J. Randy MacDonald says he wanted a real challenge for his next role when he was in between jobs last year, following his seven-year CFO stint at TD Ameritrade. And he got it with options brokerage MF Global, which was just beginning to recover from a financial scandal.
Last year, two months before MacDonald joined the firm, a trader who has since been fired used a personal account to trade wheat futures beyond the amount allowed under the company’s policy. The firm took a $141 million write-off, and quickly saw a falloff in its stock price and investor confidence in its liquidity position. Moreover, the U.S. financial crisis was beginning to take shape, putting the firm’s ability to refinance a $1.4 billion bridge loan in jeopardy.
Since MacDonald started the job in April 2008, the firm has begun a restructuring project that included an almost complete turnover in senior management, including that of MacDonald’s boss. Bernard Dan, then MF’s chief operating officer, replaced Kevin Davis as CEO last fall.
Among MacDonald’s main tasks has been working on improving the firm’s risk-management function, including the hiring of a chief risk officer. The hope is that the new position will prevent “hiccups” and resulting nonrecurring charges against earnings, MacDonald says. “You work really hard every day to get a client, to do trades, to get their balances, to get their assets, and then you have something bad happen,” he adds. “It’s the equivalent of millions of trades, millions of dollars a spread, and it’s all gone in an instant because you didn’t have good risk management.”
While improving how the firm manages risk was a top concern, MacDonald had to put some of his other priorities on hold, at least temporarily, as the economy began to sink and his ability to get refinancing slowed to a crawl.
Indeed, in an interview with CFO.com, MacDonald acknowledges that not everything has gone as planned. For instance, the firm recently offered to repurchase up to $210 million in convertible notes that were due in 2038, but only $5 million of the notes were tendered. A more successful offer could have put a dent in MF’s annual interest costs, according to Moody’s Investors Services, by about $19 million.
In the meantime, MacDonald has worked to effect change in MF’s business model as well as the structure of the finance department. “All of the additional stress we as a firm and as an industry are going through is analogous to trying to change the tires on a speeding car,” MacDonald says. “We’re asking people to do some fairly big things in a short amount of time and keep their eye on the horizon.”
Some of those changes have involved keeping a focus on the firm’s short-term financial risks, by paying off $240 million in cash for an unsecured term-loan facility that would have matured next July. MF used almost half of the more than $500 million in excess capital it was able to free up from its overseas regulators.