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Will Goldman Be MF Global's Executioner With Terminal Collateral Calls, As Yields Explode?

Tyler Durden's picture




 

We all know the news by now: "MF reported its biggest quarterly loss ever yesterday, after having its credit ratings cut a day earlier by Moody’s Investors Service on concern that the broker won’t meet earnings targets and may not be able to manage investments in European sovereign debt. The company’s shares fell 48 percent. “It’s aggregated risk,” said Richard Repetto, an analyst at Sandler O’Neill & Partners LP. The positions in Europe, the further downgrade potential and the quarterly loss, combined to discourage investors, he said." Here is where it gets worse: "Analysts at KBW Inc., led by Niamh Alexander, wrote in a note yesterday that the Moody’s downgrade and lower earnings could cause a ripple effect on the company, raising borrowing costs and triggering collateral calls. “It also exposes MF to collateral calls of up to $5 million,” the note said. “We believe it could also prompt lenders to reduce financing, clients to withdraw assets and trigger the need to recognize losses on certain bilateral over- the-counter and off-balance sheet transactions." Well, judging by the bond yield chart below, MF is done (further confirmed by WSJ reporting that the company has hired restructuring expert Evercore Partners). The only question is whether that ever so handy uber collateral puller, Goldman Sachs, so critical in the extinction of Dexia and of course AIG, will be the party responsible for the death of MF Global? Considering who the current head of MF is, and his "key man status" in the prospectus of the company's recently bonds (which are plummeting today), we somehow doubt it.

 

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Wed, 10/26/2011 - 10:39 | 1812409 winter is coming
winter is coming's picture

great name for GS: The Executioner.... 

Wed, 10/26/2011 - 10:45 | 1812452 trav7777
trav7777's picture

GS has been a bigger predator on the Street for some time.  Surely they have made a lotta enemies and they better not find themselves gettin caught slippin

Wed, 10/26/2011 - 10:52 | 1812487 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

GS at $100 per, and the industry still has further to fall.

Slippin'?  You bet.

Wed, 10/26/2011 - 12:40 | 1813056 knukles
knukles's picture

Classic Goldman.  You leave the fold, are no longer of service (as in public service benefitting Goldman) you get eaten.

Wed, 10/26/2011 - 11:11 | 1812605 Executioner
Executioner's picture

Hey I've nothing to do with that!
But my axe is available if there's a cause.

Wed, 10/26/2011 - 11:52 | 1812817 SpeakerFTD
SpeakerFTD's picture

This is my second direct experience with a balance sheet blowup, and I am beginning to wonder if there is not something more to this than mere stupidity.

UBS, prior to 2006, had a pretty nice clean balance sheet.  I'm not sure about the exact timeline, but around then, they started a prop group and brought in a prop team.   This team basically loaded up on MBS, which anyone in the market new were trading pretty rich, especially since plenty of people had already noticed the cracking in the RE market.   Nonetheless, these guys went in huge and filled the balance sheet with this paper.  I think it was late 2007, but may have been early 2008, they took a huge loss on the paper, one of the canaries in the upcoming MBS disaster.   Severely impaired the bank, and all the jackasses who had been buying this paper left with gigantic golden parachutes, while shareholders (and employees) got stung for size.

Now we have MF, which until Corzine arrived was a simple broker shop with a cash cow business and a sterling balance sheet.   As part of his makeover, Corzine adds a prop group, and what do they buy?   Sovereign European debt and plenty of it.    Sovereign debt implodes, and they are toast.   They don't have the equity value to support the paper, and their ability to raise capital is probably zero, so shareholders are destroyed, employees will take a hit, if not altogether be out of a job, and yet again, Corzine (and preumably his prop team) are protected with golden chutes.

Now, perhaps these are cases of mere stupidity by really bad, if somehow very senior, traders and risk managers.  But somebody was on the other side of these trades, gleefully unloading this paper on companies, that previously, had beautiful balance sheets.   The seller gets out of risk that is preparing to crumble, the buyers (as in the actual traders) are able to walk away with full pockets, and the losses are borne by people with little or no knowledge of the transaction.

