the mistakes the S & Ls did,â€ť ex SP CEO Robert Smith wrote in his book Dead Bank Walking.
Smith candidly writes: â€śWe were caught up in ourselves and the times. We were cattle, running hard to get to the feed bin, to be first, to be a pioneering lenderâ€”to build our bank as a world-class operation lauded for its world-class deals.â€ť
When Jon Corzine came aboard to run MF Global he wanted the company to take more risk. Lucchetti and Spector
Roaming MF Globalâ€™s trading floor, Mr. Corzine encouraged traders to make larger bets, without fear of losing money. He added new, riskier businesses that wagered the firmâ€™s own money, creating a proprietary-trading desk and increasing the emphasis on higher-risk products like mortgage-backed securities and stock-index derivatives.
Security Pacific got lucky. Bank of America rescued Security Pacific shareholders with a $5.64 billion buyout as the bank was headed for failure.
Mr. Corzine was also working on a buyout. But he ran out of time. If only the company had used less paper or been a systemically important bank.