MF Global: Changing Stripes Harvard Case Solution & Analysis

MF Global: Changing Stripes Case Solution

Background and Key Problems

MF Global was one of the most successful companies in commodity as well as financial markets. It started its commodity business in 1783 and shifted to the financial instrument products in the late 1980. The derivatives and asset management was very successful to increase the company’s profitability during those years.

In the late 1990, the financial market was at its peak and generated extra-ordinary benefits to the major players in the U.S and European markets. However, the situation was not favourable after 2005 ascertain economic fluctuations hindered the interest rate margin and commission rate.

MC Global generated greater profit margins in 2005 and consecutively in 2007 but after financial crisis and a sub-prime mortgage, itsprofit margins started declining. Moreover, in late 2008, the company decided to review its operational efficiency structure and joined J.C Flower in order to manage the funds ratio.

MC Global was also affected with illiquid ratios and minimum amount of repos for trade. However in March 2010, Jon Corzine became the CEO and the chairman of MC Global. Hedecided to change the entire process of the company to more saturated structure in which fixed employees were hired in order to reduce the management cost. Moreover,he decided to restructure the integrated systems of trading and technology, which allowed to decrease the operational cost associated with it.

The main focus was to recover the loss incurred prior to the projected year and to change the broker management system into full investment banking systems,which would allow to increase the repos and provide full-fledged banking services to the existing as well as new clients.

In 2011, European Sovereign debt trade was increasing the market demand to provide short-term debt services with ease of liquidity in a given time. However, MF Global took the opportunity to increase the repurchase of the shares from their clients subject to liquidity.

In the end of 2011, the company was subjected to bankruptcy asit had not enough requirements proposed by financial industry regulatory authority.Itwas noted that over $900 million of funds were missing which accounted for segregated customers.

External Challenges

After the beginning of financial crisis in 2007, the industry went through some critical issues in the market penetrations. During 2007-2008, the decreased stock exchange prices and interest rates declined the profit margins of major companies, which operated in the financial market.

During this phase, MF Global faced intense pressure from its clients thatdemanded to reduce the interest as well as commission fee in order to provide benefits to the clients. This process had slowed down the economy as well as the reputation of MF Global.

However, Dan entered into this critical situation and proposed a strategic plan to overcome the crisis of lower net profits. In 2010, the company overcameits losses after financial crisis and achieved the strategic plan but after 2011, the company faced another external threat from the European Sovereign Debt Crisis,whichallowed to change the entire plan and look for ever more effective plan.

In the end of the year 2011, the company was unable to handle such crisis and went to the bankruptcy where $900 Million weremissing the custody of MF Global which lead the company to step out from the business activity.

Strategic Analysis

During the financial crisis, the company generated less profit margins and faced a threat to reduce consecutively in the upcoming periods. In October 2008, Dan became the CEO and was sought to fight with industry headwinds.

Moreover, he found some important areas to develop in order to recover the loss incurred in the past. He decided to introduce a strong risk management system and unparalleled diversified systems of products and geographies to increase the profitability ratios...............

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