MF Global’s Fatal Mistake

At this hour, executives and MF Global are huddling with bankers and lawyers, trying to come up with a deal to sell the firm.  It must seem like a surreal exercise, since just days earlier the firm held a solid investment-grade credit rating and a market cap of $620 million.  Now, as its clients turn away and its cash evaporates, CEO Jon Corzine is running out of time and options.

Selling a financial firm isn’t an easy process, particularly in an edgy market. Doing it in a couple of days is only for the foolhardy or the desperate.  For MF Global, a few extra days could have made the difference between a somewhat orderly auction and the weekend fire sale they’re now holding. 

In hindsight, it looks like the firm’s early announcement of its earnings on Tuesday was a mistake that cost it precious time.  Rather than reassuring the market, the announcement confirmed the firm’s weakness, threatened a further credit downgrade and amplified anxiety among clients and regulators.

An early release of a company’s financial results can be a good strategy, provided the news is positive.  MF Global’s earnings revealed the extent of its exposure to European debt and the firm’s weak earnings – hardly a recipe for quelling speculation.  

Corzine and MF Global still would have a busy weekend even if they had kept to their initial plan of issuing earnings on Thursday.  But those two extra days could have been spent focusing on the sale process, without the pressure that accompanies a public earnings announcement.  It’s two days that could make the difference between a deal that preserves some value for shareholders and one that doesn’t. 

 

 

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