Corzine's MF Global Files for Bankruptcy Following Bad Bets on European Debt

(October 31, 2011) — MF Global has filed for Chapter 11 bankruptcy protection with total assets of just over $41 billion against liabilities of almost $39.7 billion.

The firm was forced to file for bankruptcy following failed efforts over the weekend by former New Jersey Governor John Corzine, MF Global’s CEO and the former CEO of Goldman Sachs, to pinpoint a buyer for the beleaguered brokerage company.

Last week, MF Global reported a quarterly loss of $192 million. It has seen its shares plunge more than 60% since then.

Corzine, who assumed the role of CEO of MF Global Holdings in March 2010, made large bets on sovereign bonds issued by European countries. He aimed to transform MF Global from a midsize derivatives broker to an investment bank. The trades jumped to over $6 billion and resulted in the lowering of MF Global’s own debt ratings to junk, consequently lowering investors’ confidence in the firm.

“Europe wouldn’t let these countries go down,” Corzine told another executive at the New York City company early this year, according to the Wall Street Journal. When the lower-ranking official suggested that the trade was too large, Corzine reportedly replied that his career on Wall Street and in politics made him stand by his bets.

According to a statement on the New York Federal Reserve’s website, MF Global was suspended today from doing new business with the regulator. Trading in MF Global’s stock was also halted. The regulator stated: “The Federal Reserve Bank of New York has informed MF Global Inc. that it has been suspended from conducting new business with the New York Fed. This suspension will continue until MF Global establishes, to the satisfaction of the New York Fed, that MF Global is fully capable of discharging the responsibilities set out in the New York Fed’s policy…”

The failure of MF Global is the latest example of a firm suffering largely as a result of making bets on European sovereign debt.