Shares of MF Global Holdings (MFGLQ: Charts, News, Offers) dropped to under $0.50 before NYSE trading in the stock was halted on Monday after the company filed for U.S. Chapter 11 bankruptcy protection. The company, which ranks as the eighth largest futures broker in the world, reportedly tried selling out to Interactive Brokers over the weekend, but the deal fell through, leading to the company’s bankruptcy filing on Monday.
Headed by former Goldman Sachs CEO and former New Jersey Governor Jon Corzine, MF Global Holdings came under increased financial pressure as the European financial crisis worsened. Basically, the company’s multi-billion dollar exposure to Eurozone debt caused it to experience a severe cash crunch, as yields on Greek, Spanish and Italian bonds continued to soar in trading on Tuesday.
Daily Chart
Trading in MF Global Holdings stock was immediately halted on the NYSE at Monday’s open, with Friday’s close of $1.20 per share left as Monday’s closing price for the stock. Nevertheless, due to the broker’s extensive Eurozone debt holdings and Monday’s bankruptcy filing, trading in the stock may not open for some time. Also on Monday, the CME Group (CME: Charts, News, Offers) suspended MF Global as a clearing member after the New York Fed barred the company as a primary dealer. Other global exchanges took action by limiting the broker’s trading operations to closing out open positions. The CME Group was among the last exchanges to bar MF Global and its clients from trading.
MF Global stock was down 16 percent on Friday before the company made preparations to sell its assets to Interactive Brokers for $1 billion through a court supervised auction last weekend. According to the Wall Street Journal, the deal put together by MF Global CEO Jon Corzine had both parties reach a tentative agreement on Sunday that would have involved a Chapter 11 filing by Interactive Brokers in addition to putting up the $1 billion. Nevertheless, revelations of over $100 million in missing customer funds led to the deal falling through as Interactive Brokers pulled their tentative bid.
Furthermore, the Associated Press reported that an MF executive admitted to regulators on Monday that the company had used client money as their financial troubles increased, after money had been found missing from client accounts. Use of client funds is strictly prohibited by government rules that clearly state that a broker’s customer funds must be segregated from company assets. By late Tuesday, the Wall Street Journal cited a person “familiar with the matter” when reporting that the FBI would conduct an investigation into the missing funds. No comment was made by an FBI spokesperson contacted by the Reuters news agency.
Just a few days before the firm’s collapse, CEO Jon Corzine stated in a conference call with stock analysts on October 25th about the company’s $6.3 billion position in European debt that, “We remain confident that we have the resources and expertise to continue to successfully manage these exposures to what we believe will be a positive conclusion in December 2012.” Corzine also noted that the firm’s position in European bonds was “fully financed”, providing “opportunities” for making money. Furthermore, in a press release on earnings released the same day, Corzine noted that, “We were particularly pleased with the repositioning of our mortgage, credit and foreign exchange businesses; the performance of our commodities group; and the common alignment of our brand to strategy. These efforts reflect positively on our ability to execute and deliver competitive returns to shareholders in the quarters ahead.”
Just a few days prior to the recent bankruptcy filing, MF Global had shocked the market by reporting its largest ever quarterly loss of $191 million on October 26th. The stock has now lost over 90% of its market capitalization, with MF Global’s debt having been downgraded by Moody’s to one notch over junk. Nevertheless, according to a court filing made by the company on Monday, the company owes around $39.7 billion, while claiming assets of $41.1 billion. If that assessment is true, it will give some of the company’s worried investors and clients a glimmer of hope while attempting to recover their money.
Other News About MF
Official: MF Global Admitted Using Client Money
MF Global Executive Admits to Using Customer Funds
MF Global may cost investors millions.
Other Stocks in the News
Morgan Stanley Shares Plunged: What You Need to Know
Investment bank heavily exposed to MF Global bankruptcy.
CME Group Inc. Earnings Cheat Sheet: Profit Increases Again
CME Group reports better than expected profits.
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Article copyrighted by Jay Hawk. Content published with author's permission.
