MF Global goes bankrupt, is 1st U.S. casualty of European crisis
The Wall Street firm run by former Goldman Sachs Chairman and New Jersey Gov. Jon Corzine filed for bankruptcy Monday morning, making it the first big American casualty of the European debt crisis.
The firm, MF Global, had come under increasing strain in recent weeks due to $6.3 billion in outstanding bets on the sovereign debt of some of Europe's most troubled economies, including Spain and Italy.
Last week the European Union announced a plan to help prop up the economies of its weaker members, but the plan will not insulate financial institutions like MF Global from losses on holdings of European sovereign debt. In early October a large Belgian bank was rescued from bankruptcy after sustaining big losses on such holdings.
In an echo of the demise of Bear Stearns and Lehman Brothers in 2008, questions about MF Global's bad bets led investors to grow afraid of trading or transacting with the firm, sending the stock price down, scaring off investors further. Just last week the company's stock fell 67%.
The company spent the weekend looking for potential buyers, according to the Wall Street Journal, but those efforts appear to have fallen apart.
The bankruptcy filing in Manhattan court represents a remarkable reversal of fortune for Corzine, who stepped down during his first term as U.S. senator to become the governor of New Jersey in 2006.
Corzine took over MF Global after losing to Chris Christie in the New Jersey governor's race in 2010. MF Global was seen as a small assignment for a man who had once run Goldman, the most vaunted name on Wall Street. But at the time Corzine promised to turn MF Global into a Wall Street juggernaut by using Goldman's strategy of making big bets with the firm's own money.
That strategy now appears to have backfired, increasing MF Global's risks with little payoff. Just last week MF Global announced that it had lost $192 million in the third quarter.
Photo: File photo of MF Global CEO Jon Corzine. Credit: AP Photo / Rich Schultz