Wall Street bosses

The Corzine put

Another way of putting a price on the man at the top

| NEW YORK

Dear Jon

GIVEN their sensitivity to swings in market confidence, financial firms are particularly vulnerable to “key man” risk—the fallout from the sudden departure of a superstar. A senior executive at JPMorgan Chase once worried aloud that the bank’s share price would fall by 20% if Jamie Dimon, its celebrated boss, left or slipped under a bus.

MF Global, a smallish broker with big ambitions, is breaking new ground when it comes to pricing this risk. It is offering an extra percentage point of interest to investors in its latest bond issue, should Jon Corzine, MF’s chief executive, quit to take a government job before July 2013.

Hard as it is to imagine another former head of Goldman Sachs running America’s Treasury, Mr Corzine (who is also a former governor of New Jersey) is seen as a long-shot candidate for the job when Tim Geithner steps down, or as a possible future White House economic adviser. The idea for the Corzine covenant apparently came from the bonds’ underwriters at Jefferies & Co, who sensed edginess in the market over a possible move to Washington, DC, and dreamed up the exit insurance as a way to calm nerves.

Investors have cause to worry. The impressive turnaround under way at MF is largely the work of Mr Corzine, who took the reins last year. Few of those he has hired to take the firm into new businesses and regions would hang around for long if he left. Moreover, his golden reputation as a trader and risk manager, still intact despite a decade-long detour into politics, is the main reason that bondholders are prepared to finance the firm’s increased risk-taking.

Buyers of the $300m debt issue stand to make an extra $15m over its five-year life if Mr Corzine leaves soon. That is hardly small beer. But trading outfits can lose many times that amount in the blink of an eye, even with vaunted leadership. MF’s bondholders should be careful what they wish for.