Corzine and risk have always gone hand in hand

November 3, 2011 - 5:25 PM
MF Global

FILE - In this Jan. 9, 2011 file photo, former New Jersey Gov. Jon S. Corzine reflects on his four year term in office during an interview with The Associated Press at his home in Hoboken, N.J. MF Global Holdings Ltd. has been suspended from conducting new business with the New York Fed amid reports that the company plans to file for bankruptcy. (AP Photo/Rich Schultz, File)

TRENTON, N.J. (AP) — Ambitious. Impatient. Stubborn. Highly tolerant of risk. The personality traits that helped Jon Corzine move from his boyhood farm in Willey Station, Ill., to the heights of power on Wall Street and in New Jersey politics also may be partially responsible for his spectacular downfalls in government and finance.

Corzine, 64, is in the midst of a professional meltdown that began when he bet heavily on European debt, and lost. As head of MF Global, he pushed for the $6.3 billion gamble on debt issued by Italy, Spain and other European nations with troubled economies that ultimately doomed the securities firm he took over last year.

The company filed for bankruptcy protection Monday, after a presale audit revealed potentially millions in missing client funds, scaring off a potential buyer. MF Global was in court Tuesday, asking a judge to allow it to borrow $8 million to finance the bankruptcy. By that night, the FBI and federal prosecutors had gotten involved.

"There is no question about his integrity," said Sen. Ray Lesniak, former chairman of New Jersey's state Democratic Party, who recruited Corzine to run for U.S. Senate in 2000. "His judgment and risk-taking is another issue."

Corzine joined MF Global last year, determined to remake his image on Wall Street after losing the 2009 New Jersey governor's race to Chris Christie, the brash and underestimated Republican former federal prosecutor. Before entering politics — first as U.S. senator then as a one-term governor — Corzine built his Wall Street credentials at Goldman Sachs, the white-shoe investment bank where he worked for 25 years.

"Jon has this avuncular professorial demeanor with his beard and sweater that masks the alpha-male, aggressive, risk-taking guy that he is," says William Cohan, the author of the book "Money and Power: How Goldman Sachs Came to Rule the World."

Corzine, who declined to comment for this article, formed his smarts and appetite for risk early on, as a trader at Goldman Sachs in the 1970s and when he supervised bond trading in the 1980s and 1990s.

In 1986, Cohan said, Corzine had figured out a way make a lot of money by betting Treasury notes and bonds against each other. However, one of the bets went terribly wrong and Goldman lost $150 million on the trades. At that time, it was a big loss for Goldman.

Though Corzine was a manager, he went back to the trading desk and over the course of seven months was able to turn a $150 million loss into a $10 million gain.

"That incident imbued him with a sense of invincibility, a master of the universe who could take hold of a bad situation and turn it around," said Cohan, who spent time with Corzine and many other Goldman partners when he wrote the book.

Corzine's trading prowess only got better when his bond trading unit made a profit of $2.7 billion in 1993 by betting on European currencies. However, in 1994, similar large bets went awry, and the firm started losing about $150 million a month, Cohan said. No one, not even the firm's chairman, could persuade Corzine to dial back the risky trades. Ultimately, the firm lost almost $2 billion from Corzine's trades.

"It was one risky gambit after another; some worked, some failed, but it was a pattern that can't be ignored," Cohan said.

Corzine made $400 million in Goldman's initial public offering, not bad for a farm boy who arrived at the buttoned-down Goldman wearing a sports jacket. He was ousted in a power struggle with another top executive before the IPO.

Corzine recognizes his good luck, those who know him say, but he's also a relentless hard worker. When campaigning for public office, he would quit for the night only when there were no more events to attend.

Supporters and detractors agree that on issues big and small, Corzine is not one to heed the counsel of others or surround himself with a wide circle of advisers. His extreme self-confidence can come off as stubbornness.

Corzine's work ethic and drive were evident, too, at MF Global, where he went into overdrive to remake the brokerage into a mini-Goldman. It's a determination born on the farm, where a young Corzine was assigned chores before school, and as a high schooler, worked on a highway road crew to save money for college.

Before MF Global unraveled, Corzine was seen as such a crucial figure in the company's fate that bondholders insisted on a so-called "key man" provision, guaranteeing extra interest if Corzine resigned for a position in the Obama administration.

But when the politically savvy Lesniak tried to convince Corzine to shave his beard before launching a Senate campaign, he was rebuffed. Corzine never relented; he always kept his hair a little too long in the back and wore a full gray beard. He became the only bearded member of the Senate at the time.

The liberal Democrat spent $62 million of his own money on the Senate run, and won, but grew so impatient being in the minority party that he launched a gubernatorial bid while serving his first six-year term.

"Jon's goals were always to make society more compassionate, more just, more tolerant, and he was willing to invest his time and money toward achieving those goals," Lesniak said.

He believed he had a shelf life of only 10 or 15 years in politics, so he felt he couldn't wait for seniority in the Senate to get some public policy initiatives enacted.

With New Jersey in a financial mess, voters responded to his financial pedigree, and he handily beat Republican businessman Doug Forrester to win the governorship in 2005. Corzine can appear aloof and inarticulate while giving speeches or in large crowds, but those who met him found him warm and charismatic in small, intimate settings.

Some say Corzine's finest hour as governor came during his first budget, when he shut down state government for eight days when fellow Democrats in the Legislature refused to accept a one-cent sales tax increase. Corzine ultimately prevailed.

Mostly, though, he was never able to fully exert the power of the governor's office, and was seen by many as someone unwilling to say no to party bosses or broker political capital wisely.

His only term was marred by disastrous plan to decrease state debt by selling or leasing New Jersey toll roads — and by a near-fatal auto accident.

Corzine was not wearing a seat belt and was tossed from the front to the back of his state trooper-driven sport-utility vehicle in April 2007, breaking 15 bones. He spent 18 days in the hospital, eight of them on a ventilator, and had three surgeries.

He reassumed control of office from his hospital bed and spent months rehabbing a badly fractured leg at the governor's mansion in Princeton, all while running the state. As a mea culpa, he made a public service announcement about the benefit of wearing seatbelts, and eventually resumed jogging five miles a day.

He returned to Wall Street in March 2010, intent on rehabilitating his image. Eighteen months later, the eighth-largest bankruptcy in U.S. history has exposed lax internal controls that may have prevented the firm's last-minute rescue.

"When MF Global hired Corzine, it touted the fact that he was a former head of Goldman who would be able to use his Rolodex to bring in people and clients into the firm. And he did," said Rob Rutschow, financial analyst at CLSA Credit Agricole Securities. "In the time that he was CEO, there was a lot of internal turmoil at MF Global where they lost about half of their total employees."

His biggest political nemesis during his gubernatorial years in Trenton, state Republican Party leader Tom Wilson, seized on Corzine's determination when opposing him, most famously by suing to force the governor to release email communications with a labor leader he once dated.

"His unwillingness to have peripheral vision, his steadfast commitment to a course he had set, for me that made it easier because it became very clear he wasn't going to change his thought process," said Wilson, now a consultant and lobbyist.

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AP Business Writer Pallavi Gogoi in New York contributed to this report.