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MF Global Refashions Its Business Model

Six months into his tenure as MF Global's chief executive, Jon Corzine wants the futures broker to expand geographically, and he wants it to build a beachhead in investment banking.

"We are a broker on our way to being a broker-dealer on our way to being a full-line investment bank," the former U.S. senator and New Jersey governor told analysts and other market players this week at Barclays' 2010 Global Financial Services Conference.

As part of his effort to remake MF Global (which, according to some market participants, wants to become a primary dealer for the Federal Reserve), Corzine said he wants to embrace a partnership ethos espoused by a different generation of banking firms.

"We want to create in a public company a partnership model," he said in his second public presentation as the firm's CEO. "You will see a lot of stock as incentive and ownership as we go forward."

When asked what MF Global will look like by 2012, Corzine said, "We will not be a 3,000-person firm. We will be a 4,000-person firm."

Some changes are already afoot.

On Monday, MF Global announced that it had hired Bradley Abelow as its chief operating officer.
Abelow most recently was with the private-equity firm NewWorld Capital Group, but before that, he was Corzine's chief of staff in Trenton. Earlier in his career, Abelow worked with Corzine at Goldman Sachs as a partner and managing director.

In addition to Abelow's hiring, "you will see a number of newcomers joining us in management positions over the next quarter that will strengthen even more the players we have on the field," Corzine said.

He spoke to a largely receptive crowd — one audience member asking a question said he wanted to give Corzine his "vote" as a shareholder — and the veteran banker referenced his past at Goldman, even if it was indirectly.

As Corzine put it, he is "not trying to replicate or compete with anything in my history" in his work at MF Global. "But I think the model that has a partnership … ends up getting the kinds of outcomes shareholders want and clients want and management wants."

Corzine described MF Global as a "broker of futures and options on exchanges across the globe" that is being redesigned.

The firm has looked to cut borrowing costs by refinancing debt, and it has extended a revolving credit facility. It operates in 70 exchanges worldwide; half of its activities are within the Americas, while 30% are in Europe and 20% in Asia.

MF Global likely will expand its Asian operations, he said. "We are not capturing the real opportunities coming out of Asia," and he is using the brokerage business as a foundation to become a "full-line investment bank."

When it comes to specifics about MF Global's future as an advisory firm, Corzine said it would likely first get involved with natural resources and commodities. "There is a lot of knowledge that can be leveraged at the firm."

(MF Global, which reported $1.4 billion of net revenue for the year that ended March 31, is an active participant in commodities markets.)

In addition to building up in Asia, it likely will make a dash for South America, specifically Brazil, Corzine said. "One wonders why we are not operating in those areas."

The hedge fund manager Man Financial spun off MF Global three years ago through an initial public offering.

This year, it moved its corporate headquarters from Bermuda to Delaware — a move it acknowledged as partly "reputational," and one that some market watchers call an effort to placate the Fed.

"We believe this move to Delaware will help MF in the process to become a primary dealer," Barclays Capital said in a report published when the move was announced.

Last year, MF Global was accredited as a Federal Home Loan Bank underwriter and reallowance dealer.

Expenses related to compensation, meanwhile, have hung over the firm.

In November, for example, Moody's downgraded its outlook on MF Global to "negative," from "stable." The credit rating agency said it change the outlook because of MF Global's high compensation.

Corzine acknowledged the issue in his presentation to analysts earlier this week.

He said his firm is looking to get compensation as a percentage of net revenue, currently 64%, down to the low 50s and eventually the 40s.

Shares of MF Global were changing hands at $7.32 each earlier this week. MF Global stock has traded in a range of $5.38 to $9.94 over the last 52 weeks.

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