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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winter is coming's picture

great name for GS: The Executioner.... 

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

Mr Lennon Hendrix's picture

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

Slippin'?  You bet.

knukles's picture

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

Executioner's picture

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

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.

tarsubil's picture

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

Jay Gould Esq.'s picture

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

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


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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.

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."


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.

Hot Apple Pie's picture

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

GeneMarchbanks's picture

Corzine is a bastard.

knukles's picture

Cadillac Communist.  Bazillionare Limosine Liberal preying on the peasantry.

kito's picture

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

lolmao500's picture


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.



It's heating up in Italy...


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

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.

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.

Hansel's picture

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


sheeple2012's picture

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

johngaltfla's picture

Boomstick, bitchez.

Mr Lennon Hendrix's picture

Ladies and gentlemen, Elvis has left the building.

azzhatter's picture

Didn't take Corzine long to blow this fucker up

Mr Lennon Hendrix's picture

Who's buying FSLR?  Leo, is that you?

pendragon's picture

jon corzine, midas touch...

TruthHunter's picture


Midas reversed is Sadim.

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



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>

Peter K's picture

Plus: MBA UofC

Minus: DemoCommieNazi.

Ouff with his 'ead:)

Laughinggrizzley's picture

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

Pegasus Muse's picture

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

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.

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.

LongBallsShortBrains's picture

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

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?

halflink123's picture

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

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.

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 :)

defn8Dog's picture

Never underestimate a cephalopod.

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?



danv777's picture

doesn't JC Flowers own a bunch of MF

Reese Bobby's picture

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

banksterhater's picture


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. 

Steroid's picture

What does MF stand for?

Steroid's picture

Thank you.

I would have guessed something else.