The last months of MF Global

The company cut back on paper and instituted other cost-cutting initiatives, but its problems were bigger than that.

Mark Lennihan/AP/File
In this file photo, a sign for MF Global is displayed at an office building in New York. The company, which admitted last year to using clients' money as its financial troubles mounted, intitiated cost cutting measures like paper conservation in the months leading up to bankruptcy.

In their last desperate months, the management of MF Global instituted cost cutting initiatives to try and save the company. The Wall Street Journal’s Aaron Lucchetti and Mike Spector write that a memo went out to the firm’s 2,800 employees telling them to start printing on both sides of paper and listed other ways to save the company money.

The paper austerity program wasn’t enough to keep the company out of bankruptcy as MF Global filed Chapter 11 on Oct. 31. Saving a few sheets here and there couldn’t overcome the leverage built up by way of the rehypothecation of their clients’ collateral.

The management of Security Pacific Bank stopped providing coffee and Wall Street Journal subscriptions in its last months as the bank lost $775 million in 1991 and $1.45 billion the next year. There was a paper recycling mandate as well.

Security Pacific was famous for being deal makers, lending on real estate and doing business with big-name, big-ego clients. Senior management believed “we can’t possibly make the mistakes the S & Ls did,” ex SP CEO Robert Smith wrote in his book Dead Bank Walking.

Smith candidly writes: “We were caught up in ourselves and the times. We were cattle, running hard to get to the feed bin, to be first, to be a pioneering lender—to build our bank as a world-class operation lauded for its world-class deals.”

When Jon Corzine came aboard to run MF Global he wanted the company to take more risk. Lucchetti and Spector

Roaming MF Global’s trading floor, Mr. Corzine encouraged traders to make larger bets, without fear of losing money. He added new, riskier businesses that wagered the firm’s own money, creating a proprietary-trading desk and increasing the emphasis on higher-risk products like mortgage-backed securities and stock-index derivatives.

Security Pacific got lucky. Bank of America rescued Security Pacific shareholders with a $5.64 billion buyout as the bank was headed for failure.

Mr. Corzine was also working on a buyout. But he ran out of time. If only the company had used less paper or been a systemically important bank.

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