in the Wall Street Journal
In an odd article at the top of the front page of the December 1st Greater New York section of the Wall Street Journal, the newspaper heralds NYC’s hiring of Kevin Davis, a former CEO of MF Global, who was replaced there in late 2008. Mr. Davis has been overseeing commodities investments for the city’s Bureau of Asset Management for about three months. Lawrence Schloss, himself a former director of MF Global, selected Mr. Davis for the job, saying he has 26 years of experience and was the best candidate to apply.
The article goes on to to relate, without analysis or comment, that:
–Mr. Davis is earning a salary of $175,000–which is less than 1% of his compensation during his last full year at MF
–MF Global’s stock lost over 90% of it value during his tenure
–MF was subsequently sued by pension funds for misrepresenting its risk management practices, a case that MF recently settled by paying $90 million.
There’s nothing in the article, other than its prominent placement, to indicate that there’s anything amiss with the hire. And the placement may be more the result of political differences between the city Comptroller and News Corp than of anything else.
Two things strike me, however:
1. NYC, like many government bodies, seems to be an advocate of the penny-wise-pound-foolish school of investment manager compensation. A competent commodities person would make many times what the city is offering. Mr. Davis may have been the only candidate to apply.
2. The event that ultimately led to Mr. Davis’s demise at MF was discovery of $141 million in losses from unauthorized wheat trading by a broker in MF’s Memphis, Tennessee office. According to theFinancial Times, the trader wasn’t a “rogue” who evaded management controls; the company’s computer systems weren’t programmed correctly.
Two years later, we’re finding again that MF Global’s computer recordkeeping systems are inadequate. In fact, the records are in such a shambles that no one has been able to figure out how much customer money is missing from the firm–other than it’s a lot–or where it went. I doubt Jon Corzine found top-notch recordkeeping systems when he arrived at MF and dismantled them (for what it’s worth, he doesn’t strike me as the kind of guy who would have looked in the first place). My hunch is that they’ve been inadequate for a long time and that no one investigated properly, or extensively enough, after the 2008 trading losses. There may well be much more to the MF Global story today than deficient computers. But I think anyone using the in-house systems should have immediately realized their inadequacies and at least insisted they be fixed.