Wed, 10/26/2011 - 13:32 | 1813234 tarsubil
tarsubil's picture

dup

Wed, 10/26/2011 - 13:32 | 1813245 tarsubil
tarsubil's picture

Corzine used to work for GS! And people think Corzine works for them. Tarsubil.

Wed, 10/26/2011 - 10:39 | 1812410 Motley Fool
Motley Fool's picture

Finish him! :D

Wed, 10/26/2011 - 11:05 | 1812565 Jay Gould Esq.
Jay Gould Esq.'s picture

"Then on the morrow, you shall receive your purification."

Wed, 10/26/2011 - 10:41 | 1812417 Careless Whisper
Careless Whisper's picture
Will Goldman Be MF Global's Executioner With Terminal Collateral Calls, As Yields Explode?

 

Will More Goldman Directors Be Arrested?

Will There Be A Perp Walk?

Will Goldman Merge With Los Zetas?

 

Wed, 10/26/2011 - 10:41 | 1812418 FranSix
FranSix's picture

Sad to see that MF Global, one of the brokerages that traded CFDs, contracts for difference, is strung up by the Dodd-Frank posse.

Wed, 10/26/2011 - 11:01 | 1812544 Snidley Whipsnae
Snidley Whipsnae's picture

Interesting research on hedge funds... Monkeys do well picking winners... Or, monkeys do no worse than Harvard/Stanford grads with MBAs...

"I have just finished reading a paper produced by Benoit Dewaele and Hugues Pirotte of the Universite Libre de Bruxelles (the Brussels Free University in Belgium), and Nils Tuchschmid and Erik Wallerstein of the Geneva School of Business Administration in Switzerland. The paper is here.

They studied a broad sample of 1,300 funds-of-funds from 1994 through 2009, and analyzed just how much value they actually created.

Their core finding? When you strip out the fees, just 22% deliver any “alpha,” or risk-adjusted investment gains, at all.

And most of those gains came from the underlying hedge-fund indices, rather than from picking the right individual managers.

How many actually added value by picking the right managers, and avoiding the wrong ones?

According to the study, just 5.7%. That’s right. After deducting fees, just one fund in 20 actually added risk-adjusted returns above those of the underlying hedge-fund indices.

You couldn’t make it up.

Nearly half of all Fund of Hedge Fund managers, the academics report, delivered “negative after-fees alpha when benchmarked against the hedge-fund indices.” In other words they couldn’t even keep up with the index."

http://www.marketwatch.com/story/can-a-monkey-pick-a-hedge-fund-2011-10-26

Wed, 10/26/2011 - 11:15 | 1812630 FranSix
FranSix's picture

Yeah, but you'd need a posse of monkeys.

What happened was that all of the online brokerages trading in CFDs were suddenly shut down, because they mostly traded solely in price contracts on commodities without any delivery.  And I think it also has to do with FX trades as well.

So you have individual traders writing derivative price contracts and trading them online.  This is outlawed in the United States, the only country that disallowed the practise, because this meant that traders could challenge the commercial banking monopoly whose source of funds were HFT and derivatives trades.

Dodd Frank is an example of how a law passed in the U.S. might affect trading around the world, even when it has no jurisdiction.

So you have MF Global, but there's also Interactive Brokers and such-like that are affected by this law.

Wed, 10/26/2011 - 11:50 | 1812807 Hot Apple Pie
Hot Apple Pie's picture

Yes, but *my* manager is in that 5%, he told me so...

Wed, 10/26/2011 - 10:41 | 1812421 GeneMarchbanks
GeneMarchbanks's picture

Corzine is a bastard.

Wed, 10/26/2011 - 12:42 | 1813061 knukles
knukles's picture

Cadillac Communist.  Bazillionare Limosine Liberal preying on the peasantry.

Wed, 10/26/2011 - 12:51 | 1813091 kito
kito's picture

First he blows up new jersey, and now this......

Wed, 10/26/2011 - 10:43 | 1812422 lolmao500
lolmao500's picture

http://www.cnbc.com//id/45044102

EU Leaders May Give Guarantees to Banks: Draft

European Union governments may give guarantees to banks seeking funding in order to avoid a credit crunch and to keep them lending to the economy, according to a draft statement from EU leaders who meet in Brussels on Wednesday evening.

