The Ode: MF Global (1783-2011)

Born to London-based cooper James Man in 1783, the business that would someday be known as MF Global originally made barrels for sugar. The following year, it won an exclusive contract to supply rum to the Royal Navy. By the early 19th century, it was a full-blown commodities trader, participating in sugar, cocoa and coffee auctions at the city’s coffee houses. Later, it became a central player in commodity hedging, a practice crucial for facilitating trade among the far-flung domains of the British Empire.

In 1869, the business was named ED&F Man (for the founder’s grandsons, Edward Desborough and Fredrick), and so it remained until 2000. Much else remained static during that period: ED&F was one of the most important corporations involved in the sugar trade, with clients like Coca-Cola, Nestlé and Cadbury. As recently as the 1970s, it was still a tight partnership of about 70 members.

Recent decades witnessed a radical transformation. In 1983, its 200th anniversary, ED&F Man branched out into alternative investment management. Though hardly anybody knew of hedge funds then, in the coming decades the funds rapidly eclipsed ED&F’s age-old activities. In 1994, the company listed on the London Stock Exchange, and in 2000 it divested its agricultural commodities division and changed its name to Man Group. It jettisoned the brokerage business in 2007 by listing it on the New York Stock Exchange. This new entity took the name MF Global, the “M” a nod to James Man.

Things went badly from the start: the list price of the shares was lower than expected and fell steadily from there. Enter Jon Corzine, a bond trader who rose to become CEO of Goldman Sachs, from 1994 to 1999, before moving into politics. In March 2010 he became MF Global’s chairman and CEO. He brought with him an appetite for risk and a desire to build a miniature Goldman. Before long, the business was twice as leveraged as its peers.

“Everybody has opinions,” declares a recent MF Global ad. “We have convictions.” One of Corzine’s was that peripheral European nations wouldn’t default in the near future. MF Global bought $6.3-billion worth of Portuguese, Spanish, Belgian, Irish and, particularly, Italian bonds. All were to mature prior to the end of 2012, and as recently as a few weeks ago, Corzine (above, centre) was still predicting these investments would deliver “a positive conclusion.” But the brokerage could not outrun Europe’s sovereign debt crisis. Alarmed at its European exposure, this summer U.S. regulators forced MF Global to set aside more capital to offset potential losses. In October, Moody’s, the bond rating agency, slashed its debt rating. That, coupled with dismal quarterly results, caused its shares to plunge. On Oct. 31, the company filed for bankruptcy, becoming the first substantial U.S. brokerage to implode since Lehman Bros. The bankruptcy trustee promptly fired nearly the entire staff.

Corzine nearly averted this disaster; he reportedly negotiated with at least two parties that might have bought the struggling brokerage. Revelations that more than US$600 million in client assets was unaccounted for scuttled those efforts. They also prompted regulators to commence investigations. Although no wrongdoings have been alleged, the missing money’s fate may reveal a great deal about MF Global’s convictions—and could, at worst, spawn the criminal variety. MF Global is survived by its lost hedge fund sibling, Man Group.