Company executives are paid to lie to shareholders. You should know this from Enron, MCI Worldcom, Bernie Madoff, and Tycho International. But in case you weren’t paying attention here is another example from none other than ex-Goldman Sachs chairman & CEO, Jon Corzine. Mr. Corzine was most recently the Chairman & CEO of the now bankrupt MF Global (MF). Here is a summary of his career:
1975 Begins his career at Goldman Sachs, building a reputation as a hard-nosed bond trader and a big risk taker.
1988 Becomes co-head of the firm's fixed-income division.
1994 Named chairman and CEO of Goldman Sachs at a time when the firm was being hit by big trading losses.
1999 Ousted from the top spot at Goldman in what was viewed by many as a power struggle with co-CEO Henry Paulson. The firm had also suffered steep bond trading losses and a delay of its IPO.
2000 Beats out Republican candidate Bob Franks for a New Jersey Senate seat, spending more than $60 million and breaking the spending record for a statewide race.
2005 Elected New Jersey governor
2007 Involved in car crash that leaves him in critical condition.
2009 Loses New Jersey governor's seat to Republican opponent Chris Christie
March 2010 Appointed CEO and chairman of MF Global.
Oct. 25, 2011 MF Global posts its biggest-ever quarterly loss as a public company.
Oct. 31, 2011 MF Global files for bankruptcy.
The poor schnook let his company release this upbeat report on October 25 -- one week ago.
* Strengthened capital and liquidity position. As of September 30, 2011, the company has over $3.7 billion in available liquidity, including $1.3 billion in available committed revolving credit facilities and $2.5 billion in total capital.
"Reflecting the stressed markets in the quarter, we deliberately chose to reduce overall market exposure in most principal trading activities and focused on preserving capital and liquidity," said Jon S. Corzine, chairman and chief executive officer, MF Global. "We also used the dislocation in the markets to add quality people for strategic roles, as well as expand our client relationships across our businesses."
Mr. Corzine continued, "We were particularly pleased with the repositioning of our mortgage, credit and foreign exchange businesses; the performance of our commodities group; and the common alignment of our brand to strategy. These efforts reflect positively on our ability to execute and deliver competitive returns to shareholders in the quarters ahead."
As of September 30, 2011, MF Global maintained a net long position of $6.3 billion in a short-duration European sovereign portfolio financed to maturity (repo-to-maturity), including Belgium, Italy, Spain, Portugal and Ireland. The laddered portfolio has an average weighted maturity of October 2012 and an end date maturity of December 2012, well in advance of the expiration of the European Financial Stability Facility in June 2013. (see supplemental table for further details)
MF Global bet on the Keynesian central bankers, banks, and politicians to solve the European sovereign debt crisis – and lost!
Pay close attention to the statements company executives make about their liquidity and revolving credit. Then don’t believe them.
American Capital Agency Corp. (AGNC) is susceptible to the modern bank run in which short term credit is pulled without notice. The company then no longer has access to funds necessary for their business model and they quickly go bankrupt. AGNC had 22 lenders in 2010. I don’t know if MF Global was one of them. AGNC does not disclose who they make repurchase agreements with. Check this out.
press release
Nov. 3, 2011, 2:00 p.m. EDT
American Capital Agency Corp. to Present at Sandler O'Neill East Coast Financial Services Conference
BETHESDA, Md., Nov. 3, 2011 /PRNewswire via COMTEX/ -- American Capital Agency Corp. /quotes/zigman/110324/quotes/nls/agnc AGNC +0.36% ("AGNC" or the "Company") announced today that Peter Federico, Senior Vice President and Chief Risk Officer, is scheduled to make a presentation at the Sandler O'Neill + Partners East Coast Financial Services Conference on November 10, 2011 in Aventura, FL. The AGNC presentation is scheduled to begin at 4:05 pm ET. The presentation will be webcast live and archived for 90 days on the AGNC website in the Investor Relations section at http://ir.agnc.com .
When Mr. Federico says that AGNC’s liquidity needs are well met at the Sandler O’Neill East Coast Financial Services Conference some in the audience should stand up and read this statement from their 2010 annual reports risk factors section:
Failure to procure adequate repurchase agreement financing, or to renew (roll) or replace existing repurchase agreement financing as it matures, would adversely affect our results of operations and may, in turn, negatively affect the market value of our common stock and our ability to make distributions to our stockholders.
We use repurchase agreement financing as a strategy to increase our return on equity. However, we may not be able to achieve our desired leverage ratio for a number of reasons, including if the following events occur:
• our lenders do not make repurchase agreement financing available to us at acceptable rates;
• certain of our lenders exit the repurchase market;
• our lenders require that we pledge additional collateral to cover our borrowings, which we may be unable to do; or
• we determine that the leverage would expose us to excessive risk.
We cannot assure you that any, or sufficient, repurchase agreement financing will be available to us in the future on terms that are acceptable to us. Since 2008, there have been several mergers, acquisitions or bankruptcies of investment banks and commercial banks that have historically acted as repurchase agreement counterparties. This has resulted in a fewer number of potential repurchase agreement counterparties operating in the market. In addition, since 2008 many commercial banks, investment banks and insurance companies have announced extensive losses from exposure to the residential mortgage market. These losses reduced financial industry capital, leading to reduced liquidity for some institutions. Institutions from which we seek to obtain financing may have owned or financed RMBS that have declined in value and caused them to suffer losses as a result of the recent downturn in the residential mortgage market. If these conditions persist, these institutions may be forced to exit the repurchase market, become insolvent or further tighten their lending standards or increase the amount of equity capital or haircut required to obtain financing, and in such event, could make it more difficult for us to obtain financing on favorable terms or at all. In the event that we cannot obtain sufficient funding on acceptable terms, there may be a negative impact on the value of our common stock and our ability to make distributions, and you may lose part or all of your investment
Furthermore, because we rely primarily on short-term borrowings, our ability to achieve our investment objective depends not only on our ability to borrow money in sufficient amounts and on favorable terms, but also on our ability to renew or replace on a continuous basis our maturing short-term borrowings. If we are not able to renew or replace maturing borrowings, we may have to sell some or all of our assets, possibly under adverse market conditions.
AGNC is borrowed short and lent long like all fractional reserve banks and financial institutions. The European sovereign debt crisis threatens to lock up the financial system in Europe and the US. This will mostly likely negatively impact AGNC’s operations. AGNC’s executives are Keynesian and are subject to the same boneheaded bad bets as MF Global. Leverage works both ways.
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