The statement also said there was "broad agreement" on bolstering the capital ratio of banks to 9 percent after taking into account the market worth of their sovereign debt holdings, but it gave no overall figure for recapitalising EU banks.

FFS... 

 

It's heating up in Italy...

http://uk.news.yahoo.com/italian-deputies-fist-fight-over-reforms-130313...

Italian deputies exchanged blows in parliament on Wednesday as tensions over a tough economic reform programme came to a head.

Wed, 10/26/2011 - 10:41 | 1812424 The Axe
The Axe's picture

As I predicted yesterday..Johnny fucking email Corzine ruins another thing on planet earth....of course i was short..thanks douche.

Wed, 10/26/2011 - 10:43 | 1812437 lizzy36
lizzy36's picture

Jon Corzine has never been the same since he went away for the weekend and Hank Paulson staged a coup of Goldman from his car.

Alas, he will probably walk away with around $10m for less than 18 months work. Not bad.

Wed, 10/26/2011 - 10:52 | 1812489 Hansel
Hansel's picture

Here's a 1 minute video of Corzine on CNBC in June talking about how excited he is about the future,

http://video.cnbc.com/gallery/?video=3000030714

Wed, 10/26/2011 - 11:30 | 1812718 sheeple2012
sheeple2012's picture

Hope he is wearing his seat-belt for this crash....

Wed, 10/26/2011 - 10:44 | 1812440 johngaltfla
johngaltfla's picture

Boomstick, bitchez.

Wed, 10/26/2011 - 10:49 | 1812471 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

Ladies and gentlemen, Elvis has left the building.

Wed, 10/26/2011 - 10:44 | 1812443 azzhatter
azzhatter's picture

Didn't take Corzine long to blow this fucker up

Wed, 10/26/2011 - 10:45 | 1812448 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

Who's buying FSLR?  Leo, is that you?

Wed, 10/26/2011 - 10:45 | 1812451 pendragon
pendragon's picture

jon corzine, midas touch...

Wed, 10/26/2011 - 11:54 | 1812828 TruthHunter
TruthHunter's picture

SADIM TOUCH

Midas reversed is Sadim.

Thats where everything thats Gold(man) turns to shit when you touch it.

 

 

Wed, 10/26/2011 - 10:46 | 1812459 midgetrannyporn
midgetrannyporn's picture

...the need to recognize losses on certain bilateral over- the-counter and off-balance sheet transactions.

Well we certainly wouldn't want that. </sarcasm>

Wed, 10/26/2011 - 10:47 | 1812461 Peter K
Peter K's picture

Plus: MBA UofC

Minus: DemoCommieNazi.

Ouff with his 'ead:)

Wed, 10/26/2011 - 10:50 | 1812477 Laughinggrizzley
Laughinggrizzley's picture

I wonder if Jon Corzine, being this incompetent, qualifies him for the Treasury Sec?

Wed, 10/26/2011 - 11:06 | 1812555 Pegasus Muse
Pegasus Muse's picture

He's a shoo in if he gets caught cheating on his taxes.  

Wed, 10/26/2011 - 11:58 | 1812849 LongBallsShortBrains
LongBallsShortBrains's picture

Overqualified.

Wed, 10/26/2011 - 12:19 | 1812971 Reese Bobby
Reese Bobby's picture

Taking wild risk with other people's capital with no downside to yourself is not "incompetent."

I'd cede irresponsible at best, and evil at worst.

Wed, 10/26/2011 - 10:58 | 1812520 Dr. Engali
Dr. Engali's picture

Poor poor Corzine, couldn't have happened to a better guy. Well maybe Blankfein, Vikrim Pandit, Jamie Dimon,John Mack....the list goes on. Maybe it will happen to them all. One can only dream.

Wed, 10/26/2011 - 12:00 | 1812859 LongBallsShortBrains
LongBallsShortBrains's picture

Your post went from bad to great! Made me lol. Thanks!

Wed, 10/26/2011 - 10:58 | 1812521 disabledvet
disabledvet's picture

There's something for all those yield hungry investors I tell ya! With treasury yields on the 10 around 2...who can resist the power of the six?

Wed, 10/26/2011 - 11:06 | 1812571 halflink123
halflink123's picture

40 to 1 (but hopefully not) taxpayer-funded put leverage. WOOOOOOOOOOOOHOOOOOOOOOOOOOOOO!!!!  What a ride that must be!

