h****8
发帖数: 72 | 1 Nov. 1 (Bloomberg) -- Jon Corzine’s risk appetite helped
destroy his firm. It also provided an object lesson for Paul
Volcker’s campaign against proprietary trading on Wall Street.
Nineteen months after former New Jersey Governor Corzine
became chairman and chief executive officer, MF Global Holdings
Ltd. yesterday filed for bankruptcy. Corzine’s decision to boost
risk-taking, including a $6.3 billion wager with the firm’s own
money on European government debt, triggered the collapse.
Volcker, a former Federal Reserve chairman, pushed to curb
wagering by financial firms that have federal guarantees or are
so entrenched in markets that they’re deemed too big to fail.
Regulators and the industry are wrestling over the fine print in
the so-called Volcker rule, which takes effect in 2012. Now,
three years after Lehman Brothers Holdings Inc. failed, MF
Global’s implosion and a probe into whether client money is
missing may buttress the argument for tighter trading limits.
“In the wake of 2008, when we all should have learned a
lesson, Jon Corzine told me himself that it was a relatively
staid, not risk-oriented firm and he needed to ratchet up the
risk,” William Cohan, author of “Money and Power: How Goldman
Sachs Came to Rule the World,” said on Bloomberg Television.
“Well, he does that and it blows up in his face and for the
first time he can’t unwind the trade. Honestly I’m still shocked
and it should not have happened.”
MF Global, with 2,894 employees and $2.5 billion in capital
as of Sept. 30, wouldn’t have been affected by the rule, unlike
larger rivals such as Goldman Sachs Group Inc. or JPMorgan Chase
& Co.
‘Bad Bets’
Corzine’s failure “is OK because MF Global is not such a
large institution that it’s going to bring down the entire
financial system with it,” Neil Barofsky, a former special
inspector for the U.S. Treasury’s Troubled Asset Relief Program,
said on Bloomberg Television’s “InsideTrack.” “If this is
Goldman, if this is JPMorgan, if this is any of those
institutions, we’re going to have to go in and bail them out and
we’re going to bear the brunt of their bad bets, not the
shareholders and possibly the debt holders.”
Corzine, 64, learned the strategy of making big trading
bets during his 24 years at New York-based Goldman Sachs, which
he ran from 1994 to 1999 before being forced out. It was the
most profitable securities firm in Wall Street history before
converting to a bank holding company in 2008, when smaller rival
Lehman Brothers went bankrupt.
‘The Big Leagues’
“Jon Corzine made his bones at Goldman Sachs by going
big,” said Cohan, a Bloomberg View columnist who interviewed
Corzine for his book on Goldman Sachs. “I see this as a case of
Jon Corzine ramping up the risk that MF Global was taking,
trying to put it into the big leagues of investment banking,
make it more like Goldman Sachs.”
While Corzine sought to recreate the Goldman Sachs that he
remembered, the firm’s current management was reducing risk-
taking -- in part in response to the Volcker rule. It closed
Goldman Sachs Principal Strategies, a prop-trading team that bet
primarily on equities, and the Global Macro Proprietary Trading
desk, which wagered on bonds, currencies and commodities.
The Volcker rule also will require Goldman Sachs to reduce
investments in private equity and hedge funds to no more than 3
percent of each of the funds -- or 3 percent of Goldman Sachs’s
Tier 1 capital. In the latest quarter, such investments were
responsible for the firm reporting its second quarterly loss
since going public in 1999.
‘Implemented Quickly’
“Mr. Corzine’s activities at MF Global are exactly what
the Volcker advocates wanted to protect against,” Richard Bove,
a bank analyst at Rochdale Securities LLC, wrote in a note to
clients. “It is exactly why they were so adamant that the
regulators were not enough to stop speculative activities and a
strict law had to be passed to stiffen regulator actions.”
Bank executives including Goldman Sachs Chief Financial
Officer David A. Viniar and Morgan Stanley CEO James Gorman, 53,
have noted their firms’ cooperation in shutting down stand-alone
prop-trading businesses while warning of reduced market
liquidity if the rule is interpreted too strictly.
“The Volcker rule needs to be fully implemented quickly to
ensure that banks can no longer put taxpayers at risk for making
the kind of proprietary trades MF Global made,” U.S. Senator
Carl Levin, a Michigan Democrat who pushed for the rule, said in
an e-mailed statement.
U.S. regulators are investigating whether hundreds of
millions of dollars are missing from client accounts at MF
Global, according to a person with knowledge of the matter.
Corzine and Tiffany Galvin, an MF Global spokeswoman, didn’t
respond to e-mail and phone messages requesting comment.
‘Up in Smoke’
A version of the Volcker rule released by regulators last
month already has been criticized by banks and analysts. Brad
Hintz, an analyst at Sanford C. Bernstein & Co., said the rule
may shave 25 percent from fixed-income trading desks’ revenue.
