What do you call a financial company leveraged 11 to one, and making money? How about JP Morgan Chase, with $1,941 billions of liabilities supported by its assets and also $176 billion of equity.
What do you call a financial company leveraged 32 to one, uncertain as to whether there is a tomorrow? How about: one more failure of former NJ Governor John Corzine?
After losing the NJ governorship to Chris Christie, Corzine was hired to head former commodities broker MF Global. He was not without background in securities, having served as CEO at Goldman Sachs.
On joining MF, he and its board expressed interest in transforming the firm into a mini Goldman.
MF’s $44.4 billion of liabilities are supported by $1.4 of equity. Six billion of the assets, however, are affected by European debt renegotiations. A 25 cent haircut in their value wipes out MF’s equity.
From today’s WSJ:
investor fears grew about the roughly $6 billion in exposure to European sovereign debt the company has disclosed holding this year. That exposure, explained in more detail during the company’s earnings call Tuesday, is a large bet relative to the $12 million in revenue the firm generated from principal trading during the latest quarter.
Lesson: It’s just as easy to ignore a huge and growing pension liability as it is a multi billion dollar commitment to European government obligations.
Prediction: It will take a grown-up to clean this mess up also.
June 30, 2011 Balance Sheet: http://www.sec.gov/Archives/edgar/data/1401106/000119312511207641/d10q.htm#tx198607_3
WSJ Piece: http://online.wsj.com/article/SB10001424052970203687504576654992676019306.html?mod=WSJ_hp_LEFTWhatsNewsCollection