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Corzine likely to avoid crash landing with golden parachute

MF Global’s spectacular failure could have a knock-on effect on confidence in another mid-sized firm with ambitions to join the investment banking elite: Jefferies.


The US bank was the lead manager of a US$325 million five-year bond for MF Global in August that offered investors a step-up in its interest of 1% in the event that CEO Jon Corzine left the firm for a government job before July 2013.

Jefferies is reported to have come up with the idea for the key-man clause – which was new for the corporate bond market and received mixed reviews at the time. The clause seems absurd now, given that Corzine’s own bond trading would drive MF Global into bankruptcy less than three months later. It also underscores the intangible dangers that surround any drive to win market share from established sector leaders.

Jefferies officials may have thought that an appeal to Corzine’s vanity would help them to win the bond mandate and that a quirky step-up clause would boost demand for the deal and establish a reputation for innovative thinking. But investors may now be left speculating about the recovery value of their MF Global bonds. 

It is not clear whether Corzine was seriously considered as a potential replacement for Timothy Geithner as Treasury Secretary by the Obama administration. Geithner made an escape bid around the time of the MF Global bond issue, by publicly flagging his desire to step down before being talked into a reversal by White House officials, but Corzine’s candidacy may have been chiefly in his own head.

It is difficult to see why an administration under fire for failure to tackle unemployment would want to put another former head of Goldman Sachs in charge of articulating economic policy, and Corzine’s tenure as governor of New Jersey was widely viewed as a failure. Corzine was an efficient fundraiser for the nascent Obama re-election campaign, though, which may have led Democratic Party officials to string him along with hints he was a candidate for office.

If the White House did give Corzine genuine consideration, then it dodged a bullet by talking Geithner into further service. Corzine had placed the European sovereign bond trades that brought down MF Global by August, so the administration could potentially have been lumbered with a Treasury Secretary who once ran Goldman, then drove a smaller firm into bankruptcy with misplaced bets. That would have been a tough appointment to spin.

It is difficult now to predict a fourth act for Corzine, but it should not be ruled out. Perhaps private advisory work for CEOs looking to renegotiate their compensation terms would appeal. Corzine has an enviable talent for cutting a good deal for himself. The US$12 million golden parachute he negotiated as a hedge against being ousted from MF Global in normal market circumstances has drawn a lot of attention, but he added some nice touches that were less widely reported.

For example, when Corzine was reworking his contract to give himself a bigger share in the upside that he assumed was coming to MF Global, he was able to charge the firm US$400,000 for legal fees to be paid to his own lawyers for negotiating the improved deal. This is the sort of bold thinking that has been sadly lacking on Wall Street since the days when Sandy Weill tried to take a corporate jet into retirement from Citigroup, or John Thain decided that the work of rebuilding Merrill Lynch had to start with expensive decoration of his own office.

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