The Office of the Comptroller of the Currency estimated that it
will cost banks $917 million for raising more capital and an
additional $50 million in compliance and legal expenses.
Arthur Levitt, a former Securities and Exchange Commission
chairman and adviser to Goldman Sachs, said Wall Street
lobbyists will fight to postpone and weaken the regulations.
“This is going to be a long slog, and much of that rule
that you see today is going to go up in smoke,” Levitt, a
Bloomberg LP board member, said on “Bloomberg Surveillance”
with Tom Keene and Ken Prewitt on Oct. 13. Levitt said he was
speaking for himself and not expressing the views of Goldman
Sachs.
Avert Failure
MF Global’s board had met through the weekend in New York
to consider options including a sale to avert failure, according
to a person with direct knowledge of the situation. Following a
record loss announced last week, MF Global was suspended
yesterday from doing new business with the New York Federal
Reserve, according to a statement on the regulator’s website.
Trading in MF Global’s stock also was halted.
MF Global shares declined 67 percent last week and its
bonds started trading at distressed levels amid its disclosures
of bets on European sovereign-debt. MF Global held talks with
five potential buyers for all or parts of the company, including
banks, private-equity firms and brokers, said the person, who
asked not to be identified because the talks were private.
Early yesterday, MF Global told regulators it didn’t have a
deal “and reported possible deficiencies in customer futures
segregated accounts held at the firm,” the Commodity Futures
Trading Commission and SEC said in a joint statement. The
regulators said they decided a bankruptcy led by the Securities
Investor Protection Corp. would be the best way to safeguard
customer accounts and assets.
‘A Risk-Taker’
“MF was highly leveraged and I think Corzine came in
trying to do what he did at Goldman Sachs,” Levitt said
yesterday on “Bloomberg Surveillance.” “He was a risk-taker,
and the markets went against him.”
Stand-alone proprietary-trading groups at six bank holding
companies -- Bank of America Corp., JPMorgan, Citigroup Inc.,
Wells Fargo & Co., Goldman Sachs and Morgan Stanley -- had a net
loss of about $221 million from June 2006 through the end of
2010, according to a July 13 Government Accountability Office
report.
The business of betting money for banks’ own accounts
produced positive net revenue in 13 of the 18 quarters examined,
totaling $15.6 billion, and generated losses of $15.8 billion in
the other five quarters, according to the report. The study
didn’t address prop trading conducted in other groups besides
the stand-alone desks.
‘Exceptions and Loopholes’
Regulators including the SEC, Federal Reserve, OCC and
Federal Deposit Insurance Corp., issued a 298-page proposal of
the Volcker rule on Oct. 11. The agencies are seeking public
comment on the draft and may make changes before it takes effect
July 21.
The Volcker rule, as written in the Dodd Frank Act, had
“so many different exemptions and exceptions and loopholes that
it almost became nearly impossible for the regulators to fashion
a rule that can live up to its original intent,” said Barofsky,
a Bloomberg Television contributing editor.
Among the exceptions are trading of U.S. government and
government agency obligations and anything that assists a firm
in making markets for clients or hedging those positions. While
Wall Street lobbyists have helped to water down the bill, the
Treasury Department didn’t fight hard enough for it after the
Volcker rule was added to the Obama administration’s original
financial-reform proposal, Barofsky said.
‘Late Add-on’
“Remember, this was sort of a late add-on to what was
originally proposed in regulatory reform and I don’t think that
their heart was necessarily in the legislative process,”
Barofsky said. “So you see all these exemptions that
really are going to enable a lot of different types of trading
to go forward even under the Volcker rule.”
Deputy Treasury Secretary Neal Wolin supported the rule
when he testified with Volker, an Obama administration adviser,
during a February 2010 hearing before the Senate Banking
Committee. Barofsky didn’t work on the Volcker rule during his
tenure as special inspector for TARP.
“The Volcker rule is an important component of the reform
of America’s financial system and a provision that would not
have been in the legislation but for the strong advocacy of the
president and the Treasury Department,” Colleen Murray, a
department spokeswoman, said in an e-mailed statement.
The bankruptcy also may influence debates related to other
parts of financial-industry rulemaking. MF Global, alongside
hedge funds and brokers, had succeeded in urging the CFTC to
open access to derivatives clearinghouses for firms with less
net capital than Wall Street’s largest swaps dealers.
The CFTC completed a rule on Oct. 18 that would require
clearinghouses to open access to firms with at least $50 million
in net capital. Clearinghouses would still be able to scale a
member’s participation depending on how much capital a company
holds above $50 million. Wall Street’s largest derivatives-
dealers have said members need experience and adequate resources
to manage defaults. |
|
