11:01 p.m. | Updated
Jon S. Corzine, whose political ambitions came to a halt nearly two years ago when he was defeated for re-election as governor of New Jersey, is running out of time to prevent his revived Wall Street career from collapsing in failure.
His firm, MF Global — a powerhouse in the world of commodities and derivatives trading but little known outside Wall Street — was working frantically toward a potential sale late Sunday.
Those discussions, which narrowed to one bidder, Interactive Brokers, came after investors — worried that MF Global was too vulnerable to the fallout from Europe’s debt crisis — deserted the firm, making it the first American financial institution to fall victim to the sovereign debt woes.
If the firm is unable to sell itself, other options, including bankruptcy, await. MF Global has hired restructuring and bankruptcy law firms including Skadden, Arps, Slate, Meagher Flom, said people briefed on the matter but unauthorized to speak publicly. One option is for MF Global to follow a precedent set by Lehman Brothers in 2008 by seeking bankruptcy protection for the parent company while selling some assets to Interactive Brokers.
Other Wall Street firms have not been spared damage from the European debt crisis. Shares at firms as large as Morgan Stanley fell this month over concerns that they were exposed to Europe’s troubles. And investment banks and brokerage firms are still licking their wounds from market volatility that has hurt trading operations.
MF Global began buying the debt of European countries like Italy, Portugal, Spain and Ireland last year, in a bet that the discounted prices of those bonds would soon recover. Its gamble, though, went sour, suffering as Greece’s troubled economy spread woes across the Continent. Although European leaders appeared to make progress toward resolving those problems last week, and other firms rebounded, MF Global continued to suffer.
The last-ditch rescue effort is a major blow to the reputation of Mr. Corzine, 64, who formerly co-led Goldman Sachs and was also a United States senator. With a sale of MF Global, Mr. Corzine’s role at the firm will almost certainly end, though he is expected to receive a severance payment of nearly $12.1 million.
Still, the departure will be bitter for Mr. Corzine, whose first stint on Wall Street ended with his ouster from Goldman Sachs. Along with Henry M. Paulson, another Goldman co-chief executive, who would later become Treasury secretary, Mr. Corzine, a former trader, led the firm through the Asian financial crisis of 1998. But trading losses in the last quarter of that year, on top of ill will within the firm over the decision to go public, led to Mr. Corzine’s exit in January 1999.
He revived his career with a successful run for the Senate from New Jersey in 2000, and left the Senate in 2005 to run for governor of New Jersey. A weak economy and a corruption scandal helped Christopher J. Christie defeat him for re-election in 2009.
Mr. Corzine’s arrival at MF Global in March 2010 was meant to be a triumphant return to Wall Street and to bond trading after a long absence. Though it is has operations worldwide, MF Global has just 2,800 employees, making it a fraction of the size of Goldman or Lehman.
Throughout the weekend, regulators focused on completing a deal that would sell at least a portion of the firm, a move that would avert a messy bankruptcy. But given its relatively small size, the firm is unlikely to send shockwaves in the financial system.
Most of MF Global’s business involves executing and clearing trades in commodities and derivatives for clients like hedge funds. When Mr. Corzine joined, he sought to transform it into a full-fledged investment bank, in part by making riskier trades using the firm’s own capital.
A large part of that strategy backfired, as analysts and regulators worried about $6.3 billion in bonds issued by Italy, Spain, Belgium, Ireland and Portugal. By contrast, the much larger Morgan Stanley disclosed this month that it had just a $2.1 billion exposure to Europe.
Regulators were less confident in MF Global’s wager, asking it in August to raise the amount of money backing its bonds. The firm complied, though it argued that the bonds were trading at a few cents below par value.
Analysts appeared unimpressed. Late on Monday, Moody’s Investors Service downgraded the firm’s credit rating, citing both weak financial performance and its European bond holdings. The next day, the firm reported a $186 million loss, its fourth loss in six quarters.
Two days later, both Moody’s and another major agency, Fitch Ratings, downgraded MF Global to junk status. Such a move is disastrous for a financial firm, since it limits the number of trading parties willing to do business and raises borrowing costs.
Just as important, it can also scare customers, especially after the toppling of bigger firms during the financial crisis, like Bear Stearns and Lehman.
As of Friday, only a small percentage of customer money flowed out MF Global’s door, according to a person briefed on the matter. By the end of last week and through the weekend, Mr. Corzine and his advisers at Evercore Partners had called seemingly every major Wall Street firm, offering to sell MF Global, or at least some of its businesses or trading positions. While the firm had held talks with another potential buyer, Jefferies Company, by Sunday evening Interactive Brokers appeared to be in pole position.
Founded in 1977 by its chief executive, Thomas Peterffy, Interactive Brokers is a discount brokerage firm that places trades for customers on 90 exchanges.
The two firms share a deal history of sorts. In 2005, both competed for assets of Refco, which had filed for bankruptcy. MF Global emerged the victor, bidding $323 million for Refco’s assets.
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