MF Global loses bet on European sovereign debt
MF Global files for bankruptcy after deal unravels
Excerpt:
MF Global Holdings Ltd, the futures broker run by former Goldman Sachs chief Jon Corzine, has filed for Chapter 11 bankruptcy after a tentative deal with a buyer fell apart.
The firm's meltdown in less than a week is a stunning setback for Corzine, who sought to turn MF Global into a mini-Goldman. Corzine became CEO last year after losing his governorship of New Jersey, and his big bets on euro-zone debt sealed the company's fate.
The bankruptcy filing came after talks to sell a variety of assets to Interactive Brokers Group Inc broke down earlier Monday, a person familiar with the matter said. Earlier, central banks and exchanges had slapped the broker with suspensions.
The bankruptcy makes MF Global the most prominent U.S. casualty yet from the euro-zone debt crisis, and harkens back to 2008 when Lehman Brothers collapsed at the height of the U.S. financial crisis.
Comment: Probably a company many have never heard of! But one of the top 10 Bankruptcies Ever! Harbinger of future Euro-zone fallout? Stock now trading near a $1.
JP: NYTimes: Good Bets ... Bad Timing:
ReplyDeleteThe great irony of the failure of MF Global, the firm run by Jon Corzine, the former governor of New Jersey and the former chief executive of Goldman Sachs, is that its bets will, in the long run, probably turn out to have been good ones. He is said to have bet large sums that Europe would not let countries like Italy and Spain default. If that was right, then the elevated interest rates available on government bonds represented a phenomenal bargain.
And so it may be. But even it proves to play out just as Mr. Corzine forecasted, it won’t do MF, or Mr. Corzine’s reputation, any good.
Whatever is going to happen in the future, in the present sovereign bond prices have been sliding.
An unleveraged investor could have ridden out the current downturn, but MF, as is the fashion on Wall Street, was heavily leveraged. Its June 30 balance sheet showed $44.4 billion of liabilities and only $1.4 billion of equity. The firm was heavily dependent on short-term funding, with less than half a billion in long-term debt. That meant the firm was vulnerable if the value of its holdings fell, or if its lenders simply got nervous and demanded more collateral to back the loans.