WSJ On MF Global and Window Dressing

It looks like Jon Corzine’s MF Global tried to hide how much risk it was taking on by temporarily lowering borrowing at the end of each quarter, a good Wall Street Journal story shows.

This isn’t a source-driven story. It’s based on the paper’s own analysis of financial filings, which shows that MF Global’s end-of-quarter debt levels were significantly below its average quarterly borrowings for seven straight periods.

This isn’t the first time the Journal has found banks doing this sort of thing. Reporter Michael Rapoport wrote a series of stories last year showing banks like Citigroup, Bank of America, and Deutsche Bank engaged in similar window dressing.

Here’s what he found today:

In each of the past seven quarters, from late 2009 to mid-2011, MF Global’s quarter-end borrowings were an average 16% lower than the quarterly average, according to the Journal’s analysis. The quarter-end numbers were lower than the peak for each quarter by an average of 24%, according to the analysis…

“Every quarter, seven quarters in a row, it’s always lower,” said Charles Mulford, an accounting professor at the Georgia Institute of Technology. “It sounds like they are actively managing their [borrowing] to see that the level is lower when they report to shareholders.”

The Journal is careful to say that this kind of thing isn’t illegal, and its story makes clear that the paper can’t prove conclusively why MF Global’s debt show this pattern.

So it’s jarring to have a cautious, hedged story, with a lede that says MF Global “may have disguised its debt levels to investors by temporarily slashing the debt it was carrying”, underneath a souped-up headline that dispenses with nuance:

MF Global Masked Debt Risks

Consistency would be good here, particularly when your story makes a point of showing that it’s not 100 percent sure of what you say it shows.

Has America ever needed a media watchdog more than now? Help us by joining CJR today.

Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR's business section. If you see notable business journalism, give him a heads-up at Follow him on Twitter at @ryanchittum. Tags: , , , ,