Wed, 10/26/2011 - 11:06 | 1812577 twotraps
twotraps's picture

Ixn't ths the chart pattern we should be seeing for banks in the US??  Fed has to love that they are struggling cause they can say they don't play favorites and the mkt function still exists.  Have a yard sale, let someone else pick your shit for cheap and get out of the way.

Wed, 10/26/2011 - 11:10 | 1812602 jesusonline
jesusonline's picture

MF's taking more beating today, down 35%. Man they desperately need some good news out of Europe ("good" as "good for banks" ofc :)

Wed, 10/26/2011 - 11:11 | 1812609 defn8Dog
defn8Dog's picture

Never underestimate a cephalopod.

Wed, 10/26/2011 - 11:13 | 1812616 Mister Potato Head
Mister Potato Head's picture

Corzine, Paulson, Gupta! It's a hard environment to make money when money isn't free! Goldman alumni curse? What's in the water?

 

 

Wed, 10/26/2011 - 11:14 | 1812621 danv777
danv777's picture

doesn't JC Flowers own a bunch of MF

Wed, 10/26/2011 - 12:15 | 1812948 Reese Bobby
Reese Bobby's picture

Flowers has a guardian incubus.  Barely missed LBO'ing Sallie Mae.  Another PE genius...

Wed, 10/26/2011 - 12:22 | 1812984 banksterhater
banksterhater's picture

CORZINE= POSTERBOY of REVOLVING DOOR CORRUPTION.

Wed, 10/26/2011 - 12:23 | 1812988 slaughterer
slaughterer's picture

Don't look now, but GS is outperforming the financial sector today.  One hell of an executioner: MF was great news for GS: now they have a mini-AIG to feed on. 

Wed, 10/26/2011 - 12:37 | 1813042 Steroid
Steroid's picture

What does MF stand for?

Wed, 10/26/2011 - 12:38 | 1813047 SpeakerFTD
SpeakerFTD's picture

Man Financial

Wed, 10/26/2011 - 13:14 | 1813172 Steroid
Steroid's picture

Thank you.

I would have guessed something else.

Wed, 10/26/2011 - 12:49 | 1813081 csmith
csmith's picture

Corzine is a toad. Those who can't "do" become politicians. Those who can't even make it as politicians return to business and breed bankruptcies.

Wed, 10/26/2011 - 14:16 | 1813505 OffShorewHore
OffShorewHore's picture

These people are all in it together for the greater good of Mr. fuck the normal guy.
A bunch of Swiss scientist did a report on all the leading companies that control the wealth in the world:

The 147 Companies That Control Everything | Story
October 22, 2011
Filed under #occupythisinfographic: Three systems theorists at the Swiss Federal Institute of Technology in Zurich have taken a database listing 37 million companies and investors worldwide and analyzed all 43,060 transnational corporations and share ownerships linking them. They built a model of who owns what and what their revenues are and mapped the whole [...] see Forbes.com

These people are all interconnected, kinda like family almost. The shit is sick

Tue, 11/01/2011 - 08:05 | 1831203 Stud Duck
Stud Duck's picture

When those 500,000 Vets (mostly Reservists) after 3 tours, realize that the 10-15 years they put in are about to be jerked out from under them, for some obtuse reason,  realize their famliy has been shattered, their kids mentally damaged due to their absence, and little wifey has a new dick to suk, well I would guess that a minimum of 5% or so will go the Tim McVeigh route.

Since you can purchase a 50 cal sniper rifle rather cheaply, it will shoot 1/5 miles with deadly accuracy, the "Establishment" of polliticians/Banksters, ect will get a dose of Unintended Consequennces !

Hell I would not want to be the vp of the Bank of Chiggerville when that shit starts!

But they brought it on themselves, so the target rich enviroment that exists right now will be taken advantage of probably sooner than later! The lefty's going after the evildoers on the right side and the righties going after the evildoers on the left. Its going to be like Buffalo Bill shooting buffalo with the long range rifles used at that time period!

Next summers Repub and Dems conventions are going to make 1968 look like a UAW picnic (quote from Jame H Kunstler).

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